It is not unusual for businesses at risk of employee theft to implement security screenings for employees as they exit the employer’s facilities.  Such screenings are especially common in industries where small, costly items could easily be slipped into a pocket or handbag – jewelry, smartphones, computer chips, etc.

In light of the California Supreme Court’s decision in Frlekin v. Apple, Inc., those security screenings now seem likely to lead to even more litigation wherein employees claim that they were not paid for their time spent waiting to be screened, at least in California.

We have written about security screening cases a few times before – e.g., here, here and here – because they are claims that often arise in wage-hour class actions in California.

Importantly, claims regarding security screenings are exceedingly rare under federal law following the United States Supreme Court’s decision in Integrity Staffing Solutions, Inc. v. Busk, holding that time spent awaiting bag checks was not compensable time under the Fair Labor Standards Act (“FLSA”).

But generally, California law has broader coverage than federal law concerning what constitutes “hours worked” for purposes of compensation.  And the California Supreme Court reaffirmed that broad coverage in Frlekin.

Frlekin has a long history.  As we wrote about more than four years ago, the significant part of the case started in federal court, where District Judge William Alsup granted summary judgment to Apple, concluding that the time spent in exit searches was not “hours worked” under California law because the searches were peripheral to the employees’ job duties and could be avoided if the employees chose not to bring bags to work.  The plaintiffs appealed to the Ninth Circuit, which then asked the California Supreme Court to decide whether such time is compensable.

The relevant California wage order applicable in FrlekinWage Order No. 7 – defines “hours worked” as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so[.]”

In Frlekin, the California Supreme Court held that the “time spent on the employer’s premises waiting for, and undergoing, required exit searches of packages, bags, or personal technology devices voluntarily brought to work purely for personal convenience by employees [is] compensable as ‘hours worked’” under California law concerning the mercantile industry.

In reaching that conclusion, the Court found that Apple’s “employer-controlled activity primarily serves the employer’s interests.  The exit searches are imposed mainly for Apple’s benefit by serving to detect and deter theft.  In fact, they are an integral part of Apple’s internal theft policy and action plan.  The exit searches burden Apple’s employees by preventing them from leaving the premises with their personal belongings until they undergo an exit search – a process that can take five to 20 minutes to complete – and by compelling them to take specific movements and actions during the search.”

The Court also made broad observations regarding compensability, reaffirming that “‘[t]he level of the employer’s control over its employees, rather than the mere fact that the employer requires the employees’ activity, is determinative’ concerning whether an activity is compensable,” and also “emphasiz[ing] that whether an activity is required remains probative in determining whether an employee is subject to the employer’s control.  But, at least with regard to cases involving onsite employer-controlled activities, the mandatory nature of an activity is not the only factor to consider.”  That is, “courts may and should consider additional relevant factors – including, but not limited to, the location of the activity, the degree of the employer’s control, whether the activity primarily benefits the employee or employer, and whether the activity is enforced through disciplinary measures – when evaluating such employer-controlled conduct.”

Significantly, the Court expressly stated that its ruling applies retroactively.  This means that even if an employer doing business in California were to revise its exit search policy today in light of Frlekin, it may still be subject to a claim for unpaid wages, with the relevant statutes of limitations reaching back as far as four years.

In light of Frlekin, California employers should reexamine their policies and practices to determine whether they place any off-the-clock control similar to that determined to be compensable in Frlekin.

It’s no secret that many employers have employees sign arbitration agreements with class and collective action waivers in the hopes of avoiding the massive wage-hour lawsuits that have become so prevalent in the past two decades.

Nor is it any secret that, following the U.S. Supreme Court’s decision in Epic Systems affirming that such agreements can be valid, even more employers have chosen to use them with their workforces.

But, in discussing with clients whether to implement such agreements, lawyers worth their salt have always told their clients this: “Be careful what you wish for because there is always the possibility that you could be hit with hundreds or thousands of individual arbitrations – and you will have to pay for each of them.”

That is because in jurisdictions like California, employers must pay all of the arbitration fees except for the filing fee itself.

They must pay the administrative fees, which typically are about $2,000 per case.

And they must also pay the fees of the arbitrator, who is often a retired judge.

From experience, the arbitrator’s fees alone for a single case are typically about $60,000, at least in California.

That, of course, does not even take into account the employer’s legal fees to defend the case or the potential exposure.

As you can see, an individual arbitration can be expensive for an employer.

Hundreds or thousands of them, at $60,000 apiece, could be back-breaking.

