As we previously shared in this blog, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) issued an opinion letter in November 2018 changing the Department’s position regarding whether and when an employer with tipped employees, such as a restaurant, can pay an employee a tipped wage less than the federal minimum wage.

The issue was whether an employer must pay a tipped employee the full minimum wage for time spent performing what the industry calls “side work”: tasks such as clearing tables or filling salt and pepper shakers that do not immediately generate tips.

The Department concluded that, under federal law, there is no limit on the amount of time a tipped employee can spend on side work while still receiving a tipped wage so long as the employee also performs the normal tip-generating activities of the role at or around the same time. The Department indicated that the opinion letter supersedes the Department’s prior guidance on the topic, contained in section 30d00(f) of the WHD Field Operations Handbook (“FOH”), and that “[a] revised FOH statement will be forthcoming.”

On February 15, 2019, the Department issued two new guidance documents reflecting the Department’s updated enforcement position:

  • First, a revised FOH section 30d00(f) consistent with the November 2018 opinion letter now appears on WHD’s website.
  • Second, Acting WHD Administrator Keith Sonderling issued Field Assistance Bulletin No. 2019-2 explaining the reasons for the change in policy, including noting that the Department’s “prior interpretation created confusion for the public about whether” the law “requires certain, non-tipped duties to be excluded from the tip credit.” This bulletin instructs WHD’s staff to apply the revised FOH principles not only to work performed after the issuance of the opinion letter but also “in any open or new investigation concerning work performed prior to the issuance of WHD Opinion Letter FLSA2018-27 on November 8, 23018.” (Emphasis added.)

This new guidance finishes what the November 2018 opinion letter set in motion—removing the prior interpretation from the FOH, promulgating the current interpretation, and declaring that the current position applies both prospectively and retroactively.

Joining California and New York, New Jersey has become the third state with a phased-in $15 minimum wage requirement for most employees. On February 4, 2019, Governor Phil Murphy signed into law A15 (“Law”), which raises the state minimum wage rate for employers with six or more employees to $10.00 per hour on July 1, 2019, and then to $11.00 per hour on January 1, 2020. Thereafter, the minimum wage will increase annually on January 1 by $1.00 per hour until it reaches $15.00 per hour on January 1, 2024. The minimum wage hike will phase in at a slower rate for employers with five or fewer employees and for “seasonal employers” (defined below). Thus, the current minimum wage of $8.85 per hour will increase as follows: ­­

Date of Increase in Minimum Wage Rate

Minimum Wage Rate for Employers with 6 or More Employees

Minimum Wage Rate for “Small Employers” (those with 5 or fewer employees) and Seasonal Employers

July 1, 2019

$10.00 $8.85 (no change)

January 1, 2020

$11.00 $10.30

January 1, 2021

$12.00 $11.10

January 1, 2022

$13.00 $11.90
January 1, 2023 $14.00

$12.70

January 1, 2024 $15.00

$13.50

January 1, 2025 $15.00 + inflation adjusted*

$14.30

January 1, 2026 $15.00 + inflation adjusted*

$15.00**

*As a result of a state constitutional amendment passed in 2013, the minimum wage rate after 2024 will increase for this group based on the inflation rate at the time (and the federal minimum wage rate, if higher).

** The Law provides for further annual inflation adjustments to the minimum wage after 2026 for seasonal workers and employees of small employers so that by January 1, 2028, workers in those groups will receive the same minimum wage as employees of larger employers.  …         

Read the full Advisory online.

The Third Circuit Court of Appeals ruled that a federal statute that governs interstate trucking does not preempt the application New Jersey’s ABC test for distinguishing between employees and independent contractors.

In Bedoya v. American Eagle Express Inc., New Jersey-based delivery drivers for AEX alleged that the company misclassified them as independent contractors rather than employees in violation of the New Jersey Wage and Hour Law and the New Jersey Wage Payment Law. AEX moved to dismiss the drivers’ claims as preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”), which regulates air carriers and motor carriers. The District Court for the District of New Jersey denied the motion, and the issue proceeded to the Third Circuit on interlocutory appeal.

