On September 8, 2020, a federal district court struck down the U.S. Department of Labor’s (“DOL”) Final Rule on joint employer liability, concluding that the Rule violated the Administrative Procedure Act (“APA”) by impermissibly narrowing the definition of joint employment under the Fair Labor Standards Act (“FLSA”), departing from the DOL’s prior interpretations on joint employment without adequate explanation, and otherwise being arbitrary and capricious.  We previously blogged about the details of the Final Rule here.  The DOL published the Final Rule in the Federal Register on January 16, 2020 with an effective date of March 16, 2020.

What is Joint Employment?

Joint employment is the principle that an individual worker can have multiple employers, all of which are potentially responsible for ensuring FLSA compliance.  The joint employment doctrine has a long and well-developed history, including numerous interpretative guidance documents issued by the DOL and a multitude of court decisions.  These various interpretations at their core have explained that a joint employment relationship is based on “economic reality” that takes into account various non-exclusive and non-dispositive circumstances surrounding the relationship between the worker and the putative joint employer.  Before the Final Rule, the DOL had instructed, and courts had likewise found, that while an employer’s formal or indirect right to “control” a worker in the workplace can be a contributing, or even independently decisive, factor in determining the existence of a joint employment relationship, it is not the only or necessarily dispositive factor.  Rather, the economic reality is based, in part, on a determination of whether a worker economically depends on a putative joint employer.

How Did the Final Rule Change the Analysis of Joint Employment?

The DOL posited two joint employment scenarios, what it describes as “vertical joint employment” and “horizontal joint employment.”  According to the Final Rule, vertical joint employment exists where the employee has an employment relationship with one employer, e.g., a staffing agency or subcontractor, whereas horizontal joint employment exists where the employee has employment relationships with multiple and related or associated employers.  The DOL in its Final Rule arguably departed from the economic reality analysis, adopting a four-factor balancing test for evaluating potential vertical joint employment relationships focused exclusively on control (derived from a Ninth Circuit decision in Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983)), which includes whether the putative joint employer (i) hires or fires the employer, (ii) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree, (iii) determines the employee’s rate and method of payment, and (iv) maintains the employee’s employment records.  The DOL has stated that it intended the Final Rule to provide clarity by casting a uniform joint employment standard to avoid disparate interpretations by circuit courts throughout the country.

What Was the Basis of the Lawsuit to Vacate the Final Rule?

In response to the Final Rule, certain jurisdictions, including New York, Pennsylvania, California, Colorado, Delaware, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, Washington, Vermont, Virginia, and the District of Columbia, filed suit to vacate it and to enjoin its implementation under the APA, which sets forth the procedures by which federal agencies are accountable to the public and their actions subject to review by courts.  Pursuant to the APA, agency actions, including rules, may be set aside if they are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.  The parties filed cross motions for summary judgment to decide the fate of the Final Rule.

U.S. District Judge Gregory Woods for the Southern District of New York found that the Final Rule’s changes to horizontal joint employer liability are severable, and that because the Final Rule makes only “non-substantive revisions” to existing law for horizontal joint employer liability, they can function independently from the changes to vertical joint employer liability.  Judge Woods, however, granted the Plaintiffs’ motion to vacate the Final Rule as it pertains to vertical joint employment.  The court found numerous infirmities, faulting the DOL’s application of different tests for “primary” and “joint” employment where the FLSA does not provide a separate definition of, or test to determine, joint employment.  Judge Woods further opined that the Final Rule’s test for joint employment is impermissibly narrow where the four factors are really just “a proxy for control,” which is inconsistent with the DOL’s previous interpretive guidance, as well as a significant body of case law.

Notably, Judge Woods acknowledged that an agency rule is “entitled to a measure of respect, and the weight accorded to such interpretations depends on their thoroughness, validity, consistency and power to persuade,” but then concluded that the DOL’s interpretation is “unpersuasive, [] conflicts with prior Department interpretations [,] . . . and, [i]n any event . . . contradicts the FLSA.”  In addition, Judge Woods held the Final Rule to be arbitrary and capricious because the DOL failed to adequately explain why it departed from its prior interpretations, failed to consider consistency within the DOL’s existing regulations, and did not adequately consider the Final Rule’s cost to workers.  On this last point, Judge Woods alluded to the DOL’s Notice of Proposed Rulemaking, in which the DOL provided that reducing the number of joint employers (through issuance of the Final Rule) would not affect the wages due employees because such employees could still recover the wages due from the employees’ primary employer.  Rejecting this proposition, Judge Woods commented that the DOL’s rationale is “silly” because taken to its logical conclusion, if (“primary”) employers always fulfill their legal obligations, then the Final Rule serves no purpose.