Knowing this, when faced with arbitration agreements with class action waivers, it’s not unusual for plaintiffs’ counsel to threaten to initiate hundreds or thousands of individual arbitrations in order to force an employer to agree to forego trying to enforce the agreements and instead defend – and settle — a class or collective action in court.

Most of the time, those threats are just that – threats.

But sometimes they are more than that, as food delivery company DoorDash has learned.

In a proposed class action lawsuit in the United States District Court for the Northern District of California alleging that DoorDash misclassified drivers as independent contractors, the named plaintiffs had arbitration agreements with class action waivers.  So, too, did most, if not all, of the company’s other drivers.

More than 5,700 of those drivers wished to pursue individual arbitrations before the American Arbitration Association (“AAA”).

Faced with administrative fees alone of more than $12 million from AAA, DoorDash chose not to pay the fees, and AAA closed the matters.  Typically, that would result in the cases being litigated in court, where DoorDash would escape having to pay those administrative fees, much less the arbitrators’ fees for those cases.

That was when plaintiffs’ counsel turned the tables, filing a motion to compel DoorDash to conduct more than 5,700 individual arbitrations pursuant to the terms of its own arbitration agreements.

DoorDash’s strategy to try to escape the arbitration to which it had agreed by not paying the fees to AAA did not sit well with Judge William Alsup.

In sometimes harsh language in which he spoke of the “hypocrisy” of DoorDash trying to enforce the arbitration agreements when it suited the company but avoid arbitration when it did not,  Judge Alsup ordered DoorDash to conduct individual arbitrations for 5,010 of its drivers, excluding the remaining 700-plus drivers for technical reasons.

Let me save you from doing the math.  If you assume that the company were to have to pay $60,000 in arbitrator fees for each of the 5,010 individual arbitrations, the arbitrators’ fees alone would be more than $300 million.

It seems highly unlikely that DoorDash would agree to pay such sums, and more likely that it will either try to find a way to appeal the order or resolve the claims on a classwide basis before the arbitrations commence.

Whatever happens next, and whatever the ultimate outcome, Judge Alsup’s order should be read by all employers that have implemented arbitration programs or are considering doing so because it succinctly demonstrates how employers must “be careful what they wish for” when it comes to such agreements.

As we recently wrote here, Uber and Postmates (and two of their drivers) to file an eleventh-hour lawsuit seeking to enjoin the enforcement of California’s controversial new independent contractor law – known as AB 5 – against them.

In a significant blow to the challenge to the companies’ challenge to the new law, the court has denied Uber and Postmates’ request for a preliminary injunction to block the enforcement of AB 5 against them.

In denying the request for a preliminary injunction, the court concluded that Uber and Postmates were not likely to succeed on the merits of their various constitutional challenges to the statute, and that they had failed to demonstrate that they would suffer irreparable harm.

The court found that the companies had offered no evidence showing that the Legislature could not have reasonably conceived that AB 5 would further the state’s interest in reducing the misclassification of workers as independent contractors such that they were likely to succeed on their equal protection clause challenge.  And the court rejected the argument that there is no rational basis for AB 5’s exemptions, under which an individual who directly sells products is exempted from the scope of AB 5, while an individual who earns income by offering driving services is not.  In considering the rationale for AB 5’s exemptions, the court found that exempted workers, such as direct salespersons, exert independence and control in performing their jobs.

The court also rejected the companies’ argument that AB 5 deprives gig economy workers of the right to pursue their chosen occupation.

The ruling does not signal the end of the case, or of Uber, Postmates and other companies’ challenges to AB 5.  Should they not succeed in the trial court, an appeal is likely. But perhaps more importantly, ride-share and delivery companies have reportedly earmarked more than $110 million to a campaign to have California voters exclude them from application of AB 5 in a referendum to take place later this year.

As previously discussed, Colorado has taken steps to increase the salary threshold for employees that fall under the “white collar” exemptions, following in the footsteps of Alaska, California, New York, Maine, and Washington State – and the federal Department of Labor. On January 22, 2020, the Colorado Department of Labor adopted the final Colorado Overtime and Minimum Pay Standards Order #36 (“COMPS Order”), which makes significant changes for both exempt and non-exempt employees. Most provisions become effective March 16, 2020, with the exception of the increased salary thresholds, which begin on July 1, 2020.