The ABC test is New Jersey’s method of determining whether a worker is an employee or an independent contractor for purposes of the Wage and Hour Law and the Wage Payment Law.  Under that test, a company has the burden of proving independent contractor status by demonstrating that:

A. the worker is free from control or direction over the performance of his or her services; and

B. the services provided are either outside the usual course of the company’s business, or the services are performed outside of the company’s places of business; and

C. the worker has an independently established business.

N.J. Stat. Ann. § 43:21-19(i)(6)(A)-(C) (“ABC test”).

The Third Circuit explained that Congress enacted the FAAAA and the Airline Deregulation Act of 1978 to deregulate the air and motor carrier industry, “maxim[ize] reliance on competitive market forces,” and “level the playing field” between air carriers and motor carriers. To prevent state laws from interfering with that goal, the FAAAA provides that (with limited exceptions) a state “may not enact or enforce a law, regulation, or other provision . . . related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). The Third Circuit further noted that there is a presumption against preemption because “the historic police powers of the States” are “not to be superseded . . . unless that was the clear and manifest purpose of Congress.”

In determining whether the FAAAA preempts a state law, courts consider whether the law’s effect on carrier prices, services, or routes is (a) direct or indirect and (b) significant or insignificant. The Third Circuit pointed out that “garden variety employment claims” often evade FAAAA preemption because they are “too remote and too attenuated” from carrier prices, services, or routes.

To assess the directness of a law’s effect on prices, routes, or services, courts examine factors such as whether the state law: (1) mentions a carrier’s prices, routes, or services; (2) specifically targets carriers as opposed to all businesses; and (3) addresses the carrier-customer relationship (rather than, for example, the relationship between the carrier and its workers). The Third Circuit concluded that New Jersey’s ABC test does not directly affect prices, routes, or services largely because the test does not mention carrier prices, routes, or services, does not single out carriers, and does not regulate carrier-customer interactions

To assess whether a law has a significant effect on a carrier’s prices, routes, or services, courts consider whether: (1) the law binds a carrier to provide or not provide a particular price, route, or service; (2) the carrier has various avenues to comply with the law; and (3) the law creates a patchwork of regulation that erects barriers to entry, imposes tariffs, or restricts the goods a carrier may transport. Courts also will consider whether the legislative history indicates that Congress believed that the state law did not regulate prices, routes, or services. The Third Circuit focused on the fact that New Jersey’s ABC test did not bind carriers to using employees to make deliveries, but rather allows carriers to continue to choose between independent contractors and employees. Therefore, the impact of the state law on the AEX’s operations was not significant.

The Third Circuit distinguished New Jersey’s ABC test from the Massachusetts ABC test at issue in Schwann v. FedEx Ground Package System, Inc., 813 F.3d 429 (1st Cir. 2016). The second prong of the Massachusetts ABC test limited independent contractor status to individuals who performed work that is “outside the usual course of the business of the employer.” Under that criterion, carriers could never hire independent contractor drivers to make deliveries, because deliveries are within the carrier’s usual course of business and therefore defeat independent contractor status. For that reason, the First Circuit Court of Appeals ruled in Schwann that the second prong of the Massachusetts law was preempted by the FAAAA.

In contrast to the Massachusetts law, the second prong of the New Jersey law requires either that services be provided outside the usual course of the company’s business or that the services are performed outside of the company’s places of business. Therefore, it is possible under the New Jersey ABC test for a carrier’s drivers to be independent contractors.

Because the effect the New Jersey ABC test has on prices, routes, or services with respect to the transportation of property is “tenuous and insignificant,” the Third Circuit concluded that the FAAAA does not preempt the New Jersey statutory test.

On February 4, 2019, a divided panel of the California Court of Appeal issued their majority and dissenting opinion in Ward v. Tilly’s, Inc.  It appears to be a precedent-setting decision in California, holding that an employee scheduled for an on-call shift may be entitled to certain wages for that shift despite never physically reporting to work.

Each of California’s Industrial Welfare Commission (“IWC”) wage orders requires employers to pay employees “reporting time pay” for each workday “an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work.”

In Ward, the plaintiff alleged that when on-call employees contact their employer two hours before on-call shifts, they are effectively “report[ing] for work” and thus are owed reporting time pay.  The employer disagreed, arguing that employees “report for work” only by physically appearing at the work site at the start of a scheduled shift.  That is, the Ward employer argued that employees who merely call in and are told not to come to work are not owed reporting time pay.

