Recently, a number of proposed class and collective action lawsuits have been filed on behalf of so-called “gig economy” workers, alleging that such workers have been misclassified as independent contractors. How these workers are classified is critical not only for workers seeking wage, injury and discrimination protections only available to employees, but also to employers desiring to avoid legal risks and costs conferred by employee status.  While a number of cases have been tried regarding other types of independent contractor arrangements (e.g., taxi drivers, insurance agents, etc.), few, if any, of these types of cases have made it through a trial on the merits – until now.

In Lawson v. GrubHub, Inc., the plaintiff, Raef Lawson, a GrubHub restaurant delivery driver, alleged that GrubHub misclassified him as an independent contractor in violation of California’s minimum wage, overtime, and expense reimbursement laws.  In September and October 2017, Lawson tried his claims before a federal magistrate judge in San Francisco.  After considering the evidence and the relevant law, on February 8, 2018, the magistrate judge found that, while some factors weighed in favor of concluding that Lawson was an employee of GrubHub, the balance of factors weighed against an employment relationship, concluding that he was an independent contractor.

The court’s decision was guided by the California Supreme Court’s multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989), which focuses on “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”  There are also a number of secondary factors.

Among other things, the court found that Grubhub did not control how Lawson made deliveries or what his appearance was during deliveries. GrubHub also did not require Lawson to undergo any training or control when or where Lawson worked – that is, Lawson had complete control of his schedule and territory.  And, Grubhub did not control how or when Lawson delivered the restaurant orders he chose to accept.  Whereas GrubHub controlled some aspects of Lawson’s work, such as determining the rates he would be paid, the court gave those minimal weight.  On balance, the court concluded that “the right to control factor weighs strongly in favor of finding that Mr. Lawson was an independent contractor.”

The court also considered the secondary factors under the Borello test.  Some secondary factors weighed in favor of an employment relationship – for example, Lawson’s delivery work was part of GrubHub’s regular business, the type of work did not require a significant amount of skill, and Lawson was not engaged in a distinct delivery business such that GrubHub was just one of his clients.  Yet, weighing all of the factors above, the court found that “Grubhub’s lack of all necessary control over [] Lawson’s work, including how he performed deliveries and even whether or for how long,” was paramount.

Lawson is certainly a welcome decision for companies hiring independent contractors to perform a part of their regular business.  Nevertheless, the court’s emphasis on the particulars of GrubHub’s relationship with Lawson, issues regarding Lawson’s credibility and the possibility that the California Supreme Court may moot this decision in Dynamex Operations West Inc. v. Superior Court (considering whether to replace Borello with a test that would make it easier for workers to show they are employees rather than independent contractors), argued just two days before the Lawson decision, mean that such companies should continue closely examining the manner in which they classify their workers.  Moreover, although Lawson should provide some support to relationships governed by California law, its impact in other jurisdictions may be negligible.  For now, employers should continue to keep in mind that there is no one deciding factor to determine whether someone performing work for a company is an employee or an independent contractor.  A number of factors must be considered.

Our colleagues Michael S. Kun, Jeffrey H. Ruzal, and Kevin Sullivan at Epstein Becker Green co-wrote a “Wage and Hour Self-Audits Checklist” for the Lexis Practice Advisor.

The checklist identifies the main risk categories for wage and hour self-audits. To avoid potentially significant liability for wage and hour violations, employers should consider wage and hour self-audits to identify and close compliance gaps.

Click here to download the Checklist in PDF format.  Learn more about the Lexis Practice Advisor.

This excerpt from Lexis Practice Advisor®, a comprehensive practical guidance resource providing insight from leading practitioners, is reproduced with the permission of LexisNexis. Reproduction of this material, in any form, is specifically prohibited without written consent from LexisNexis.

In Tze-Kit Mui v. Massachusetts Port Authority, Massachusetts’ highest court held that Massachusetts law does not require employers to pay departing employees for accrued, unused sick time within the timeframe prescribed for “wages,” as the term is defined by the Massachusetts Wage Act.