Under the COMPS Order, which goes into effect on March 16, 2020, there will be an increase in salary thresholds for exempt employees, surpassing the threshold provided by federal law. Below is an annual breakdown of the minimum salary for Colorado employees, with the first changes effective beginning July 1, 2020 (which differs slightly from a previously proposed breakdown we discussed in our last post):

Date

Minimum Salary Threshold

  July 1, 2020   $684.00 per week ($35,568 per year)
  January 1, 2021   $778.85 per week ($40,500 per year)
  January 1, 2022   $865.38 per week ($45,000 per year)
  January 1, 2023   $961.54 per week ($50,000 per year)
  January 1, 2024   $1,057.69 per week ($55,000 per year)
  January 1, 2025   The 2024 salary adjusted by the same   Consumer Price Index as the Colorado   Minimum Wage

The COMPS Order also imposes changes for non-exempt employees. The prior wage and hour rules applied only to employees in certain industries (including the retail, commercial, food & beverage, and health & medical industries); the COMPS Order will cover all employees in Colorado, unless a specific exclusion applies. Among those excluded employees are (i) in-residence workers, (ii) interstate transportation workers, (iii) owners or proprietors who are full-time employees “actively engaged in managing the business” and own at least a bona fide 20% equity interest in the employer, and (iv) work-study students.

This expansion means that all non-exempt employees will be subject to Colorado’s daily overtime, meal, and rest break rules.  Colorado’s overtime rule requires overtime for hours worked in excess of (i) 12 hours per workday, (ii) 12 consecutive hours regardless of the start and end time of the workday, or (iii) 40 hours per workweek, whichever results in a greater payment for the employee. Colorado’s meal break rule requires a 30-minute uninterrupted break for shifts exceeding 5 hours, which, to the extent practical, must be at least one hour after the shift begins and one hour before the shift ends. Colorado’s rest break rule generally requires a 10-minute rest period for each 4 hours of work, or major fraction thereof, which to the extent practical must be in the middle of each 4 hour work period. Additionally, the COMPS Order adds new components to Colorado’s break time rule, by allowing for employers and employees to enter into certain agreements concerning break time and clarifying that employees who are not permitted the required 10-minute rest period for each four hours of work will receive an additional 10 minutes of compensation.

Additional changes provided in the COMPS Order concern the employee notification and posting requirements. With respect to posting, every employer must display a COMPS Order poster published by the Division of Labor Standards and Statistics (“Division”), unless the workplace conditions make physical posting impractical, in which case employers may distribute it to employees upon hire and must make the COMPS Order available to employees upon request. The poster is not yet available, so employers should monitor the Division’s poster website. Employers who provide a handbook or policies to their employees must include a copy of the COMPS Order or poster in the handbook or policies.  Further, if the employer requires acknowledgment of the handbook or policies, the employer must at the same time or promptly thereafter include a copy of the COMPS Order or poster and have the employee sign an acknowledgment of being provided with the COMPS Order or poster.  Employers with any employees who have limited English language abilities must provide those employees with a version of the COMPS Order and poster in Spanish (if applicable to the employee) or contact the Division to request such materials in the appropriate language.

Employers in Colorado should evaluate their employees’ exemption status to ensure compliance with state and federal requirements in anticipation for the July 1, 2020 changes, and revise their handbooks and acknowledgment procedures for the March 16, 2020 effective date.

As we wrote here, United States District Court Judge Kimberly J. Mueller of the Eastern District of California wrote a brief “minute order” explaining that she was issuing a preliminary injunction to halt enforcement of California’s controversial anti-arbitration law, known as 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.

As she had indicated she would do, Judge Mueller has now issued a more detailed order explaining her decision to enjoin enforcement of the statute.

In her order, Judge Mueller found that the business groups that had filed suit were likely to prevail on their argument that AB 51 is preempted by the Federal Arbitration Act (“FAA”).  And she found that, absent an injunction, AB 51 would cause irreparable harm to business groups not only by affecting the California employment market, but by exposing businesses to criminal charges.

It seems highly unlikely that this order will be the death of the controversial statute.  Instead, it appears likely that the attorney general will appeal the decision to the Ninth Circuit Court of Appeal – and that whichever side is on the losing end there will seek review by the United States Supreme Court.

We will continue to monitor the developments on this issue.

Most employers are well aware that employees must be paid on a “salary basis” to be considered exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”). This means employees must receive the same amount of pay each week regardless of the amount or quality of work they perform for a given week. Accordingly, exempt employees must be paid their full weekly salary for any week in which they perform work, whether or not the employee has actually worked a full work week. See 29 C.F.R. § 541.602(a)(1).

One issue that may fly under the radar, however, is which deductions from an exempt employee’s pay are permissible.