Two justices of the California Court of Appeal took a public policy-centric position and agreed with the employee’s view of the law, concluding “that the on-call scheduling alleged in th[at] case triggers Wage Order 7’s reporting time pay requirements” because “on-call shifts burden employees, who cannot take other jobs, go to school, or make social plans during on-call shifts – but who nonetheless receive no compensation from [the employer] unless they ultimately are called in to work.”

After concluding that it is not clear from the phrase “report for work,” whether that means a requirement that the employee be physically present at the work site or whether it may also mean “presenting himself or herself in whatever manner the employer has directed, including, as in th[at] case, by telephone, two hours before the scheduled start of an on-call shift,” the Ward majority considered other methods of statutory construction.  After considering other cases where statutes were enacted before developing technologies, the Ward majority concluded that “Wage Order 7 does not reference telephonic reporting, nor is there evidence that the IWC ever considered whether telephonic reporting should trigger the reporting time pay requirement.”

After rejecting the Ward employer’s interpretation of “report for work,” the Ward majority announced a new interpretation for the reporting time pay requirement of California’s IWC wage orders:

“If an employer directs employees to present themselves for work by physically appearing at the workplace at the shift’s start, then the reporting time requirement is triggered by the employee’s appearance at the job site.  But if the employer directs employees to present themselves for work by logging on to a computer remotely, or by appearing at a client’s job site, or by setting out on a trucking route, then the employee “reports for work” by doing those things.  And if . . . the employer directs employees to present themselves for work by telephoning the store two hours prior to the start of a shift, then the reporting time requirement is triggered by the telephonic contact.”

The Hon. Anne H. Egerton dissented in Ward, concluding that the “legislative history of the phrase ‘report for work’ reflects the drafters’ intent that – to qualify for reporting time pay – a retail salesperson must physically appear at the workplace: the store.”  Supporting that conclusion, Justice Egerton cited a federal district court decision made by the Hon. George Wu, where he concluded that a court’s “fundamental task in interpreting Wage Orders is ascertaining the drafters’ intent, not drawing up interpretations that promote the Court’s view of good policy,” and held that “call-in shifts do not trigger reporting-time penalties, even if the scheduling practice is inconvenient and employee-unfriendly.”

Given the well-reasoned dissent, this may be a case for the California Supreme Court to review.  In the interim, however, the Ward majority is arguably the precedent in California.

Following Ward, entities doing business in California will want to review their on-call scheduling and payment practices.

On February 1, 2019, the U.S. Department of Labor publicly designated Keith Sonderling as Acting Administrator of the Wage and Hour Division (“WHD”).  He joined WHD in September 2017 as a Senior Policy Advisor, receiving a promotion to Deputy Administrator last month.  Before joining the Department, he was a shareholder in the Gunster law firm in West Palm Beach, Florida, where he represented businesses in labor and employment matters.

During his time with WHD, Sonderling has been a strong proponent of the agency’s Payroll Audit Independent Determination program (known as “PAID”), which under certain circumstances allows employers to self-report violations to WHD and to make the workers whole in exchange for a release.  He has also led numerous public listening sessions for stakeholders to express their views about the forthcoming revisions to the regulations implementing the executive, administrative, and professional exemptions to the minimum wage and overtime requirements of the Fair Labor Standards Act (the “FLSA”).

Sonderling steps into the role vacated last month by Bryan Jarrett, who led WHD since October 2017.  President Trump nominated Cheryl Stanton to serve as Administrator of WHD in September 2017, and she continues to wait for a confirmation vote in the Senate.

WHD enforces the minimum wage, overtime, and child labor provisions of the FLSA, as well as the Family & Medical Leave Act and several prevailing wage statutes applicable to federal government contracts, among other laws.

On January 24, 2019, Governor Cuomo’s office issued a press release announcing a new proposal to be included in the 2020 Executive Budget aimed at cracking down on wage theft and bolstering the State’s efforts to hold accountable employers who attempt to improperly withhold wages. This proposal would increase the criminal penalties for employers who either knowingly or intentionally commit wage theft violations to bring them in line with other forms of theft.