What Should Employers—or Potential Joint Employers—Do Now?

While it is unclear whether the DOL will appeal the Court’s decision or abandon the Final Rule and perhaps pursue new rulemaking, employers should be mindful that, for now, absence of control over workers will not automatically result in the avoidance of joint employer status.  Rather, courts will evaluate joint employment by considering the overall economic reality of the parties’ working relationships, which includes, but is not limited to workers’ economic dependence on putative joint employers.  Accordingly, it is important that putative joint employers carefully review their contractual relationships with third parties, such as staffing agencies or subcontractors, as well as the actual working relationships with the workers who are performing the work for the benefit of the putative joint employers to determine whether there is potential risk of an actual joint employment relationship.  In such cases, putative joint employers should ensure that they are acutely aware of the third party employer’s wage and hour practices with respect to the workers at issue to confirm that their practices are in compliance with the FLSA and state wage and hour laws and regulations.  Putative joint employers should also consider implementing contractual safeguards, such as representations and warranties with respect to direct employers’ wage and hour practices, as well as indemnification provisions, to further protect against potential joint employer liability.

At the end of August, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) issued four new opinion letters addressing various issues arising under the Fair Labor Standards Act (“FLSA”).  The topics covered include the retail or service establishment, highly compensated employee, and professional exemptions; reimbursing non-exempt employees for required use of a personal vehicle; and the fluctuating workweek method of calculating overtime pay.  These opinion letters offer a helpful overview of key FLSA principles and may answer fact-specific questions common to a number of employers.

FLSA2020-11

In Opinion Letter FLSA2020-11, the WHD addresses whether truck drivers who earn a 27 percent commission on gross revenue received by the private oilfield service company for each truck they drive to transport fluid waste from customer oilfields to disposal facilities in specially equipped trucks qualify for the FLSA’s retail or service establishment exemption.  These truckers work approximately 60 hours per week, scheduled as 12-hour shifts five days each week, and receive earnings exceeding one and one-half times the federal minimum wage.

The FLSA’s retail or service exemption applies to any employee (1) who works for a retail or service establishment, (2) whose regular rate of pay exceeds one and one-half times the federal minimum wage, and (3) whose earnings in a representative period of not less than one month consist of more than fifty percent commissions.  29 U.S.C. § 207(i).  To qualify as a “retail or service establishment,” a business must “engage in the making of sales of goods or services”; 75 percent of its sales of goods or services, or of both, must be recognized as retail in the particular industry; and not over 25 percent of its sales of goods or services, or of both, may be sales for resale.  29 C.F.R. § 779.313.

Because the truckers’ regular rate of pay meets the exemption threshold and their pay consists solely of commissions, the key issue is whether a private oilfield service company is a retail or service establishment within the meaning of the regulations.  The WHD ultimately concluded that the company may qualify as a retail or service establishment if its waste removal services are the same as those furnished to the general public and its services are recognized as retail within the waste-removal industry.  On the latter point, the WHD highlighted that on May 19, 2020, following numerous court challenges, the Department withdrew from its regulations a list of establishments that categorically could not qualify as a “retail or service establishment” under any circumstances because they lacked a retail concept, which had included “waste removal contractors.”  Going forward, the WHD made clear that the same retail concept analysis applies to all establishments—i.e., whether the establishment “sells goods or services to the general public,” whether it “serves the everyday needs of the community,” whether it “is at the very end of the stream for distribution,” whether it “dispos[es] in small quantities [its] products or skills,” and whether it “does not take part in the manufacturing process.”  29 C.F.R. § 779.318(a).

FLSA2020-12

As background, the FLSA requires covered employers to pay nonexempt employees at least the federal minimum hourly wage—“free and clear”—for all non-overtime hours worked in a workweek.  A employer violates the FLSA when it fails to reimburse an employee’s business-related expenses and the amount of the expense is sufficient, when treated as an indirect wage deduction, to drop the employee’s wages below the federal minimum wage.  29 C.F.R. §§ 531.35, 531.3(d), and 531.36(b).  A reimbursement to cover expenses incurred for the employer is sufficient if it “reasonably approximates the expenses incurred.”  In the context of required use of a personal vehicle, a reimbursement amount based on IRS guidelines, including the annual standard mileage rates, “is per se reasonable.” 29 C.F.R. § 778.217(a), (c).

