California generally requires that, when employees accrue vacation time during their employment, any accrued but unused vacation time must be paid out at the end of employment.  But so-called “unlimited” vacation policies have generally been understood to be a potential exception to that rule.  Such “unlimited” policies are more accurately referred to as “professional” or “reasonable use” vacation policies, where such policies do not provide for vacation to accrue.  Instead, employees under such policies are allowed to take an unspecified amount of paid time off without accruing vacation time – except they are permitted to take vacation whenever and for whatever amount of time they would like, subject to the employees completing their work.

Employers that implement these “unlimited” policies typically put into place certain provisions making clear that, among other things, employees do not accrue (i.e., earn) any paid time-off time (e.g., vacation time) during their employment and, because time is not accrued, there is no payment for vacation not taken at the end of employment.  But on April 1, 2020, although the California Court of Appeal did not necessarily approve of “unlimited” policies with such provisions, it explained that policies without such provisions may trigger a right to accrued vacation wages.

In McPherson v. EF Intercultural Foundation, Inc., based on the particular facts before it, the Court held that the company’s purported “unlimited” paid time off policy triggered an obligation to pay wages at the end of employment for vacation not taken by the employees.  The company’s vacation policy – which was not in writing – provided that the employees could take time off with pay, but they did not accrue vacation days.  The employees did not request to take time off or track it; instead employees were required to notify their supervisors before taking time off – and taking time off during busy season was “strongly discouraged.”  Both the company and its employees agreed that the company did not provide for “unlimited” vacation.  Instead, the evidence showed that the employees “had the right to take an amount of approved vacation that was within the amounts typical of most jobs at the company [– i.e., at least 20 days’ paid vacation per year –] even if there was no precise amount expressly stated or agreed upon.”

The evidence also showed that the company did not make clear that such paid time off was not part of the employees’ compensation.  Based on this evidence, as much as the company may have referred to its vacation policy as “unlimited” or “uncapped,” the evidence showed that was not the case.  Based on these facts, the trial court found that there was an implied limit to the amount of vacation that could be taken.  The trial court explained, and the Court of Appeal affirmed, “an employer cannot avoid [the obligation to pay at the end of employment any accrued but unused vacation time] by leaving the amount of vacation time undefined in its policy while impliedly limiting the time actually available for approval.”  As such, the trial court concluded, and the Court of Appeal affirmed, that the employees were due that amount in vacation wages for which the policy impliedly provided (i.e., 20 days per year), less the vacation actually taken.

Despite its conclusion, the Court of Appeal made clear that it “appreciate[s] the benefit and understand[s] the appeal [of] unlimited time off policies.”  That said, the Court did not go so far as to expressly approve “unlimited” vacation policies.  But it did set forth the following criteria that may negate an obligation to pay wages for untaken vacation:

  • The policy should be in writing;
  • The policy should “clearly provide[] that employees’ ability to take paid time off is not a form of additional wages for services performed, but perhaps part of the employer’s promise to provide a flexible work schedule – including employees’ ability to decide when and how much time to take off”;
  • The policy “spells out the rights and obligations of both employee and employer and the consequences of failing to schedule time off”;
  • The policy, “in practice allows sufficient opportunity for employees to take time off, or work fewer hours in lieu of taking time off”; and
  • The policy “is administered fairly so that it neither becomes a de facto ‘use it or lose it policy’ nor results in inequities, such as where one employee works many hours, taking minimal time off, and another works fewer hours and takes more time off.”

In light of McPherson, California employers that have so-called “unlimited” vacation policies should review them with counsel, keeping in mind the factors the Court of Appeal approved.

In Viet v. Le, No. 18-6191, the U.S. Court of Appeals for the Sixth Circuit provided insight into the kind of evidence employees must present in order to create a jury question over whether they worked unpaid overtime in violation of the Fair Labor Standards Act (“FLSA”).

In the case, plaintiff Quoc Viet purchased used copiers in the United States and shipped them to Vietnam for resale by the defendants Victor Le and Copier Victor, Inc.  Copier Victor classified Viet, who worked from his home and a nearby warehouse, as an independent contractor.  Le paid Viet a fixed rate for each copier that Viet purchased, and he did not track Viet’s hours.  After the parties’ relationship soured, Viet filed suit against Le and Copier Victor, contending that they violated the FLSA by failing to provide him with overtime premium pay.