Of course, deductions are permitted for items such as taxes, Social Security, and certain benefits like medical insurance. Beyond that, the ability to deduct from an exempt employee’s pay is limited to specific situations governed by the FLSA and its regulations. See 29 C.F.R. § 541.602(b).

Permissible Deductions

Employers are permitted to make deductions from an exempt employee’s pay for the following reasons:

  • Absences of one or more full days due to personal reasons other than sickness or disability (deductions for partial days are not allowed)
  • Absences of one or more full days due to illness or disability (including work-related accidents) if the employer has a bona fide plan, policy or practice of providing compensation for salary lost due to such illness or disability (g., paid sick time policy, short-term disability benefits, etc.), even if the employee has yet to qualify under the plan or has exhausted the benefits under the plan (deductions for partial days are not allowed)
  • To offset amounts employees receive as jury or witness fees, or for military pay (but deductions due to full or partial day absences for serving as a juror or witness or taking temporary military leave are not permitted)
  • Penalties imposed in good faith for infractions of safety rules of major significance, such as rules related to the prevention of serious danger in the workplace or to other employees (both full and partial days)
  • Unpaid disciplinary suspensions of one or more full days imposed in good faith for violations of workplace conduct rules, such as harassment and violence, but not rules governing absences, work quality, cash shortages, and damaged equipment (deductions for partial days are not allowed)
  • Absences under the Family and Medical Leave Act (both full and partial days)
  • During the initial or final week of employment, if the employee works less than a full week (both full and partial days)

Impermissible Deductions

In addition to the limitations described above, employers are also not permitted to take deductions for the following reasons:

  • Holidays
  • Business closures for less than a full week (such as for weather, emergencies, or lack of work)
  • Poor job performance

The Consequences of Making Improper Deductions

Employees can lose exempt status if the improper deductions demonstrate that the employer did not intend to pay the employee on a salary basis. If the employer is found to have a practice of making improper deductions, the exemption will be lost during the time period in which the improper deductions were made for all employees in the same job classification who work for the same manager(s) responsible for the improper deductions.  In such case, the employees would be classified as non-exempt and the employer would be required to pay for all hours worked, any overtime incurred, and potentially face penalties.

Fortunately for employers, there is a safe harbor when improper deductions are isolated or inadvertent, provided the employer reimburses the employee. See 29 C.F.R. §§ 541.603(c).  In circumstances where employers believe an improper deduction has been made, they should consult with counsel to ensure the correct steps are being taken to rectify the situation.

Final Considerations

Since violating the rules governing permissible deductions from exempt employees’ pay can lead to costly consequences, employers should take caution when deducting pay from an exempt employee’s salary. Additionally, employers should always confirm whether there are state or local laws governing exemption status under state or local wage and hour laws, in addition to ensuring compliance under the FLSA.

The California Legislature’s attempt to circumvent both the Federal Arbitration Act (“FAA”) and the Supreme Court’s landmark decision in Epic Systems by crafting a new law prohibiting California employers from requiring employees to enter into arbitration agreements is off to a rocky start in the courts, to say the least.

As discussed below, a federal court has issued a preliminary injunction enjoining enforcement of California’s controversial new anti-arbitration statute known as AB 51.  Barring some new development, it now appears clear that the statute cannot be enforced for the foreseeable future, and that its ultimate fate will be in the hands of the Ninth Circuit Court of Appeals and, perhaps, the United States Supreme Court.

As we recently wrote, in an action filed by a number of business groups challenging the statute as being preempted by the FAA, United States District Court Judge Kimberly J. Mueller issued a temporary restraining order (“TRO”) on December 29, 2019, to enjoin enforcement of AB 51, just days before it was to take effect.

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 issuing the TRO, Judge 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.

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

After further briefing, Judge Mueller has now issued a preliminary injunction to enjoin enforcement of the new law. Her minute order indicates that a fuller order explaining her reasoning will be forthcoming.

The next step for the fate of AB 51 certainly appears to be the Ninth Circuit Court of Appeals.  And as Judge Mueller herself originally stated, it may end up in the United States Supreme Court.

As we have written here, the day before California’s controversial AB 5 was set to go into effect, U.S. District Court Judge Roger Benitez issued a temporary restraining order to block enforcement of the law as to approximately 70,000 independent truckers.

Subsequently, Judge Benitez granted a preliminary injunction to prevent enforcement of the statute to those truckers.

In reaching his decision, Judge Benitez concluded that, as to independent truckers, the Federal Aviation Administration Authorization Act preempts AB 5.