In reaching its decision, the Court analyzed the plain meaning of “wages” under the Act and concluded that the legislature did not intend that “wages” would include sick time. The decision removes a significant concern for Massachusetts employers who are strictly liable for treble damages — and can face criminal liability —  for failing to pay wages in a timely manner.

The case involved an employee Massachusetts Port Authority (“Massport”), who retired while disciplinary charges were pending against him.  Massport discharged the plaintiff for cause weeks after his retirement.  Following a grievance procedure, his discharge was overturned by an arbitrator who found that the plaintiff could not have been discharged because he had already retired.

The plaintiff had 2,232 hours of unused sick time at retirement. Since a discharged employee is not eligible for sick pay under Massport’s sick time policy, Massport did not pay the plaintiff for his unused sick time until after the arbitrator’s decision finding that he had retired prior to being discharged.  The payment occurred more than one year after the plaintiff’s retirement.

The plaintiff filed suit, seeking treble damages for alleged violations of the Massachusetts Wage Act. Under the act, an employer must pay wages or salary earned by a departing employee “in full on the following regular pay day.”  A discharged employee must be paid wages or salary earned “in full on the day of his [or her] discharge.”

The plaintiff argued that Massport had violated the act by failing to timely compensate him for his unused sick pay. The plaintiff’s motion for judgment on the pleadings in the Superior Court was granted.  Massport appealed, and the Massachusetts Supreme Judicial Court transferred the case from the Appeals Court.

In evaluating whether sick pay qualifies as wages under Massachusetts law, the Court looked to the plain language of the Act to discern legislative intent. The act defines “wages” to include “any holiday or vacation payments due an employee under an oral or written agreement,” but does not reference sick pay.  The Court declined to read sick pay into the definition where it had not been expressly included by the legislature.

In addition, the Court explained that vacation time is different from sick time. The crucial distinction is that sick time, as defined by Massachusetts law, can only be used if the employee or a family member is ill, whereas vacation time can be used for any reason.  The Court reasoned that, because employees do not have an absolute right to use sick time, Massachusetts law does not require employers to compensate employees for accrued, unused sick time, and employers can adopt “use it or lose it” sick time policies.  Since employers are not required by law compensate employees for unused sick time, the court concluded “such time is clearly not a wage under the act.”

Under its policy, Massport agreed to pay departing employees for accrued, unused sick time as long as the employee had worked at Massport for two years and had not been terminated for cause. The Court characterized this arrangement as a “contingent bonus.”  Commissions are the only contingent compensation considered wages under the act provided that they “ha[ve] been definitely determined and due and ha[ve] become payable to [the] employee.”  The Court declined to extend the definition of “wages” to include other types of contingent compensation.

Finally, the Court concluded that, under the circumstances of the case, it would have been impossible for Massport to comply with the Act. The issue of the plaintiff’s separation date was not resolved until the payment deadline provided by the Act had lapsed.  Because compliance would not have been possible in this case, interpreting the act to include sick pay as wages would lead to an absurd result.

While the decision is a favorable one for employers who do business in Massachusetts, given the significant liability that employers may incur for failing to comply with the Act, Massachusetts employers should confer with counsel when wage payment issues arise.

In a move allowing increased flexibility for employers and greater opportunity for unpaid interns to gain valuable industry experience, the United States Department of Labor (“DOL”) recently issued Field Assistance Bulletin No. 2018-2, adopting the “primary beneficiary” test used by several federal appellate courts to determine whether unpaid interns at for-profit employers are employees for purposes of the Fair Labor Standards Act. If interns are, indeed, deemed employees, they must be paid minimum wage and overtime, and cannot serve as interns without pay. The “primary beneficiary” test adopted by the DOL examines the economic reality of the relationship between the unpaid intern and the employer to determine which party is the primary beneficiary of the relationship. Unlike the DOL’s previous test, the “primary beneficiary” test allows for greater flexibility because no single factor is determinative.