Following discovery, the district court granted summary judgment to Le and Copier Victor.  The district court assumed that Viet provided services as an “employee” under the FLSA, but concluded that Viet’s evidence that he worked more than 40 hours per week was insufficient to withstand summary judgment.  The district court characterized Viet’s testimony about his estimated working time as “equivocal, conclusory, and lacking in relevant detail.”  Viet appealed to the Sixth Circuit, which affirmed the district court’s decision.

On appeal, the Sixth Circuit found that although Viet had testified that he worked approximately 60-hours per week, he failed to support that conclusory assertion with “specific facts” about his schedule.  More specifically, the Sixth Circuit found that Viet failed to provide “even basic details about his typical day (such as by saying, for example, that he preferred to work from 8 to 6 or 9 to 8),” and pointed to Viet’s failure to provide additional context about his work schedule during his deposition, noting that Viet “offered no estimate of his daily hours or schedule.”

The Sixth Circuit also found that Viet could not meet his burden of proof by relying upon estimates of the time he spent performing specific tasks for Le and Copier because his testimony on those topics was inconsistent and conclusory.  Although Viet testified that it took him at least 30 minutes to find a copier to purchase, for example, he conceded that Le never asked him to find 80 copiers in a week.  Viet also failed to estimate the average number of copiers for which he searched on a daily basis.

In his bid to overturn the district court’s decision, Viet argued that because the FLSA places the onus on employers to maintain accurate records of hours worked, and because a relaxed standard of proof applies when an employer fails to do so, his claims were subject to a relaxed burden.  The Sixth Circuit rejected Viet’s argument, and reiterated that the relaxed standard applies only to damages calculations after an employee meets his or her burden to prove a violation under the FLSA.  Because Viet exclusively relied upon conclusory and vague evidence, he failed to create an issue for the jury with respect to Le and Copier Victor’s liability under the FLSA.

While overtime claims under the FLSA are heavily dependent on the facts of each case, the Viet decision should provide employers in the Sixth Circuit with additional support to defend claims brought by litigants who cannot substantiate their allegations of unpaid overtime with specific evidence about their work schedules.

Due to the COVID-19 pandemic and the resulting shelter-in-place and related orders, many businesses across America have already shuttered, while others are on the brink of collapse.  In these challenging times, businesses are understandably considering any and all potential solutions to keep their employees on payroll while remaining solvent.  Some employers have even been considering converting their W-2 employees to 1099 independent contractors.  The surface appeal is simple, which is that employers can avoid employment taxes, benefit costs, and overtime compensation, thereby reducing overhead and layoffs while keeping workers at work.  However, reclassifying employees as independent contractors presents significant misclassification risks, particularly in the current climate.

A steadily increasing number of states, including California and New Jersey, use the “ABC Test” for determining whether a worker is an independent contractor or an employee under state wage and hour, labor, and/or unemployment insurance laws.  The ABC Test presumes that a worker is an employee unless the hiring entity can establish each of the following three factors: (1) the worker performs his/her work free from the hirer’s control and direction; (2) the worker performs work outside the “usual course” of the hirer’s business; and (3) the worker customarily engages in an independent established trade, occupation, or business of the same nature as the work performed.  Satisfying each of these factors is no easy feat, and will be practically impossible where a newly reclassified contractor performs exactly the same work for the business as when he or she was an employee, with no other meaningful changes to the terms and conditions of the relationship.

Why worry about independent contractor misclassification?  There are myriad reasons.  States are cracking down on independent contractor misclassification by enacting laws to penalize companies that misclassify their workers.  For example, under New Jersey law, employers are subject to a “misclassification penalty” of up to $250 per misclassified employee for a first violation, and up to $1,000 per misclassified employee for each subsequent violation, as well as a fine of up to five percent of the misclassified worker’s gross earnings over the past year.  In California, willful misclassification of individuals as independent contractors will result in penalties of between $5,000 and $25,000 per violation.  In addition to penalties, in New Jersey, the Department of Labor and Workforce Development (“DLWD”) can issue a stop-work order for misclassification violations that will remain in effect until the agency determines the employer is in compliance.  Employers are subject to $5,000 per day in civil penalties for violating such a stop work order.  The DLWD can also post on its website a list of any persons found to violate any state wage, benefit, or tax law, which will temporarily bar such persons from contracting with any public body until liability for the violation(s) has been resolved, as well as incur reputational harm.

An employer who fails to withhold income taxes for a worker erroneously classified as an independent contractor will also face steep penalties from the Internal Revenue Service, including 1.5% of the employee’s wages, 40% of the FICA taxes (Social Security and Medicare) that were not withheld from the employee, and 100% of the matching FICA taxes the employer should have paid.  Unsurprisingly, the penalties are higher in cases of intentional disregard.