The preliminary injunction is a significant victory for the California Trucking Association – and another blow to the hastily passed statute that is being attacked left and right.

The matter is far from resolved.  California’s attorney general and the Teamsters, who intervened in the lawsuit, have already announced that they intend to appeal the ruling to the Ninth Circuit. Whatever the Ninth Circuit decides, that could just be the next step before the matter ultimately reaches the United States Supreme Court.

We will continue to monitor developments in the case.

On Thursday, January 16, 2020, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) published in the Federal Register the much-anticipated Final Rule regarding joint employer status under the Fair Labor Standards Act.  This rule completes the rulemaking process initiated in early April of last year, when WHD published its Notice of Proposed Rulemaking (“NPRM”), which we discussed here.

The new standards reflected in the Final Rule become effective, barring court action in the interim, on March 16, 2020.  This interval of just 342 days from publication of the NPRM to effective date of the Final Rule is in line with WHD’s efforts in recent months to move quickly to complete rulemakings well in advance of any potential change in administration.

The Final Rule largely tracks the NPRM, though with a number of interesting clarifications, including the following:

  1. Deleting the reference to Skidmore v. Swift & Co., 329 U.S. 134 (1944), thereby potentially giving litigants greater flexibility to argue regarding the degree of deference that courts should give the Final Rule (§ 791.1);
  2. Modifying the second of the four factors relevant to joint employment in the simultaneous beneficiary context to clarify that the focus is on whether a person “[s]upervises and controls the employee’s work schedule or conditions of employment to a substantial degree” (§ 791.2(a)(1)(ii) (emphasis added to show the language added in the Final Rule));
  3. Adding a new section expanding on the meaning of “employment records” (§ 791.2(a)(2));
  4. Modifying the role of reserved rights by replacing the original statement that “[t]he potential joint employer’s ability, power, or reserved contractual right to act in relation to the employee is not relevant for determining joint employer status” with the following verbiage: “The potential joint employer’s ability, power, or reserved right to act in relation to the employee may be relevant for determining joint employer status, but such ability, power, or right alone does not demonstrate joint employer status without some actual exercise of control. Standard contractual language reserving a right to act, for example, is alone insufficient for demonstrating joint employer status.”  (§ 791.2(a)(3)(i) (emphases added));
  5. Adding a new section addressing indirect control (§ 791.2(a)(3)(ii));
  6. Adding a fourth example of factors that are not relevant to the joint employer analysis because they address economic dependence: “The number of contractual relationships, other than with the employee, that the potential joint employer has entered into to receive similar services.” (§ 791.2(c)(4));
  7. Clarifying that labor organizations and their officers and agents are ordinarily not joint employers (§ 791.2(d)(1));
  8. Replacing the original statement that “[t]he potential joint employer’s business model—for example, operating as a franchisee—does not make joint employer status more or less likely under the Act” with a more specific statement: “Operating as a franchisor or entering into a brand and supply agreement, or using a similar business model does not make joint employer status more likely under the Act.” (§ 791.2(d)(2));
  9. Clarifying the proposed language and adding a new section addressing the role of various types of contractual arrangements that do not make joint employer status more likely (§ 791.2(d)(3)-(4)); and
  10. Changing several of the illustrative examples, including:
    1. Replacing the fourth proposed example with two new examples that illustrate a comparable principle but reach opposite conclusions (§ 791.2(g)(4)-(5);
    2. Changing a significant fact in the fifth proposed example to make the scenario a closer call (§ 791.2(g)(6));
    3. Adding a new example (§ 791.2(g)(7)); and
    4. Adding new facts to supplement the eighth and ninth proposed examples (§ 791.2(g)(9)-(10)).

This rulemaking has unfolded at the same time as the National Labor Relations Board (“NLRB”) and the Equal Employment Opportunity Commission (“EEOC”) consider regulations to address joint employment under the National Labor Relations Act and Title VII.  The NLRB published a joint employer NPRM in September 2018, and the current Unified Agenda of Federal Regulatory and Deregulatory Actions — fall 2019 (issued on November 20, 2019) indicates December 2019 as a target date for a Final Rule.  That same regulatory agenda indicates, for the first time under the present administration, that the EEOC is planning to issue a joint employer NPRM shortly, having likewise stated a December 2019 target date.

For WHD’s joint employer rule, the next significant test will come in the courts, as parties either challenge the rule directly or else urge the courts to follow or to reject it in the course of wage and hour litigation.

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).