In its first installment of opinions letters in 2020, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) addressed two issues under the Fair Labor Standards Act (“FLSA”): (i) the salary basis requirements in the context of per-project compensation arrangements and (ii) calculation of overtime pay for employees who receive nondiscretionary lump-sum bonus payments earned over time and not tied to a specific period.  (A third letter, FMLA2020-1-A, considered FMLA requirements vis-à-vis public employees.)  While neither of these FLSA opinion letters addresses controversial or novel issues, they offer useful guidance to employers facing similar scenarios and helpfully reiterate general principles of broad applicability.

The Salary Basis Requirements

As background, in order for an employee to qualify for the white-collar exemptions, he or she must satisfy the duties test and be paid “on a salary or fee basis.”  29 C.F.R. §§ 541.200(a)(1), -.300(a)(1).  An employee paid on a salary basis receives a predetermined amount each pay period that meets the minimum salary threshold and is not subject to reduction based on the employee’s performance.  29 C.F.R. § 541.602.  In contrast, an employee paid on a fee basis receives “an agreed sum for a single job regardless of the time required for its completion[,]” and that job must be “unique.”  29 C.F.R. § 541.605(a).

In FLSA2020-2, the WHD analyzed whether two per-project compensation arrangements met the salary basis requirements.  Under the first arrangement, an educational consultant tasked with developing a curriculum for teaching literacy for its school district client received $80,000 in 20 biweekly installments, regardless of the number of hours worked in any specific week, for working up to 80 hours per week for a 40-week period.  Under the second arrangement, the same educational consultant received an additional $6,000 in four $1,500 biweekly payments for designing and conducting five teacher workshops over an eight-week period, with payment subject to increases depending on variations in the number of additional projects assigned.  The WHD found that the first arrangement satisfies the salary basis requirement, and the second arrangement satisfies the salary basis requirement as “extra” compensation pursuant to 29 C.F.R. § 541.604(a).  Regarding the latter, the WHD advised that an employer can provide an exempt employee extra compensation on any basis for hours worked beyond the normal work week—here, beyond the scope of the first project.

Importantly, the WHD cautioned that while employers and employees can change the scope of a project, thereby increasing or decreasing the employee’s bi-weekly payment, frequent revisions of this nature resulting in consistently varying biweekly compensation may indicate that the amount of the payment is, in fact, actually based on the quantity or quality of the work performed, in contravention of the salary basis requirements.

Nondiscretionary Lump-Sum Bonuses

In FLSA2020-1, an employer solicited guidance from the WHD on how to calculate overtime payments for employees who are eligible to receive a lump-sum bonus of $3,000 if they successfully complete ten weeks of training and agree to continue to train for an additional eight weeks, even if they ultimately complete only one of the additional eight weeks of training.

As an initial matter, the WHD advised that the employer must include the lump-sum bonus in the employees’ regular rate of pay because it is an inducement for employees to complete the ten-week training and must allocate the bonus to the initial ten-week training period because the additional training is not required to retain the bonus.  29 C.F.R. § 778.211(c).  For bonuses that cover more than one pay period, the regulations describe two ways to allocate bonuses: (i) dividing the bonus amount by the total number of workweeks in the period or (ii) dividing the bonus by the hours worked in the time period covered by the bonus (which can result in allocating various amounts of bonus money across the different workweeks).  29 C.F.R. § 778.209(b).  The WHD preferred the former method here because “there are no facts provided which would make it inappropriate to assume equal bonus earnings per workweek.”  Finally, the employer must calculate the additional overtime pay due in those workweeks of the ten-week training period in which the employee worked more than 40 hours.  29 C.F.R. § 778.209(b).

As we recently wrote here, on December 29, 2019, just days before California’s new arbitration statute known as AB 51 was to go into effect, a federal judge in the United States District Court of the Eastern District of California granted a temporary restraining order (“TRO”) to enjoin enforcement of AB 51.

The new law, which was set to go into effect on January 1, 2020, would outlaw mandatory arbitration agreements with employees.

AB 51 would also prohibit arbitration agreements that would require individuals to take affirmative action to be excluded from arbitration, such as opting out.  The law would also appear to extend to jury waivers and class action waivers. And it would include criminal penalties.

In an action filed by a number of business groups, including the Chamber of Commerce, challenging the statute as being preempted by the Federal Arbitration Act (“FAA”), Judge Kimberly Mueller concluded that it would be disruptive if the statute went into effect for a brief period of time, only to have it later determined to be preempted.

Judge Mueller granted a TRO to keep the status quo in place until she conducted a preliminary injunction hearing on January 10, 2020.

During the January 10, 2020 hearing, Judge Mueller extended the TRO while she considers supplemental briefing to be submitted later this month on jurisdiction and standing issues.