In addition, and perhaps more importantly, workers misclassified as independent contractors can file wage and hour lawsuits seeking unpaid wages, unpaid overtime, and unpaid meal and rest breaks, as well as penalties, interest, and attorneys’ fees.

What should struggling businesses do instead of reclassifying their workers?  As discussed in another EBG blog post here, the federal government recently enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES”), a $2+ trillion aid and stimulus package, which includes financial assistance and other relief for employers affected by the COVID-19 crisis.  Among other things, eligible employers can access a 50-percent refundable tax credit on the first $10,000 of qualified wages paid to an employee during the crisis and collateral-free forgivable loans to cover payroll costs, mortgage and rent payments, utility payments, and other business purposes.  We discuss other areas that employers should review to potentially improve their financial situation and retain employees here.

The U.S. Department of Labor (“DOL”) has renewed its invitation to employers and employees to engage in a “national online dialogue” in connection with the Families First Coronavirus Response Act (FFCRA), which took effect on April 1.  The DOL is soliciting comments and questions with respect to its questions and answers, posters, and fact sheets that it has published in connection with the FFCRA.

The DOL has also extended the deadline from March 29 to April 10 for employers and employees to provide input online at https://ffcra.ideascale.com.

Employers may want to speak with their counsel about comments, questions, ideas, or concerns to present to the DOL.

In addition to its recent, exigent responsibility of preparing guidance on the protections and relief offered by the Families First Coronavirus Response Act, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) has issued three new opinion letters addressing the excludability of certain types of payments from the regular rate of pay under the Fair Labor Standards Act (“FLSA”).  While these opinion letters do not tread new ground, they are useful reminders of important regular rate principles and merit careful review.

As background, under the FLSA, an employer must pay a non-exempt worker at least one and a half times the employee’s “regular rate” for all hours worked in excess of forty hours in a workweek.  29 U.S.C. § 207(a)(1).  The regular rate includes nearly “all remuneration for employment paid to, or on behalf of, the employee,” with few exceptions.  Section 7(e) of the FLSA provides eight distinct types of payments that the law excludes from the regular rate, such as fully discretionary bonuses and certain payments for non-working time, among others.  29 U.S.C. § 207(e).

Longevity Awards

In FLSA2020-3, the WHD analyzed whether the regular rate includes length-of-service payments required by a municipal resolution.  As described in the employer’s letter requesting the opinion, eligible employees “shall” (i.e., must) receive longevity awards in the amount of $2 per month for each whole year of the employee’s tenure.  While the municipality currently pays such awards every two weeks, the employer contemplates paying such awards in a one-time lump sum each year around Christmas time.

The FLSA expressly excludes from the regular rate “payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency[.]”  29 U.S.C. § 207(e)(1).  Under the implementing regulations, if a “bonus paid at Christmas or on other special occasion is a gift or in the nature of a gift, it may be excluded from the regular rate under Section 7(e)(1) even though it is paid with regularity so that the employees are led to expect it[.]”  29 C.F.R. § 778.212(c).  However, bonuses that are so substantial “that it can be assumed that employees consider it part of the wages for which they worked” and those that are required by law are not considered gifts for purpose of exclusion from the regular rate.”  29 C.F.R. § 778.212(b).

Because a municipal resolution mandates the longevity payments at issue in the opinion letter (even if their form and timing is subject to discretion), the WHD concluded that they are not excludable payments in the nature of gifts and therefore become part of the regular rate.  As a final note, the WHD advised that if the municipal resolution had merely authorized but not required longevity payments at Christmas, they could be excludable from the regular rate under Section 7(e)(1), even if made year after year.

Referral Bonuses

In FLSA2020-4, the WHD analyzed whether certain referral bonuses fall within the regular rate.  The referral bonus proposed in the employer’s letter would be payable in two equal installments—the first, upon the employer’s hiring of the referred employee, and the second, upon the one-year employment anniversary of the referred employee, provided that the referring employee remains actively employed.  The bonus would be available only to employees who do not work in Human Resources and have no job responsibilities associated with employee recruitment, selection, or hiring.  Participation in the program would be voluntary, would not require any significant time, and would be limited to social conversations the employee has outside of work hours.

Generally, sums paid to an employee for recruiting another to join his or her employer’s workforce need not be included in the regular rate if three conditions are met:  (1) participation in recruitment activities is strictly voluntary; (2) the employee’s efforts in connection with recruitment activities do not involve significant amounts of time; and (3) recruitment activities are limited to after-hours solicitation among friends, relatives, neighbors, and acquaintances as part of the employee’s social affairs.  See 84 FR 68,755-56; 29 C.F.R. § 778.211(d).  The proposed referral program met all three conditions, and therefore, the WHD concluded that the first installment of the referral bonus is excludable from the regular rate.