Presently, only employers who commit repeated wage theft can be prosecuted with a felony. The proposed legislation will amend the New York Labor Law to provide for criminal penalties for employers who knowingly steal wages, with criminal penalties ranging from a Class B misdemeanor for wage theft less than $1,000 to a Class B felony for wage theft exceeding $50,000. Notable effects of the proposal will be the enhancement of the New York State Department of Labor’s ability to make referrals for criminal prosecution to District Attorneys and the Attorney General, as well as the increased likelihood that wage theft violations will be prosecuted as crimes. In addition, the enhanced penalties may deter employers and thus reduce future occurrences of wage theft.

In Bernstein v. Virgin America, Inc., a district court in California has ordered Virgin America to pay more than $77,000,000 in damages, restitution, interest and penalties for a variety of violations of the California Labor Code. The award is the latest example of the tremendous amount of damages and penalties that can be awarded for non-compliance with California’s complex wage and hour laws.

In 2016, the Bernstein Court granted the plaintiffs’ motion for class certification, certifying a class of California-based flight attendants who had been employed since March 2011.

Then in June 2018, the Court granted the plaintiffs’ motion for summary judgment, finding that Virgin America was liable for failure to pay for all hours worked, failure to pay overtime, failure to provide meal and rest breaks, failure to provide accurate wage statements claims and failure to pay for all wages due upon termination, triggering waiting time penalties. Because it granted summary judgment on these claims, the Court also found that Virgin America was liable on the plaintiffs’ claims under California’s Unfair Competition Law (“UCL”) and Private Attorneys’ General Act (“PAGA”).

Having determined that Virgin America was liable, the only issue left to resolve was damages and penalties. Last week the Bernstein Court awarded a staggering amount of damages to the certified class. The Court awarded the plaintiffs $45,337,305.29 in damages and restitution as a result of Virgin America’s unpaid wage, overtime and meal and rest period violations. It also imposed wage statement and waiting time penalties in the amount of $6,704,810. The Court awarded the class $3,552.71 per day in interest, assessed since October 25, 2018. And the Court imposed $24,981,150 in civil penalties under PAGA – an amount that reflected a 25% reduction from the maximum available.

In total, the penalties imposed against Virgin America made up more than 40% of the amount awarded to the employees. Although the company intends to appeal a number of the Bernstein Court’s rulings, the enormous award serves to emphasize the need for employers to take steps to ensure compliance with state wage and hour laws. That is particularly so in California, where penalties alone often exceed the damages assessed.

On January 17, 2019, New Jersey Governor Phil Murphy and legislative leaders announced an agreement to raise New Jersey’s minimum wage to $15 an hour by 2024. Under the agreement, and presuming enactment, effective July 1, 2019, the state’s minimum wage for most workers will increase from $8.85 to $10 an hour; thereafter, it will increase $1 an hour every January 1 until reaching $15 on January 1, 2024.

For seasonal workers and employees of small businesses (i.e., five or fewer workers), the ramp-up to $15 an hour would extend to 2026. For farmworkers, the base minimum wage would increase incrementally to $12.50 by January 1, 2024. Then, a special committee would review to determine whether to raise the farmworkers’ minimum wage to $15 an hour. …

Read the full Advisory online.

For years, EBG’s free wage-hour app has put federal, state and local wage-laws at your fingertips.

One of the most significant developments in wage-hour law in recent years has been the implementation of new state and local minimum wages, many of which just went into effect on January 1, 2019.

EBG’s free wage-hour app includes those new 2019 minimum wages.

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On January 15, 2019, the U.S. Supreme Court issued a unanimous decision in New Prime Inc. v. Oliveira, a case concerning the enforceability of arbitration agreements.

Petitioner New Prime Inc. (“New Prime”) is an interstate trucking company that engaged Dominic Oliveira to perform work as a driver pursuant to an “Independent Contractor Operating Agreement,” containing both an arbitration clause and a delegation clause giving the arbitrator authority to decide threshold questions of arbitrability.

Oliveira filed a putative class action against New Prime in federal court in Massachusetts alleging failure to pay truck drivers minimum wage pursuant to the Fair Labor Standards Act and Missouri and Maine labor laws. New Prime filed a motion to compel arbitration under Section 4 of the Federal Arbitration Act (“FAA”). In response, Oliveira argued that New Prime cannot compel arbitration because Section 1 of the FAA excludes “contracts of employment of . . . seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” commonly known as the transportation workers exclusion.