And she acknowledged that the case could end up in front of the United States Supreme Court.

We will continue to monitor developments in this case.

As we recently wrote here, just hours before California’s controversial AB 5 went into effect, a federal court in San Diego issued a temporary restraining order (“TRO”) to enjoin enforcement of the independent contractor statute as to approximately 70,000 independent truckers, many of whom have invested substantial sums of money to purchase their own trucks and to work as “owner-operators.”

Now, days after a state court judge ruled that the statute does not apply to independent truckers, the federal court has extended the TRO while it decides whether to enter a preliminary injunction.

In the federal lawsuit, the California Trucking Association (“CTA”) has alleged that the “ABC” test set forth in AB 5 is preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”).

The CTA asserts that the FAAA preempts the “B” prong because it will effectively operate as a de facto prohibition on motor carriers contracting with independent owner-operators, and will therefore directly impact motor carriers’ services, routes, and prices, in contravention of the FAAA’s preemption provision.

The CTA further contends that the test imposes an impermissible burden on interstate commerce, in violation of the Commerce Clause of the U.S. Constitution.  The CTA asserts that the test would deprive motor carriers of the right to engage in the interstate transportation of property free of unreasonable burdens, as motor carriers would be precluded from contracting with a single owner-operator to transport an interstate load that originates or terminates in California.  Instead, motor carriers would be forced to hire an employee driver to perform the leg of the trip that takes place in California.

A ruling on the preliminary injunction should come shortly. We will continue to monitor the developments on this controversial law.

Following the challenges to AB 5, California’s controversial new independent contractor law, can be a difficult endeavor.  Every day seems to bring a new development.

We have written before about the hasty passage of the statute, about a ballot initiative to escape the scope of the law by ride-share and delivery companies, and challenges by independent truckers, freelance journalists and photographers, and ride-share and delivery companies.

While many were focused on whether a federal judge, who had already issued a temporary restraining order to enjoin enforcement of the new law as to independent truckers, would issue a preliminary injunction, state court judge William Highberger in Los Angeles issued his own ruling, concluding that AB 5 is preempted by the Federal Aviation Administration Authorization Act (“FAAA”) and does not apply to independent truckers in California.

Eyes will now turn back to the federal case, where a hearing on the request for a preliminary injunction will be held on January 13, 2020.  While Judge Highberger’s ruling is by no means binding on the federal court, the high regard in which he is held would certainly suggest that his analysis will be given significant weight.

And whatever happens on January 13, 2020, it is safe to say that this is just the beginning of a long process by which the hastily passed statute’s application to independent truckers will be analyzed by the courts.

As we wrote here recently, organizations representing freelance journalists and photographers filed suit seeking to enjoin enforcement of California’s controversial independent contractor statute, AB 5, as to them.

While they are not the only ones challenging the new law, their suit is not off to a promising start.

While a federal judge issued a temporary restraining order (“TRO”) to enjoin AB 5 as it applies to independent truckers,  U.S. District Court Judge Philip Gutierrez in Los Angeles denied the freelance journalists and photographers’ request for a TRO on January 3, 2020, criticizing them for waiting three months after the statute was passed before filing suit, which he said belied their claim that there was an emergency.

The ruling does not mean that the organizations representing the freelancers have lost their lawsuit, nor does it mean that Judge Gutierrez will not ultimately enjoin enforcement of AB 5 as to the freelancers.  However, it appears that at least until a preliminary injunction hearing in March 2020, the statute will apply to them.

With the start of the New Year, new state and local minimum wage increases have gone into effect for non-exempt employees across the country.

The chart below summarizes the new minimum wage rates that went into effect on January 1, 2020, unless otherwise indicated.  (More will take effect July 1, 2020.)

