On December 7, 2018, Governor Andrew M. Cuomo signed into law an amendment to New York Labor Law (“NYLL”) Section 193 (“NY Wage Deduction Law”) extending the NY Wage Deduction Law, which had expired on November 6, 2018, until November 6, 2020.

Introduced in 2012, the NY Wage Deduction Law amended the NYLL to permit employers to make certain deductions from the wages of their employees, including deductions for accidental overpayments, salary advances (including advances of vacation time), and insurance premiums. The NY Wage Deduction Law also introduced rules regulating the scope and limitations on such deductions, as well as the required authorization that employers must obtain from employees prior to making a deduction.

Additional information about the regulations pertaining to wage deductions under the NY Wage Deduction Law is provided in Epstein Becker Green’s Act Now Advisory titled “New York Wage Deduction Rules Extended for Three Years.”

Read the full Advisory online.

In recent years, a growing number of states and localities have enacted unique minimum wage laws and ordinances entitling employees to be paid more – in some cases, substantially more – than the federal minimum wage, which has stood at $7.25 for nearly a decade.

As these minimum wages become more particularized, multi-jurisdictional employers face an increasing challenge to maintain compliance.

Below is an overview of notable increases slated to take effect on January 1, 2019, unless otherwise noted.

Please note that, at this late date, the 2019 minimum wage remains the subject of debate in several jurisdictions, including Michigan, where the modification of a bill in December 2018 has stirred controversy as it awaits executive signature.

Minimum Wage Hikes Applicable in the States and Territories

   

Current

New

State

Categories
(if any)
Minimum Wage Tipped Minimum Wage Minimum Wage

Tipped Minimum Wage

Alaska $9.84 $9.89
Arizona $10.50 $7.50 $11.00 $8.00
Arkansas $8.50 $9.25
California 26 or more employees $11.00 $12.00
25 or fewer employees $10.50 $11.00
Colorado $10.20 $7.18 $11.10 $8.08
Delaware $8.25 $8.75
District of Columbia $13.25 $14.00
Florida $8.25 $5.23 $8.46 $5.44
Maine $10.00 $5.00 $11.00 $5.50
Massachusetts $11.00 $3.75 $12.00 $4.35
Minnesota Large employer (annual gross revenue of $500,000 or more) $9.65 $9.86
Large employer 90-day training wage $7.87 $8.04
Large employer youth wage (under 18 years of age) $7.87 $8.04
Small employer (annual gross revenue of less than $500,000) $7.87 $8.04
Missouri $7.85 $3.93 $8.60 $4.30
Montana $8.30 $8.50
New Jersey $8.60 $8.85
New York (effective December 31, 2018)* $10.40 $7.85 (when tips are $2.55 or more)

$8.85 (when tips are at least $1.55, but less than $2.55)

11.10 $8.40 (when tips are $2.70 or more)

$9.45 (when tips are at least $1.65 but less than $2.70)

Ohio** Employers with gross revenues equal to or exceeding $314,000 (previously $305,000) $8.30 $4.15 $8.55 $4.30
Employers with gross revenues less than $314,000 (previously $305,000) $4.15 $4.30
Rhode Island $10.10 $10.50
South Dakota $8.85 $4.43 $9.10 $4.55
Vermont $10.50 $5.25 $10.78 $5.39
Washington $11.50 $11.50 $12.00 $12.00

* The minimum wages identified herein with respect to New York State and its localities are the general minimum wages. Different rules apply to certain categories of employees within certain regions and industries, including hospitality and building services.   Employers in New York State should take extra care to consult the state or local rules that may apply within their industries.

** Employees under the age of 16 may be paid no less than the federal minimum wage.

Localized Minimum Wage Hikes

Current New
Locality Categories
(if any)
Minimum Wage Tipped Minimum Wage Minimum Wage

Tipped Minimum Wage

Arizona          
Flagstaff, AZ $11.00 $12.00
California          
Belmont, CA $12.50 $13.50
Cupertino, CA $13.50 $15.00  
El Cerrito, CA $13.60 $15.00  
Los Altos, CA $13.50 $15.00  
Mountain View, CA $15.00 $15.65  
Oakland, CA $13.23 $13.80  
Palo Alto, CA $13.50 $15.00  
Redwood City, CA N/A $13.50  
Richmond, CA+ Without specified medical benefits $13.41 $15.00  
With specified medical benefits $11.91 $13.50  
San Diego, CA $11.50 $12.00  
San Jose, CA $13.50 $15.00  
San Mateo, CA 501(c)(3) non-profit $12.00 $13.50  
Other businesses $13.50 $15.00  
Santa Clara, CA $13.00 $15.00  
Sunnyvale, CA $15.00 $15.65  
New Mexico          
Albuquerque, NM++ Specified benefits not provided $8.95 $5.35 $9.20 $5.50
Specified benefits provided $7.95 $5.35 $8.20 $5.50
Bernalillo County, NM $8.85 $9.05
Las Cruces, NM $9.20 $3.68 $10.10 $4.04
New York