In Opinion Letter FLSA2020-12, the WHD addresses the following questions: (i) whether employers comply with reimbursement requirements by reimbursing drivers for their actual expenses or a reasonable approximation thereof; (ii) whether the IRS’ annual standard mileage rates are the sole means to determine the “reasonably approximate expenses for business use of the driver’s personal vehicle; and (iii) whether employers may reimburse drivers who use their personal vehicles for deliveries only for variable expenses (e.g., gas, oil, and routine maintenance and repairs) or must also reimburse fixed vehicle expenses (e.g., registration fees, license fees, etc.) as well.

The WHD ultimately advised:

  • WHD regulations permit reimbursement of a reasonable approximation of employee expenses. 29 C.F.R. § 778.217(a), (b)(3).
  • The IRS business standard mileage rate, which is itself only an approximation of the expenses incurred to operate a vehicle, is optional, not required. 26 C.F.R. § 1.274-5(g), (j)(2); 29 C.F.R. § 778.217(a), (c)(2).  Other ways to approximate employees’ expenses for reimbursement are allowable as long as they reasonably approximate employees’ actual expenses.
  • Employers must reimburse employees for fixed vehicle expenses only to the extent that the employee uses the vehicle primarily for the benefit or his or her employer. (As noted above, the obligation to reimburse business expenses at all under the FLSA depends on whether the unreimbursed expenses would cause a minimum wage violation.  State wage and hour laws or contract principles may, of course, require reimbursement even in the absence of an FLSA violation.)  When an employee uses a vehicle for both personal and business purposes, an employer’s reimbursement obligation extends only to the variable expenses attributable to the employee’s use of the vehicle for the employer, such as the cost of gas, periodic maintenance, and depreciation of the vehicle attributable to the employee’s trips for the employer.

FLSA2020-13

Opinion Letter FLSA2020-13 addresses four discrete questions regarding the applicability of the learned professional exemption and the highly compensated employee test to part-time employees who provide corporate-management training and whose pay consists of a day rate plus additional hourly compensation.  The employees’ “delivery” work, which was almost exclusively part-time and paid at a flat daily rate of $1,500, primarily involved presenting an executive education program to clients, operating the program’s interactive models, and evaluating the results of participants’ activities.  The employees also occasionally performed “development” work creating new content and interactive models, for which the company paid them $50 per hour.  The employees received pay only during weeks in which they performed work.

As background, employees who qualify as “learned professionals” exempt from the FLSA’s overtime and minimum wage requirement must satisfy a three-part test:

  1. Salary Basis Test: The employer must pay the employee on a salary or fee basis, meaning that each pay period the employee must receive a fixed and predetermined amount that is all or part of the employee’s compensation, on a weekly or less frequent basis, that is not subject to reduction because of variations in the quantity or quality of work performed.  29 C.F.R. § 541.602(a).
  2. Salary Level Test: The salary must meet a specified minimum amount, e., at least $684 per week.  29 C.F.R. § 541.300(a)(1).
  3. Duties Test: The employee’s primary duty must be to perform work that requires either “knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction,” or “invention, imagination, originality[,] or talent in a recognized field of artistic or creative endeavor.” 29 C.F.R. § 541.300(a)(2).

As an alternative to this three-part test, an employee may qualify as an exempt “highly compensated employee” if he or she customarily and regularly performs at least one exempt executive, administrative, or professional duty and receives total annual compensation of at least $107,432, part of which includes a weekly salary or fee of at least $684.  29 C.F.R. § 541.601(a)-(b).

Applying these tests to the facts, the WHD concluded as follows:

  • Question 1: Are the employees’ primary duties those of learned professionals under 29 C.F.R. § 541.301?
    • Answer: Yes, the employees’ primary duties likely satisfied the duties test.  The job qualifications included advance knowledge in business finance and adult education; a master’s degree and/or Ph.D. in finance, accounting, adult learning, or “business discipline”; at least 10 years of practical business experience in an executive leadership role; and deep hands-on experience in various computer-based functions.
  • Question 2: Do the company’s flat day rate payments for delivery work satisfy the salary basis requirement of 29 C.F.R. § 541.300(a)(1) for the learned professional exemption?
    • Answer: No, because the payments for delivery work were not a predetermined amount calculated on a weekly or less frequent basis.  Instead, they fluctuated based on the number of days an employee performed delivery work, whereby an employee could earn $1,500 by working one day in one week and could earn over $10,000 by working seven days in another week.  The WHD referenced a Fifth Circuit case that addressed a similar question, in which the court held that the salary basis test requires that (1) an employee know the amount of his or her compensation for each weekly pay period before working that week, and (2) the employee must receive the full salary for any week in which he or she performs any work without regard to the number of days or hours worked.  The facts presented in the opinion letter satisfy neither of these requirements.
  • Question 3: Assuming the employees were otherwise exempt from the FLSA’s overtime pay requirements, would the hourly compensation for development work affect their status?
    • Answer: No, as long as the employee otherwise qualified as an exempt learned professional (e., he or she satisfied the salary and duties tests) without considering the development work payments, additional payments for each hour of development work on top of a fixed salary would not change the employee’s status.  (Here, however, the employees were not paid on a salary basis and therefore did not satisfy the premise of this question.)
  • Question 4: Can a part-time employee qualify as exempt if the employee’s pay for the number of weeks worked is proportional to the minimum annual amount required under the highly compensated employee test under 29 C.F.R. § 541.601?
    • Answer: No, because neither of the two components of the highly compensated employee test varies based on an employee’s part-time or full-time status.  The regulations governing the highly compensated employee test do not include any exception for part-time employees.  An employee may satisfy the test only by meeting the full weekly and annual compensation (e., at least $684 per week and $107,432 per year).

FLSA2020-14

In FLSA2020-14, the WHD addresses whether employees’ hours must fluctuate above and below 40 hours per week to qualify for the fluctuating workweek method of calculating overtime pay set forth at 29 C.F.R. § 778.114.  In short, the WHD opined that they do not; it is sufficient that the employees’ hours fluctuate only above 40 hours per week for an employer to use the fluctuating workweek method of calculating overtime pay.

Federal regulations set forth five criteria for use of the fluctuating workweek method of computing overtime pay owed to a nonexempt employee under the FLSA:

  1. The employee’s work hours fluctuate from week to week;
  2. The employee receives a fixed salary that does not vary with the number of hours worked;
  3. The amount of the fixed salary satisfies the applicable minimum wage rate for every hour worked in those workweeks in which the employee works the most hours;
  4. The employee and employer have a clear and mutual understanding that the fixed salary is compensation for the total hours worked each workweek regardless of the number of hours; and
  5. The employee receives, in addition to the fixed salary and any bonuses, premium payments, commissions, and other additional pay, compensation for all overtime hours worked at a rate of not less than one-half the employee’s regular rate of pay for that workweek.

29 C.F.R. § 778.114(a)(1)-(5).

The WHD explained that the plain language of the regulation makes clear that there is no requirement that an employee’s hours vary both above and below 40 per week to come within the rule; rather, it only requires that the hours fluctuate from week to week.  See 29 C.F.R. § 778.114(a)(1).  Further, section 778.114(d) states that the fixed salary “does not vary with the number of hours worked in the work, whether few or many,” supporting the conclusion that an employee’s weekly work hours could be more than or less than 40 hours, or both.  In addition, the WHD cautioned that an employer using the fluctuating workweek method may not deduct from an employee’s salary for absences, except an employer may take occasional disciplinary deductions for willful absences or tardiness or for infractions of major work rules, provided the deductions do not cut into the minimum wage or overtime pay.  29 C.F.R. § 778.114(d).

In a case of first impression for the Fifth Circuit Court of Appeals, a Fifth Circuit panel has ruled that it is the employee, not the employer, who has the burden to establish that bonus payments are non-discretionary and, therefore, must be included in the regular rate of pay for computation of overtime under the Fair Labor Standards Act (“FLSA”).  Joshua Edwards, et al. v. 4JLJ LLC, et al., Case Number 19-40553 (5th Cir. September 3, 2020).

Under the FLSA, a non-exempt employee’s regular rate is the hourly rate actually paid to that employee for all remuneration.  Section 207(e)(3) of the FLSA provides that some remuneration, such as a bonus, is not included in the employee’s regular rate if the payment is to be made – and the amount of the payment are determined – at the “sole discretion” of the employer, and not pursuant to a written agreement.

In an FLSA dispute, an employee generally bears the burden to prove all elements of that employee’s claims.  But if the employer wants to show that an employee is exempt from an FLSA requirement, the employer has the burden of proof on that exemption.

In 4JLJ LLC, the employer provided two bonuses to its oil field workers: 1) a “stage” bonus for completing various stages of an oil fracking project and 2) a “performance” bonus, which was memorialized in a written contract with each employee.  The “stage” bonus was not in writing or otherwise defined, and that became the central focus of the case on appeal.