Along with its announcement of this change, the DOL also issued a new Fact Sheet which sets forth the following seven factors that make up the “primary beneficiary” test:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

For more information on the DOL’s adoption of the “primary beneficiary” test and actions employers may want to take given this change, go to our Act Now Advisory on this topic.

As 2017 comes to a close, recent headlines have underscored the importance of compliance and training. In this Take 5, we review major workforce management issues in 2017, and their impact, and offer critical actions that employers should consider to minimize exposure:

  1. Addressing Workplace Sexual Harassment in the Wake of #MeToo
  2. A Busy 2017 Sets the Stage for Further Wage-Hour Developments
  3. Your “Top Ten” Cybersecurity Vulnerabilities
  4. 2017: The Year of the Comprehensive Paid Leave Laws
  5. Efforts Continue to Strengthen Equal Pay Laws in 2017

Read the full Take 5 online or download the PDF.

In 2017, a great many states and localities passed laws increasing minimum wages beginning on January 1, 2018. (Some passed laws that will be effective on July 1, 2018 or other dates.)

Below is a summary of the minimum wage updates (and related tipped minimum wage requirements, where applicable) that go into effect on January 1, 2018, unless otherwise indicated.

Current New
State Categories Minimum Wage Tipped Minimum Wage Minimum Wage Tipped Minimum Wage
Alaska $9.80 $9.84
Arizona $10.00 $7.00 $10.50 $7.50
California
26 or more employees $10.50 $11.00
25 or fewer employees $10.00 $10.50
Colorado $9.30 $6.28 $10.20 $7.18
Florida $8.10 $5.08 $8.25 $5.23
Hawaii $9.25 $8.50 $10.10 $9.35
Maine $9.00 $5.00 $10.00 $5.00
Michigan $8.90 $3.38 $9.25 $3.52
Minnesota
Large employer (annual gross revenue of $500,000 or more) $9.50 $9.65
Small employer (annual gross revenue of less than $500,000) $7.75 $7.87
Missouri $7.70 $3.85 $7.85 $3.925
Montana $8.15 $8.30
New Jersey $8.44 $6.31 $8.60 $6.47
New York (effective December 31, 2017)
NYC – more than 10 employees $11.00 $7.50* $13.00 $8.70
NYC – 10 or fewer employees $10.50 $7.50 $12.00 $8.00
Nassau, Suffolk, & Westchester Counties $10.00 $7.50 $11.00 $7.50
Remainder of State $9.70 $7.50 $10.40 $7.50
Ohio $8.15 $4.08 $8.30 $4.15
Rhode Island $9.60 $3.89 $10.10 $3.89
South Dakota $8.65 $4.325 $8.85 $4.425
Vermont $10.00 $5.00 $10.50 $5.25
Washington $11.00 $11.50

*Different rules apply based on certain industries, such as for food service, fast food (within New York City), and hospitality industries.

Current New
Location Categories Minimum Wage Tipped Minimum Wage Minimum Wage Tipped Minimum Wage
Arizona          
Flagstaff, AZ $10.50 $11.00
California          
Cupertino, CA $12.00 $13.50  
El Cerrito, CA $12.25 $13.60  
Los Altos, CA $12.00 $13.50  
Milpitas, CA $11.00 $12.00  
Mountain View, CA $13.00 $15.00  
Oakland, CA $12.86 $13.23  
Palo Alto, CA $12.00 $13.50  
Richmond, CA $12.30 $13.41  
Sacramento, CA 40 or more employees $10.50 $11.00  
San Jose, CA $12.00 $13.50  
San Mateo, CA  
501(c)(3) non-profit $10.50 $12.00  
Other businesses $12.00 $13.50  
Santa Clara, CA $11.10 $13.00  
Sunnyvale, CA $13.00 $15.00  
Maine          
Bangor, ME $8.25 $4.125 $9.00 $4.50
New Mexico          
Albuquerque, NM
No healthcare provided $8.80 $5.30 $8.95 $5.35
Health care provided $7.80 $5.30 $7.95 $5.35
Bernalillo County $8.70 $2.13 $8.85 $2.13
Washington          
Seattle, WA  
Small employer (500 or fewer employees) – without tips and/or medical benefits $13.00 $14.00  
Small employer (500 or fewer employees) – with tips and/or medical benefits $11.00 $11.50  
Large employer (501 or more employees) – without medical benefits $15.00 $15.45  
Large employer (501 or more employees) – with medical benefits $13.50 $15.00  
Tacoma, WA $11.15 $12.00  