The WHD reached a different conclusion regarding the second installment.  Because payment of the second installment would be contingent on the referring employee (in addition to the referred employee) remaining employed for one year after the hiring of the referred employee, it was more akin to a longevity bonus—like that discussed in FLSA2020-3—rewarding the referring employee for an additional year of service.  If the second installment was not contingent on the referring employee’s continued employment, or required a shorter amount of time of continued employment, then it likely would not be like a longevity bonus, and instead, could fall outside the regular rate.

The WHD further noted that even as a longevity bonus, the second installment still could be excludable from the regular rate as a “payment[] in the nature of gifts … as a reward for service” under Section 7(e)(1), provided it was not (1) measured by hours worked, production, or efficiency; or (2) paid pursuant to a contract.  29 C.F.R. § 778.212(b).  If either of these factors is present, the longevity bonus becomes part of the regular rate.  Based on the facts provided by the employer, the first condition for exclusion as a gift would be met but it was unclear whether there was an enforceable contractual right to the payment of the second installment.  The WHD opined, therefore, that if payment of the second installment would be contractually enforceable, then it is part of the regular rate.

An Employer’s Contributions to a Group-Term Life Insurance Policy

In FLSA2020-5, the WHD analyzed whether the regular rate must include the portion of an employer contribution to group term life insurance coverage exceeding $50,000 that the Internal Revenue Code (“IRC”) treats as imputed income taxable to the employee.  The WHD first cited the principle that “contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide [benefit] plan,” such as a life insurance plan, fall within a regular rate exclusion.  29 U.S.C. § 207(e)(4).  The WHD ultimately advised that whether income is taxable under the IRC does not dictate excludability from the regular rate.  Put another way, “[t]here is no presumption that income taxable under the IRC must be included in the regular rate.”  The relevant inquiry is instead whether an employer’s contributions to a benefit plan satisfy the statutory and regulatory requirements under the FLSA.

The opinion letter mentions that in order to be excludable from the regular rate, insurance policy “benefits must be specified or definitely determinable on an actuarial basis” or there must be “a definite formula” for determining both the employer’s contributions and the benefits to the employees.  See 29 C.F.R. § 778.215(a)(3).

The new opinion letters make clear that, even amid the exigent circumstances and legislative developments related to the current pandemic, the WHD remains committed to its responsibility of issuing interpretive guidance regarding the FLSA.  Employers should watch for further guidance that may be forthcoming.

It is no secret that independent contractor misclassification claims are being filed against employers with a great deal of frequency, often as class actions and often in California.  Many of those lawsuits have been filed against gig economy companies.  But, of course, they are not the only companies facing such claims.

As a result, many companies that classify workers as independent contractors are asking a basic question, “Are those workers properly classified?”

It sounds like such a simple question, one that should have a simple answer.

But there is no simple answer, at least not in California, where the California Supreme Court created a new “ABC” test in Dynamex, only to have the legislature follow up with a statute known as AB 5, codifying and expanding Dynamex while simultaneously excluding some occupations from its scope.

Let’s see if we can help navigate the current state of the law in California.

What is the test for independent contractor status in California?

For claims post-January 1, 2020, it’s AB 5, which we previously discussed here.

For claims pre-January 1, 2020, it could be AB 5.

Or maybe AB 5 and Dynamex.

Or maybe AB 5 and Dynamex and Borello.

Or maybe just Dynamex.

Or maybe just Borello.

It depends on what time period, claims and occupations are at issue, and whether AB 5 and Dynamex are determined to be retroactive.

Does AB 5 apply retroactively?

Maybe, maybe not.  AB 5 specifically states that some sections apply retroactively.

And to the extent AB 5 is intended to be a “clarification” of existing law, it may apply retroactively because clarifications generally apply retroactively.

But that does not mean that there are not arguments that AB 5 does not apply retroactively.  “[U]nless there is an ‘express retroactivity provision, a statute will not be applied retroactively unless it is very clear from extrinsic sources that the Legislature must have intended a retroactive application.’”  And the subdivision of AB 5 that codifies Dynamex’s “ABC” test has no express retroactivity language, while a subsequent subdivision concerning the exceptions to the “ABC” test does have such language.  That distinction is meaningful because if the “legislature carefully employs a term in one statute and deletes it from another, it must be presumed to have acted deliberately.”