In addressing the “stage” bonus, the Court posed the decisive question:  “Who has the burden of proof on whether bonuses are discretionary and therefore excluded from the regular rate under § 207(e)(3)?  The answer turns on whether § 207(e)(3) is an exemption from the overtime provisions in § 207(a).”

According to the Fifth Circuit panel, it is the employee – not the employer – who bears this burden.

The Court explained:

Section 207(e) does not exempt employers from compliance with § 207(a); it provides instruction for compliance with § 207(a)(1), where “regular rate” is used without definition.  Section 207(e) provides that definition, which is crucial for employers if they are to understand what must be included in the regular rate—in order to comply with § 207(a).  It was the Employees’ burden to show that they “performed work for which [they were] not properly compensated.”  And to do so, they must show that 4JLJ ought to have included the remuneration in question in the regular rate.  Because § 207(e)(3) is merely a definitional element of the regular rate—and therefore merely a definitional element of the Employees’ claim—it was their burden to show that bonuses were not discretionary according to the statute’s terms. (Footnotes omitted.)

The Fifth Circuit panel did not review the case law in other circuits in reaching its conclusion.   Other courts do not appear to have placed the burden so squarely on the employee.

While it may not reach the same conclusion as other courts, the Fifth Circuit’s interpretation does not lack logic.  It is consistent with the notion that an FLSA plaintiff bears the burden of proving his or her case.  This would include showing that the bonus or other remuneration at issue is non-discretionary and should have been included in the regular rate for overtime purposes.  Here, the plaintiffs established that the “performance” bonus was non-discretionary because it was defined in writing, but the plaintiffs failed to prove that the “stage” bonus was non-discretionary.

The ruling is limited to the Fifth Circuit.  There could well be different standards in different Circuits such that the issue may have to be resolved by the U.S. Supreme Court.

 

Many employers with operations in California may already be familiar with Frlekin v. Apple, Inc.  The heavily litigated case, first filed in 2013, involves claims that Apple retail employees are entitled to compensation for time spent waiting for and undergoing mandatory exit searches.

The Ninth Circuit has now concluded that those employees are entitled to be paid for that time, holding that they are entitled to an award of summary judgment in their favor.  That is a far cry from the original 2015 ruling in the case in which United States District Court Judge William Alsup denied the plaintiffs’ motion for summary judgment and granted summary judgment to Apple, concluding that such time did not qualify as “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 that ruling to the Ninth Circuit, which then asked the California Supreme Court to address whether time spent in exit searches was compensable time under California law.

As we wrote about here, in February of this year, the California Supreme Court weighed in, holding 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.

In reaching that conclusion, the California Supreme Court found that Apple’s “employer-controlled activity primarily serve[d] the employer’s interests” as the searches were “imposed mainly for Apple’s benefit by serving to detect and deter theft.”  The Court also noted that the “exit searches burden[ed] 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.”

On September 2, 2020, the Ninth Circuit reversed the district court’s decision, and found that the employees – not Apple – are entitled to summary judgment on the issue of compensability because the California Supreme Court’s decision is dispositive of that issue.

Although Apple argued that disputed facts precluded summary judgment in the plaintiffs’ favor “because some class members ‘did not bring bags or devices to work,’ ‘were never required to participate in checks,’ or ‘worked in stores with remote break rooms where they stored their belongings,’ and because it is disputed whether [the back check policy] was enforced through discipline,” the Ninth Circuit rejected those arguments, finding that any such “disputed facts pertain[ed] solely to individual remedies, not to the main legal question as to class-wide relief.”

The Ninth Circuit remanded the case to the district court with instructions to grant the plaintiffs’ motion for summary judgment, and to determine individual remedies (i.e., damages) for class members.

The Ninth Circuit’s decision in Frlekin serves as another reminder to California employers to reevaluate their policies and practices relating to bag checks and other screenings to ensure they comply with California law.

In this installment of Epstein Becker Green’s “Class Action Avoidance” webinar series, attorney Paul DeCamp discusses wage and hour issues that could arise from transitioning out of the work-from-home reality so many businesses have faced and into the return-to-work phase.

Employers across the country should focus on creating a safe working environment. Certain states and localities have required that employers bringing employees back to the workspace provide or pay for any mandatory personal protective equipment (PPE), including thermometers, gloves, and masks. Additionally, employers should be aware of the time employees take for self-screening and employer-provided screening, such as temperature checks, questionnaires, and handwashing upon arrival.

This webinar focuses on a workforce’s return to offices, plants, laboratories, stores, warehouses, or other facilities, reminding employers that they should keep in mind a number of important issues that, if mishandled, could give rise to costly and distracting class litigation.