Jurisdiction Current Minimum Wage New Minimum Wage
Alaska $9.89 $10.19
Albuquerque NM (No Benefits) $9.20 $9.35
Albuquerque NM (Benefits) $8.20 $8.35
Arizona $11.00 $12.00
Arkansas $9.25 $10.00
Belmont CA $13.50 $15.00
California (≥ 26 employees) $12.00 $13.00
California (≤25 employees) $11.00 $12.00
Colorado $11.10 $12.00
Cupertino CA $15.00 $15.35
Daly City CA $12.00 $13.75
El Cerrito CA $15.00 $15.37
Flagstaff AZ $12.00 $13.00
Florida $8.46 $8.56
Illinois $8.25 $9.25
Las Cruces NM $10.10 $10.25
Los Altos CA $15.00 $15.40
Maine $11.00 $12.00
Maryland (≥ 15 employees) $10.10 $11.00
Maryland (≤ 14 employees) $10.10 $11.00
Massachusetts $12.00 $12.75
Menlo Park CA $12.00 or $11.00 $15.00
Michigan $9.45 $9.65
Minnesota $9.86 $10.00
Missouri $8.60 $9.45
Montana $8.50 $8.65
Mountain View CA $15.65 $16.05
New Jersey (≥ 5 employees) $10.00 $11.00
New Jersey (employers with fewer than 6 employees, agricultural employers, and seasonal employers) $8.85 $10.30
New Mexico $7.50 $9.00
Nevada (employees who receive qualified health benefits) $7.25 $8.00
Nevada (employees who do not receive qualified health benefits) $8.25 $9.00
New York (employers outside of NYC, Long Island, and Westchester County) $11.10 $11.80 (Effective 12/31/19)
New York (Fast Food) $12.75 $13.75 (Effective 12/31/19)
New York (Long Island & Westchester County) $12.00 $13.00 (Effective 12/31/19)
New York City (≤ 10 employees) $13.50 $15.00 (Effective 12/31/19)
Oakland CA $13.80 $14.14
Ohio $8.55 $8.70
Palo Alto CA $15.00 $15.40
Petaluma (≥ 25 employees) $12.00 $15.00
Petaluma (≤ 24 employees) $11.00 $14.00
Portland ME $11.11 $12.00
Redwood City CA $13.50 $15.38
Saint Paul MN (≥ 10,001 employees) $9.86 $12.50
San Diego CA $12.00 $13.00
San Jose CA $15.00 $15.25
San Mateo CA $15.00 $15.38
Santa Clara CA $15.00 $15.40
SeaTac WA $16.09 $16.34
Seattle WA (500+ employees) $16.00 $16.39
Seattle WA (≤ 500 employees) $15.00 $15.75
Sonoma CA (≥ 26 employees) $12.00 $13.50
Sonoma CA (≤ 25 employees) $11.00 $12.50
South Dakota $9.10 $9.30
South San Francisco $12.00 or $11.00 $15.00
Sunnyvale CA $15.65 $16.05
Tacoma WA $12.35 $13.50
Vermont $10.78 $10.96
Washington $12.00 $13.50

 

On January 1, 2020, California’s new independent contractor statute, known as AB 5, went into effect.  The law codifies the use of an “ABC” test to determine if an individual may be classified as an independent contractor.

The hastily passed and controversial statute has been challenged by a number of groups as being unconstitutional and/or preempted by federal law, including ride-share and delivery companies and freelance writers.

Just hours before AB 5 went into effect, a California federal court in San Diego enjoined enforcement of the statute as to some individuals – approximately 70,000 independent truckers, many of whom have invested substantial sums of money to purchase their own trucks and to work as “owner-operators.”

In the lawsuit, the California Trucking Association (“CTA”) has alleged that the “ABC” test set forth in AB 5 is preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”).

The CTA asserts that the FAAA preempts the “B” prong because it will effectively operate as a de facto prohibition on motor carriers contracting with independent owner-operators, and will therefore directly impact motor carriers’ services, routes, and prices, in contravention of the FAAA’s preemption provision.

The CTA further contends that the test imposes an impermissible burden on interstate commerce, in violation of the Commerce Clause of the U.S. Constitution.  The CTA asserts that the test would deprive motor carriers of the right to engage in the interstate transportation of property free of unreasonable burdens, as motor carriers would be precluded from contracting with a single owner-operator to transport an interstate load that originates or terminates in California.  Instead, motor carriers would be forced to hire an employee driver to perform the leg of the trip that takes place in California.

AB 5, California’s hastily passed and controversial independent contractor statute, which codifies the use of an “ABC test,” is set to go into effect on January 1, 2020.

Already, the California Trucking Association has filed suit challenging the statute.

As have freelance writers and photographers.

Now, it’s ride-share and delivery companies’ turn to file suit.

Those companies have already commenced the process to create a ballot initiative that would allow voters to decide whether to exempt ride-share and delivery drivers from the “ABC test.”

Now, on December 30, 2019 – just two days before AB 5 goes into effect – two of those companies (and two drivers) have filed suit in Los Angeles in the United States District Court for the Central District of California, seeking to enjoin AB 5 as it pertains to them.

In the complaint, they argue that AB 5 is an “irrational and unconstitutional statute designed to target and stifle workers and companies in the on-demand economy.”  They contend that the statute violates various provisions of the California Constitution, including the equal protection clause, the inalienable rights clause, and the due process clause.

The equal protection argument is particularly fascinating as the companies contend that “[t]here is no rhyme or reason to the[] nonsensical exemptions” that were granted at the eleventh hour to some industries and professions.