The district court determined that although the parties agreed to arbitrate gateway questions of arbitrability, the applicability of the transportation worker exclusion is not a question of arbitrability that the parties may delegate to an arbitrator. The court concluded that the exclusion does not extend to independent contractors and therefore ordered the parties to conduct discovery as to whether Oliveira was an independent contractor or an employee.

On appeal, the First Circuit agreed that applicability of the transportation worker exclusion is an “antecedent determination” that must be made by the court before arbitration can be compelled under the FAA. However, the First Circuit overturned the district court’s holding that the exclusion does not apply to independent contractors, relying on the ordinary meaning of the statutory phrase “contracts of employment” at the time Congress enacted the FAA.

The Supreme Court focused on two legal issues:

  1. Should a court determine whether a Section 1 exclusion to the FAA applies before ordering arbitration where the parties’ contract contains a delegation clause?
  2. Does the transportation worker exclusion apply to independent contractors as well as employees?

The Court answered both inquiries in the affirmative. On the question of arbitrability, the Court reasoned that courts do not have limitless power to compel arbitration of all private contracts. Rather, Section 2 of the FAA states that such power is limited to arbitration agreements involving commerce or maritime transactions, which is informed by Section 1. Thus, in order to properly assert its power to compel arbitration, a court must first determine whether the FAA applies to the contract at issue. The Court rejected the proposition that courts are barred from making this threshold determination when the parties’ contract contains a delegation clause, emphasizing that a delegation clause is “merely a specialized type of arbitration agreement,” enforceable only to the extent that the “involving commerce” requirement under Section 2 of the FAA is satisfied and the exclusion under Section 1 is inapplicable.

On the merits of the New Prime’s Section 1 challenge, the Court looked to the meaning of “contracts of employment” as that phrase was used at the time the FAA was adopted in 1925. The Court sought to avoid ascribing new meaning to “old statutory terms” in a way that would effectively and improperly amend legislation. The Court looked at dictionary entries from the time for this phrase and, in finding none, concluded that the phrase was not a term of art and was construed broadly to cover any “work,” not just work in a formal employer-employee relationship. The Court found further support for this conclusion in early twentieth-century case law and statutes that construe this phrase to cover work agreements involving independent contractors. The Court also noted that Section 1’s statutory text also includes—in close proximity to the phrase “contract of employment”—the term “workers” (i.e., “workers engaged in interstate commerce”). Finally, the Court refused to stray from the statutory text in favor of indiscriminately enforcing the policy behind the FAA, concluding that even a liberal federal policy favoring arbitration agreements has limits, and that courts must respect such limits.

While the New Prime decision is being heralded by some as a great victory to employees, likely because it is the first Supreme Court decision in years to ultimately reject a claim for arbitration, its impact on employers and employees appears to be rather limited in scope. First, the Court took no position as to whether Oliveira was an independent contractor or an employee, as Oliveira assumed for purposes of appeal that his contract established only an independent contractor relationship. Second, the Court did not affirmatively find that Oliveira qualified as a “worker[] engaged in . . . interstate commerce,” as again, the parties did not dispute this point. Third, the Court declined to address New Prime’s argument that courts have inherent authority to stay litigation in favor of the alternative dispute resolution of parties’ voluntary agreement.

Most importantly, the Court’s decision in no way broadens the transportation workers exclusion to cover workers in other industries. The decision does not curtail earlier rulings in which the Court construed Section 1’s language “any other class of workers engaged in . . . commerce” as excluding from the FAA only contracts of employment of transportation workers. Nothing in New Prime suggests that the Court would now deviate from this position. Although there is no longer a distinction between employee and independent contractor for purposes of Section 1, New Prime does not allow all contractors to suddenly bypass arbitration and vindicate their rights in court because this exception is limited to transportation workers.

The Court’s decision resolves only questions of federal law, meaning that courts presented in the future with arbitration agreements involving transportation workers will need to determine the enforceability of the agreements under state law. This issue will turn on state arbitration statutes, as well as contract law, public policy, and other considerations. Significant variation by jurisdiction seems likely.