Watch the webinar below, on our website, or on YouTube.  Learn more about the full Class Action Avoidance Series here.

We have written frequently here about AB5, California’s controversial law that creates an “ABC” test that must be satisfied in order for a worker to be treated as an independent contractor.  As we explained here, AB5 codified and expanded the “ABC” test adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court for determining whether workers in California should be classified as employees or as independent contractors.

While the statute was unambiguously aimed at ride share and food delivery companies that treat drivers as independent contractors, it was broadly written and was passed with little discussion.  Confusingly, it contained a mishmash of last-minute exemptions from the “ABC” test that, from a distance, seemed to be based on little more than which industry groups were able to get legislators’ ears in the hours before the statute was passed.

The original exemptions to AB5 extended to doctors, dentists, insurance agents, lawyers, accounts, real estate agents, and hairstylists, among others.

Now, eight months after AB5 went into effect, more industries and occupations have been exempted from AB5.

On September 4, 2020, Governor Gavin Newsom signed AB 2257, which immediately exempts the following professions from the ambit of AB5:

  • Fine artists
  • Freelance writers
  • Still photographers
  • Photojournalists
  • Freelance editors
  • Newspaper cartoonists
  • Translators
  • Copy Editors
  • Producers
  • Cartographers
  • Musicians with single-engagement live performances
  • Musicians involved in sound recordings or musical compositions
  • Insurance inspectors
  • Real estate appraisers
  • Manufactured housing salespersons
  • Youth sports coaches
  • Landscape architects
  • Professional foresters

These new exemptions may be just the start of amendments to AB5 that will carve out other industries and occupations.

And while it seems highly unlikely that AB5 will be amended to exempt ride share and food delivery companies from the “ABC” test, California voters will decide that themselves in November when they vote on Proposition 22, which would exempt those companies.

In this installment of Epstein Becker Green’s “Class Action Avoidance” webinar series, attorney Michael S. Kun addresses potential wage and hour class actions related to expense reimbursement for employees working from home during the COVID-19 pandemic.

Many employers may have employees working from home for the first time—or at least have employees in certain job categories doing so for the first time. Even employees who sometimes worked from home previously may be doing so for much more time now and, arguably, incurring greater expenses as a result.

This webinar will cover federal and selected state laws on expense reimbursements, including expenses for home computers, smartphones, Internet access, Wi-Fi, phone lines, and even utilities. Not only might employers be sued based on whether or how much they reimburse employees, but these suits could be brought as class actions—and they are already being brought.

Watch the webinar below, on our website, or on YouTube.  Learn more about the full Class Action Avoidance Series here.

In this installment of Epstein Becker Green’s “Class Action Avoidance” webinar series, attorney Jeffrey H. Ruzal discusses wage and hour issues that could result from “work from home” policies and practices on account of the ongoing COVID-19 pandemic.

As fall approaches, businesses are deciding whether to fully reopen, maintain a largely remote workplace, or provide employees with the option of working in the workplace or at home through a hybrid approach. Recent reports and surveys have shown that many remote workers throughout the United States have been, on balance, satisfied with their current work-from-home arrangements. While these arrangements might prove mutually beneficial to employers and their employees, employers must be mindful of the potential wage and hour issues attendant to work-from-home scenarios.

This webinar will focus on (i) ensuring that all work time is properly recorded and paid to employees who are not exempt from overtime, and (ii) maintaining exempt status for managers and supervisors. These two issues figure to be the likely predominant areas that could lead to wage and hour class and collective treatment; therefore, it is important for employees to address them through policies and enforcement as soon as possible.

Watch the webinar below, on our website, or on Vimeo.  Learn more about the full Class Action Avoidance Series here.

Given the ongoing considerations businesses face with the COVID-19 health crisis, many employers have increased the amount of teleworking for employees, including many roles that ordinarily would not telework.  As the COVID-19 health crisis has progressed, employers have continued to extend their teleworking policies while other employers are gearing up to reopen offices.  With these ongoing health risks, it is important for employers to review their teleworking policies and practices to ensure that they are appropriately compensating employees under the Fair Labor Standards Act (“FLSA”) as well as any applicable state and local laws.