We will continue to monitor this action – and the other actions challenging AB 5.  Unless and until an injunction is issued, that statute will go into effect as planned, and companies that do business with independent contractors would be wise to review those relationships swiftly.

We recently wrote about a new California law set to go into effect on January 1, 2020 that would outlaw mandatory arbitration agreements with employees.

The new law, known as AB 51, would also prohibit arbitration agreements that would require individuals to take affirmative action to be excluded from arbitration, such as opting out.  The law would also appear to extend to jury waivers and class action waivers. And it would include criminal penalties.

An eleventh-hour court order will keep that statute from being enforced, at least for a few days.

On December 29, 2019, just days before AB 51 was to go into effect, a federal judge in the United States District Court of the Eastern District of California granted a temporary restraining order (“TRO”) to enjoin enforcement of AB 51.

In an action filed by a number of business groups, including the Chamber of Commerce, challenging the statute as being preempted by the Federal Arbitration Act (“FAA”), Judge Kimberly Mueller concluded that it would be disruptive if the statute went into effect for a brief period of time, only to have it later determined to be preempted.

The TRO will keep the status quo in place until Judge Mueller conducts a preliminary injunction hearing on January 10, 2020.

It is certainly possible that Judge Mueller will issue a preliminary injunction and, at a later date, a permanent injunction to prohibit enforcement of AB 51.

Of course, it is also possible that she will decline to convert the TRO into a preliminary injunction.

In the meantime, employers who were planning to implement new, AB 51-compliant arbitration agreements in California on January 1, 2020 – or to forego using arbitration agreements in California based on the statute — may want to hold off on doing so until Judge Mueller conducts that January 10, 2020 hearing.

We have written previously about California’s new statute, referred to as AB 5, which codifies and expands the “ABC test” for independent contractors set forth in Dynamex Operations West, Inc. v. Superior Court.

A California ballot initiative that would remove ride-share and delivery drivers from application of the “ABC test” is already underway.

And the California Trucking Association has filed suit challenging the statute.

Now, other organizations have challenged the statute. Specifically, organizations representing freelance writers and photographers have done so, challenging the provision that prevents an individual from submitting more than 35 pieces to a publication per year unless it employs him or her. Cal. Labor Code § 2750.3(c)(2)(B)(ix) and (x). They also challenge the provision that excludes video recording from the still photography and photojournalism exemption. Cal. Labor Code § 2750.3(c)(2)(B)(ix).

In the lawsuit known as American Society of Journalists and Authors, Inc., et al. v. Xavier Becerra, the American Society of Journalists and Authors (“ASJA”) and the National Press Photographers Association (“NPPA”) contend that provisions of AB 5 pertaining to writers and photographers unconstitutionally restrict free speech and the media. They contend that limiting the number of submissions a journalist can write for a single publication is unconstitutional because the same restrictions are not placed on similar professions, such as marketers, graphic designers and fine artists.

ASJA and NPPA allege that AB 5 harms their members by singling out freelance journalists for unique and significant burdens. By classifying their members as employees, AB 5 adds tax and insurance costs to the client-turned-employer, resulting in lost job opportunities, strips freelancers of their ownership of the copyright of their work, which they typically retain while licensing work to clients, and robs them of the flexibility and control over workload that they enjoy as freelancers.

ASJA and NPPA claim that the provisions of AB 5 that pertain to the 35-submission cap and the video recording exclusion to the exemption violate the Equal Protection Clause of the Fourteenth Amendment. By exempting marketers, graphic designers, grant writers, and fine artists from AB 5 while limiting photographers, photojournalists, freelance writers and editors to 35 content submissions per publisher per year, they contend AB 5 creates an irrational and arbitrary distinction among speaking professionals. They also contend that the provision excluding video recording from the still photography and photojournalism exemption creates an arbitrary distinction between similarly situated professions by allowing marketers, graphic designers, grant writers, and fine artists to record video as independent contractors, while requiring photographers and photojournalists who record video to be hired as employees.

Additionally, ASJA and NPPA contend that the 35-submission cap and video recording exclusion provisions violate their members’ First Amendment rights because the application of these provisions is based on the content of speech. If the speech constitutes marketing or graphic design, the 35-submission cap applies, but if the speech constitutes journalism or photography, it does not. Similarly, if the speech is in the form of video that is deemed fine art, the exemption applies, but if the speech is in the form of video that communicates news, the exemption does not.

The pending lawsuits and anticipated ballot initiative challenging AB 5 suggest that it could be some time before the law is settled on a statute that appears to have been hastily passed.  We will continue to monitor developments on this law. In the meantime, the law remains scheduled to go into effect in little more than a week, and companies that do business in California with persons previously considered independent contractors are running out of time to determine if and how to change these relationships.