 

 

Our colleague Steven M. Swirsky at Epstein Becker Green has a post on the Management Memo blog that will be of interest to our readers: “NLRB Reverses Key Rulings: Returns to Pre-Obama Board Test for Deciding Joint-Employer Status and for Determining Whether Handbooks, Rules and Policies Violate the NLRA – Assessment of 2014 Expedited Election Rules and Future Changes Also Announced.”

Following is an excerpt:

It should come as no surprise that recent days have seen a stream of significant decisions and other actions from the National Labor Relations Board as Board Chairman Philip A. Miscimarra’s term moves towards its December 16, 2017 conclusion.  Chairman Miscimarra, while he was in a minority of Republican appointees from his confirmation during July 2013 and as a new majority has taken shape with the confirmation of Members Marvin Kaplan and William Emanuel, has clearly and consistently explained why he disagreed with the actions of the Obama Board in a range of areas, including the 2015 adoption of a much relaxed standard for determining joint-employer status in Browning-Ferris Industries, the standard adopted in Lutheran Heritage Village for determining whether a work rule or policy, whether in a handbook or elsewhere would be found to unlawfully interfere with employees’ rights under Section 7 of the National Labor Relations Act to engage concerted action with respect to their terms and conditions of employment, and his disagreement with the expedited election rules that the Board adopted through amendments to the Board’s election rules. …

In Hy-Brand Industrial Contractors Ltd. and Brandt Construction Co., decided on December 14, 2017, in a 34-2 decision, the Board has discarded the standard adopted in Browning-Ferris, and announced that it was returning to the previous standard and test for determining joint-employer status and returning to its earlier “direct and  immediate control standard.”  …

In The Boeing Company, also decided on December 14, 2017, the Board adopted new standards for determining whether “facially neutral workplace rules, policies and employee handbook standards unlawfully interfere with the exercise” of employees rights protected by the NLRA. …

Noting that the 2014 Election Rules were adopted over the dissent of Chairman Miscimarra and then Member Harry Johnson, and the fact that these rules have now been effect for more than two years, on December 14th, the Board, over the dissents of Members Mark Pearce and Lauren McFerren, both of who were appointed by President Obama, published a Request for Information, seeking comment …

Read the full post here.

Federal regulations have long provided that employees whose wages are subject to a tip credit must retain all tips they receive, with the exception that customarily tipped employees — i.e. front-of the-house service employees — are permitted to share in tips received.

In 2011, the U.S. Department of Labor (“DOL”) amended its tip regulations to limit tip pool participation to front-of-the-house employees regardless of whether a tip credit was applied to their wages.

Employers and hospitality industry advocacy groups reacted by filing lawsuits throughout the country challenging the DOL’s rulemaking authority to extend the scope of tip pooling restrictions to employees whose wages were not subject to a tip credit.

There is currently a circuit split over the validity of the DOL’s 2011 regulation.

In Oregon Restaurant and Lodging Association v. Perez, the Court of Appeals for the Ninth Circuit found that the Fair Labor Standards Act (“FLSA”) does not expressly set forth requirements for employers that do not apply a tip credit against employees’ wages, therefore the DOL is authorized to interpret this absence in the statute through rulemaking.

In contrast, in Marlow v. The New Food Guy, Inc., the Tenth Circuit rejected the 2011 regulation, finding that the DOL is not vested with such rulemaking authority, thus employers may distribute tips to both tip-earning and non-tip-earning employees, e.g. cooks and dishwashers, to the extent a tip credit is not applied to employees’ wages.