Exempt Employees

Payment for Full Workweek for Exempt Employees

While employers do not need to worry about overtime pay for exempt employees, employers must ensure that they pay exempt employees for the entire workweek during each week in which the employee performs any work, even if the employee does not perform work for the entire week.  29 C.F.R. § 541.602(a).  An employer, however, can pay an exempt employee less than the full weekly salary if the deduction falls within a regulatory exemption, which includes, but is not limited to, absences for one or more full days for personal reasons (other than sickness or disability), absences of one or more full days because of sickness or disability taken in accordance with a bona fide plan or policy, or absences for unpaid disciplinary suspensions, made in good faith, of one or more full days.  29 C.F.R. § 541.602(b).  The FLSA does not require employers to pay employees during weeks in which the employee does not perform any work.  It is important to note that where the employer mandates partial-week absences, exempt employees must receive their full weekly salaries. 29 C.F.R. § 541.602(a)(2).

Ensuring Employees are Performing Exempt Duties

Employers should also keep track of the type of work performed in exempt positions to ensure that the employees are performing exempt work.  Under the FLSA, to maintain exempt status, an employee must perform exempt work as his or her “primary duty,” and time spent on these duties is a significant factor in determining whether the employee is performing exempt work.  29 C.F.R. § 541.700.  Thus, even when employees are teleworking, employees should continue to perform exempt duties, particularly where switching to teleworking requires employers to redistribute duties due to layoffs or to allow employees to telework.  However, the U.S. Department of Labor Wage and Hour Division published the COVID-19 and the Fair Labor Standards Act Questions and Answers (“COVID-19 FLSA Q&A), which notes that “during the period of a public health emergency declared by a Federal, State, or local authority with respect to COVID-19, otherwise exempt employees may temporarily perform nonexempt duties that are required by the emergency without losing the exemption.”  While this provides some leeway to employers regarding the tasks performed while employees are primarily teleworking, employers should continue monitoring tasks performed by exempt employees to ensure that  exempt employees are still primarily performing exempt duties and, if any non-exempt duties are necessary, that the exempt employees are not performing non-exempt duties for an extended period of time.

Non-Exempt Employees

Time Keeping While Teleworking

Under the FLSA, employers must provide non-exempt employees at least the applicable minimum wage for all hours worked, plus premium overtime pay after 40 hours in a workweek.  (State law or the parties’ agreement may require more.)  These pay requirements apply to telework just as they do to work at an employer’s premises.  Of note, an employer must treat as compensable work all working time, even if the employer has not authorized such work, if the employer “knows or has reason to believe” that the employee is working.  29 C.F.R. § 785.11.  This includes any overtime hours, or any telework not authorized by the employer and any unreported hours of work so long as the employer knew, or had reason to believe, that the employee was performing that work.  The Families First Coronavirus Response Act (“FFCRA”), which is a temporary measure effective from April 2, 2020 through December 31, 2020 and applies to employers with fewer than 500 employees, specifically states that “[e]mployees who are teleworking for COVID-19 related reasons must be compensated for all hours actually worked and which the Employer knew or should have known were worked by the Employee.  29 C.F.R. § 826.10.

As teleworking may create more difficulties for the employer to monitor hours worked by employees and thereby increase risks for off-the-clock work, the COVID-19 FLSA Q&A guidance states that employers may meet their obligations to appropriately compensate employees for time worked “by providing reasonable time-reporting procedures and compensating that employee for all reported hours.”  Employers should consider using time-keeping software that allows non-exempt employees to contemporaneously record all hours worked.  If utilizing new software, an employer may want to provide training, and testing of the software, to ensure that employees are aware of and know how to operate the time-keeping systems.  Regardless, employers should communicate to non-exempt employees, particularly while working remotely, the importance of contemporaneous and accurate time-keeping for working time and for any unpaid meal breaks.  Another good practice to ensure teleworking employees are following the time-keeping policies and reporting all hours worked, is that employers can require non-exempt employees to obtain authorization before working overtime or engaging in any other unapproved work.  Creating, enforcing, and communicating these types of policies to employees will help ensure that teleworking employees continue to appropriately report all hours worked.