(effective December 31, 2018)

NYC more than 10 employees $13.00 $9.80 (when tips are $3.20 or more)

$11.05 (when tips are at least $1.95, but less than $3.20)

$15.00 $11.35 (when tips are $3.65 or more)

$12.75 (when tips are at least $2.25, but less than $3.65)

NYC 10 or fewer employees $12.00 $9.05 (when tips are $2.95 or more)

$10.20 (when tips are at least $1.80, but less than $2.95)

$13.50 $10.30 (when tips are $3.30 or more)

$11.45 (when tips are at least $2.05, but less than $3.30)

Nassau, Suffolk, & Westchester Counties, NY $11.00 $8.30 (when tips are more than $2.70)

$9.35 (when tips are at least $1.65, but less than $2.70)

$12.00 $9.05 (when tips are more than $2.95)

$10.20 (when tips are at least $1.80, but less than $2.95)

Washington          
Seattle, WA+++ Small employer (500 or fewer employees) $14.00

(or $11.50, with difference made up in tips or benefits)

$15.00

(or $12.00, with difference made up in tips or benefits)

 
Large employer (501 or more employees) – with medical benefits $15.45

(or $15.00, with difference made up in benefits)

$16.00  
SeaTac, WA Hospitality and transportation employees $15.64 $16.09  
Tacoma, WA $12.00 $12.35  

+ An employer may pay employees $1.50 less than the minimum hourly wage provided that the employer pays at least $1.50 per hour, per employee, towards an employee medical benefits plan that allows employees to receive employer-compensated care from a licensed physician.

++ Employers may offer a lower minimum wage if they provide the employee with healthcare and/or childcare benefits equal to or greater than an annualized cost of $2,500.00.

+++ In 2019, the two-tier system in which employees that offer certain benefits may offer a lower minimum wage will no longer apply to large employers.

Featured on Employment Law This Week:  The Department of Labor (“DOL”) rolls back the 80/20 rule.

The rule prohibited employers from paying the tipped minimum wage to workers whose untipped side work—such as wiping tables—accounted for more than 20 percent of their time. In the midst of a federal lawsuit challenging the rule, the DOL reissued a 2009 opinion letter that states that the agency will not limit the amount of side work a tipped employee performs, as long as that work is done “contemporaneously” with the tipped work or for a “reasonable time” before or after that work. The letter was previously withdrawn by the Obama administration.

Watch the segment below and read our recent post.

Watch Paul DeCamp’s full segment here.

On December 4, 2018, New York City’s Taxi and Limousine Commission (“TLC”) voted to require ride-hailing companies operating in New York City to compensate its drivers who are treated as independent contractors, and not employees, on a per-minute and –mile payment formula, which will result in a $17.22 per hour wage floor.

This new rule is scheduled to take effect on December 31, 2018.

This new minimum wage for independent contractor drivers who operate vehicles on behalf of ride-hailing companies – including Uber, Lyft, Via, and Juno – will surpass the new $15 minimum wage for many New York City-based employees, which will also take effect on December 31, 2018.

This appears to be the first time a government entity has imposed wage rules on privately owned ride-hailing companies.

The main reason for this new requirement is that independent contractor drivers are often required to cover their own expenses that affects their hour wages.

Prior to this rule, ride-hailing app-based drivers were reportedly paid an average of $11.90 per hour (after deducting expenses), which resulted in drivers complaining of severe financial hardship. According to TLC Chair Meera Joshi, this rule would increase driver earnings by an average of $10,000 a year. Joshi also stated that traditional yellow taxicab drivers already earn on average at least $17.22 per hour pursuant to separate regulations.

The wage requirement is expected to have far-reaching repercussions, including:

  • Fare hikes by Uber that may result in customers using New York City yellow taxicabs and Boro Taxis, particularly given the rise of apps that allow riders to hail taxis from their phones, similar to Uber, Lyft, Via, and Juno.
  • Passage of similar minimum wage protections in other locales with a large population of ride-hailing drivers, such as San Francisco.
  • To avoid paying the higher wage prescribed by the rule, Uber, Lyft, Via, and Juno may consider reclassifying their for-hire vehicle drivers as employees, as the new minimum wage rule applies only to drivers who are independent contractors. However, it is anticipated that these companies will conclude that the others costs of employing drivers, such as providing employee benefits, would outweigh the costs of paying drivers the newly instituted minimum wage.

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.

_______________

[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.