The National Restaurant Association has requested the Supreme Court of the United States to hear an appeal of the Ninth Circuit case.  The request is currently pending.

Acknowledging that it may have exceeded its rulemaking authority and in light of the pending petition to the Supreme Court, on December 4, 2017, the DOL issued a Notice of Proposed Rulemaking (“NPRM”) to rescind the portion of the 2011 regulation requiring tip pool compliance with respect to employees whose wages are not subject to a tip credit.  If finalized, this rule would permit employers to regulate tip pooling without restriction as long as employers do not apply a tip credit against its employees’ wages (or if employees are paid at least the current $7.25 federal minimum wage in states that maintain higher minimum wage thresholds and permit the taking of a tip credit).

In its NPRM Fact Sheet, the DOL explained that the proposed rule would allow employers to distribute customer tips to larger tip pools that include non-tipped workers, such as cooks and dishwashers, which would likely increase the earnings of those employees who are newly added to the tip pool and further incentivize them to provide good customer service.

The DOL additionally cited as a benefit greater flexibility to employers in determining pay practices for tipped and non-tipped workers, as well as a reduction in wage disparities among employees who all contribute to the customers’ experience.  Some early critics of the NPRM have voiced concern that it gives employers the unrestricted ability to retain employees’ tips, which would be antithetical to the DOL’s stated purpose for the Rule.

It is important to keep in mind, however, that even if finalized, the NPRM would not preempt state or local laws or regulations that provide for more expansive employee rights regarding tip pooling.  For example, the NPRM would not result in any change in New York under its current regulations, which prohibit tip sharing with back-of-the-house employees.

The NPRM is currently subject to a 30-day comment period with a January 4, 2018 deadline, pursuant to which the DOL will review and consider all comments received before publishing the rule in its final form in the federal register.

In the interim, employers should review and determine whether it is feasible — and, if so, advantageous — to adjust its employees’ wage rates (including increasing front-of-the-house employees’ wage rates to the $7.25 minimum wage threshold or decreasing back-of-the-house employees’ wage rates to the federal minimum wage) and abandon the tip credit to allow for unrestricted tip pooling among all employees.  In addition to considering the potential economic benefits, employers should also consider the potential employee relations concerns in making any such adjustments, including the possibility that employees’ total compensation may decrease on account of any such potential changes.

As we have discussed previously, in early September the U.S. Department of Labor (“DOL”) withdrew its appeal of last November’s ruling from the Eastern District of Texas preliminarily enjoining the Department’s 2016 Final Rule that, among other things, more than doubled the minimum salary required to satisfy the Fair Labor Standards Act’s executive, administrative, and professional exemptions from $455 per week ($23,660 per year) to $913 per week ($47,476 per year).  The DOL abandoned its appeal in light of the district court’s ruling on August 31, 2017 granting summary judgment and holding that the 2016 increase to the salary level conflicted with the statute and thus was invalid, a ruling that rendered the appeal of the injunction moot.

On October 30, 2017, to the surprise of many observers, the DOL filed a notice of appeal regarding the district court’s summary judgment ruling, taking the case back to the U.S. Court of Appeals for the Fifth Circuit.   Four days later, the DOL filed an unopposed motion asking the Fifth Circuit to stay the appeal in light of the Department’s pending rulemaking to update the salary requirement.  On November 6, 2017, the Fifth Circuit granted the motion, staying the appeal pending the outcome of the new rulemaking.

The DOL’s maneuvers may appear confusing. In short, the district court’s summary judgment ruling causes a certain amount of heartburn for the Department because the court in effect concluded that although the DOL has the authority to require a minimum salary for these exemptions, there is a point beyond which the Department cannot go without having the salary level deemed invalid.  The court did not, however, provide a clear standard for identifying the outer limit of the Department’s authority to impose a salary threshold, and this uncertainty creates confusion and a risk of time-consuming and expensive litigation for the Department — and for employees and employers throughout the country.