Potential Issues with Flexible Workdays

Generally, an employer must compensate employees for the “continuous workday,” which includes the time during the workday after the employee commences his or her principal activity through the time that he or she finishes the principal activity or activities.  29 C.F.R. § 785.9.  As employees have more potential distractions while teleworking, employees may request flexibility in their normal scheduling.  For instance, some employees may request time during normal working hours to attend to child care responsibilities.  Given the added stressors with the current COVID-19 health crisis, the FFCRA states that the “continuous workday” rule “does not apply to employees while they are teleworking for COVID-19 related reasons.”  29 C.F.R. § 826.10.  The COVID-19 FLSA Q&A further noted that the Department of Labor wanted to encourage flexible hours during the COVID-19 health crisis to allow an employee to work with breaks to allow employees to deal with any personal responsibilities, like child care, during the day.  While the temporary guidance emphasizes the emergency measures taken because of the issues presented by the COVID-19 health crisis and the courts ordinarily defer to the Department of Labor’s interpretive guidance, there is no guarantee that the courts will defer to the Department’s newly articulated views regarding the “continuous workday” rule.  Also, employers should emphasize that even where they agree to a more flexible schedule allowing the employee to work a non-continuous workday, the employer and employee should agree to a set schedule.  Additionally, employers should ensure that employees are following the normal time-reporting policies.  Employers should also refer to any relevant state laws, as this temporary guidance regarding the “continuous workday” rule applies to only the FLSA, and states may or may not choose to follow that approach.

Also, as employers begin reopening offices, some of the workforce may be teleworking while other employees are returning to work on-site.  Employers should remain vigilant in ensuring that employees continue to accurately record all time worked, regardless of whether the employee works remotely or on-site.  While the Department has curtailed the “continuous workday” rule under certain circumstances, employees have previously argue that travel time that is otherwise non-compensable becomes compensable if the employer requires employees to perform activities “integral and indispensable to his [or her] principal job activities” at home before commuting into the office or after the employee finishes their workday and commutes home.  See Kuebel v. Black & Decker Inc., 643 F.3d 352, 358 (2d Cir. 2011).  The Second and Ninth Circuit determined that where the employer does not require that the employee to perform duties at a specific time before or after going into the office, the commuting time is not compensable.  See Id.; Rutti v. Lojack Corp., 596 F.3d 1046 (9th Cir. 2010).  As employers begin to reopen offices, employers may consider limiting required on-site working meetings if part of the workforce remains working remotely.  Most importantly, employers should ensure that employees continue reporting all working time.

 

 

Given the ever-increasing number of wage-hour class and collective actions being filed against employers, it is no surprise that many employers have turned to arbitration agreements with class and collective action waivers as a first line of defense, particularly after the United States Supreme Court’s landmark 2018 Epic Systems v. Lewis decision.

If there is a common misconception about Epic Systems, however, it is that the Supreme Court concluded that all arbitration agreements with all employees are enforceable under all circumstances.  The Court reached no such conclusion. In fact, the Court went out of its way to explain that arbitration agreements remain susceptible to challenges, including challenges that would be available as to other contracts.

And, of course, arbitration agreements are susceptible to challenges under the Federal Arbitration Act (“FAA”) itself.

The FAA, which established a federal policy favoring arbitration, extends to arbitration agreements in any contract evidencing a transaction “involving commerce.”

Somewhat confusingly, Section 1 of the FAA includes an exemption for individuals who are actually “engaged in … interstate commerce.”  That is, arbitration agreements that involve “commerce” are not valid under the FAA if the workers are engaged in “interstate commerce.”  Specifically, under Section 1, the FAA does not apply to seamen, railroad employees, and other workers “engaged in foreign or interstate commerce.” This exemption is sometimes referred to as the “transportation worker” exemption.

The courts have struggled to determine whether particular individuals fall within the transportation worker exemption. Their conclusions are far from consistent and are arguably entirely irreconcilable.

Some courts have concluded that the exemption only applies to individuals who themselves transport goods across state lines.  Others have concluded that the exemption can apply to persons who transport goods within a single state, never crossing into another state.

In Rittmann v. Amazon.com, Inc., the United States District Court for the Western District of Washington concluded that Amazon “last mile” delivery drivers who did not transport goods across state lines were nevertheless “engaged in … interstate commerce” and, therefore, fell within the exemption to the FAA — meaning that they were not required to arbitrate their claims pursuant to their arbitration agreements.

In a 2-1 split decision, the Ninth Circuit Court of Appeals has now affirmed that decision.

This ruling comes on the heels of a similar ruling from the First Circuit Court of Appeal in July 2020 in Bernard Waithaka v. Amazon.com Inc. 

These two decisions permit the delivery drivers to pursue their wage-hour claims as class actions in court, rather than as individual arbitrations – unless the decisions are overturned during en banc reviews or unless the United States Supreme Court steps in.

Given the very different interpretations of the transportation worker exemption, it is certainly possible that the Supreme Court will in fact review the issue and resolve the conflict among the courts.

Until then, these decisions are worth review by employers with arbitration agreements, particularly those who have employees involved in transportation.  And it is important for them to keep in mind that even if an arbitration agreement is not enforceable under the FAA, it could be enforced under state law.