By appealing the summary judgment ruling, the DOL preserves the option of challenging the decision rather than simply allowing it to remain on the books as a precedent.  Once the Department completes the rulemaking process and issues an updated salary standard, the likely final move would be for the Department to move to dismiss the litigation and to vacate the district court’s order on the basis that the challenge to the 2016 Final Rule has become moot.  Once the new rule is in place and the district court’s summary judgment ruling is no longer on the books, it will be as though the 2016 Final Rule never happened.

We will keep you posted as this matter develops.

Montgomery County, Maryland, where the minimum wage already is $11.50, is set to join two states (California and New York), the neighboring District of Columbia and at least six local jurisdictions (Flagstaff (Arizona), Los Angeles, Minneapolis, San Francisco, San Jose, SeaTac and Seattle) that have enacted legislation increasing the minimum wage for some or all private sector employees to $15 over the next several years.

On November 7, 2017 the Montgomery County Council unanimously passed Bill 28-17, which increases the minimum wage for “large employers” — those with 51 or more employees in the county — to $15.00 by July 1, 2021, with intermediate increases to $12.25 on July 1, 2018, $13.00 on July 1, 2019, and $14.00 on July 1, 2020.

The bill also increases the minimum wage to $15.00 by July 1, 2023 for “mid-sized employers,” those who (1) employ 11 to 50 employees; (2) have tax exempt status under IRC Section 501(c)(3) of the Internal Revenue Code; or (3) provide “home health services” or “home or community based services,” as defined under federal Medicaid regulations and receive at least 75% of gross revenues through state and federal medical programs.

The bill additionally increases the minimum wage to $15.00 by July 1, 2024 for “small employers” — those with 10 or fewer employee (including non-profits and Medicaid funded home health and home or community based service providers of that size) — with intermediate increases to $12.00 on July 1, 2018, $12.50 on July 1, 2019, $13.00 on July 1, 2020, $13.50 on July 1, 2020, $14.00 on July 1, 2022 and $14.50 on July 1, 2023.

Notably, the rates of increases  is considerably slower than in the neighboring District of Columbia, which is already at $12.50 and will reach $15.00 on July 1, 2020 for all private sector employers.

In addition, the bill includes an “opportunity wage” that allows payment of a wage equal to 85% of the County minimum wage to an employee under the age of 20 for the first six months of employment.

The bill further adopts provisions to automatically adjust the minimum wage rate (1) for large employers annually starting July 1, 2022 to reflect average increases in the CPI-W for Washington-Baltimore for the previous year, and (2) for mid-sized and small employers starting July 1, 2024 and 2025, respectively, to reflect the same CPI-W increase for the previous year, plus one percent of the previous year’s required minimum wage, up to a total increase of $0.50, until the rate is equal to the amount for large employers. An employer’s size is calculated as of the time it first becomes subject to the law, and it remains subject to the applicable schedule regardless of the number of employees employed in subsequent years.

In addition, the Director of Finance must make certifications by January 31 of each year from 2018 through 2022 regarding certain reductions in county private employment, negative growth in the gross domestic product, or whether the U.S. economy is in recession. If certain targets are for that year, for no more than two times.

The bill specifically addresses concerns the County Executive expressed in vetoing a prior version of the bill that passed by a narrow majority in January 2017, by postponing the prior effective dates for large and small employers by one and two years, respectively; increasing from 26 to 51 the number of employees required to be a larger employer; creating a new mid-size employer category of 11 to 50 employees and defining a small employer as one with ten or fewer employees; and adding non-profits and Medicaid funded home health and home health services providers with more than ten employees to the extended schedule for mid-size employers. The County Executive has stated that he will sign the bill.

Notably, it is likely that an effort will be made in the upcoming state legislative session to further increase the state minimum wage, already at $9.25 and set to go to $10.10 on July 1, 2018.