What is the difference between AB 5 and Dynamex?

AB 5 has a number of exceptions that were not in Dynamex, and Dynamex’s ABC test was limited to claims arising under a California wage order.

And AB 5 extends beyond just claims relating to wage orders.  For example, AB 5 extends to claims for wrongful termination or expense reimbursement, where Dynamex did not.

What occupations are excepted from AB 5?

A number of occupations are excepted from AB 5, subject to certain conditions (including licensure or certification), including physicians and surgeons, dentists, podiatrists, psychologists, veterinarians, lawyers, architects, engineers, private investigators, accountants, securities broker-dealers, investment advisers, and commercial fisherman.

And more exceptions may be on the way.

Does Dynamex still apply to occupations that are excepted from AB 5?

Maybe, maybe not.

For claims arising on or after January 1, 2020, Dynamex should not apply.

For the specific occupations that are excepted from the ABC test, AB 5 makes clear what the test is, and that is generally the one set forth in Borello, not Dynamex.

Assuming AB 5 is not retroactive, for claims relating to wage orders arising before January 1, 2020 but after Dynamex was issued on April 30, 2018, then Dynamex would apply for those claims – and Borello would be the test for all non-wage order claims arising before January 1, 2020.

Is Dynamex retroactive?

Maybe, maybe not.  That issue is before the California Supreme Court.

There is a good argument that Dynamex should not be retroactive because, before Dynamex, the “ABC” test had never been adopted in California courts.  For 70 years, the worker classification test focused on the right of control, which came to be known as the Borello test.  Before Dynamex, there was not a single California authority that had adopted the “ABC “test, which was taken from New Jersey and Massachusetts law.  Because the Borello test had been the law of California since 1946, California businesses reasonably relied on that standard, and decisions (like Dynamex) should apply only prospectively where the California Court of Appeal has previously consistently applied “a settled rule” different from the new one.

Is the Borello test dead?

Not at all.  It is the test generally used for the exceptions identified in AB 5.

And if AB 5 is not retroactive, then Borello would still apply to claims unrelated to wage orders, such as expense reimbursement.

Additionally, it arguably applies to the “joint employer” inquiry even if AB 5 is not retroactive.

Do AB 5 and Dynamex apply to the “joint employer” inquiry?

So far, there are two courts that have concluded AB 5 and Dynamex do not apply where one of the entities is an undisputed employer, and that they only apply to the relationship between a worker and the “hiring entity.”

But what if there is no undisputed employer and an individual performs services for two unrelated companies?

The “ABC” test in Dynamex and AB 5 arguably should not apply to any entity that does not “hire” the individual.

By way of example, assume an individual enters into a contract with Company X and performs services for Company X’s clients Companies Y and Z.  And assume that none of these companies are affiliates (i.e., they do not have common ownership).  While the plaintiffs’ bar may argue that the “ABC “test should apply to all three companies, Dynamex explained that workers are presumptively employees of “the hiring business” unless that business meets the ABC test.  And AB 5 expressly refers to “the hiring entity” in codifying the ABC test.  Because Companies Y and Z did not “hire” the individual, the ABC test should not apply to them.

Be careful what you ask for.

We have used that expression frequently when writing about recent federal court orders requiring DoorDash and Postmates to conduct thousands of individual arbitrations in California pursuant to the terms of their arbitration agreements with their drivers.

Thousands of individual arbitrations for which DoorDash and Postmates would have to pay many millions of dollars in arbitration fees alone.

The risk of dozens, hundreds or even thousands of individual arbitrations attends any time an employer seeks the benefits of an arbitration agreement with a class and collective action waiver.  It is the reason why many employers have chosen to forgo arbitration agreements with class and collective action waivers – and the reason why many have settled cases on a classwide basis even when they have such agreements in place.

Now, one of the companies ordered to conduct thousands of individual arbitrations in California has taken an aggressive strategic step – one that seems likely to put it right back in front of the judge who ordered it to conduct thousands of individual arbitrations in the first place.

Unhappy with the order by a federal judge in Oakland requiring it to conduct more than 5,000 individual arbitrations, Postmates has now filed a separate federal lawsuit in Los Angeles against more than 10,000 of its drivers, seeking an injunction to prevent individual arbitrations from going forward.  In the new lawsuit, Postmates argues that thousands of individual arbitrations is a “de facto class action.”  And it accuses the employees’ attorneys of “abusive litigation tactics” by filing thousands of individual arbitration demands.

It does not appear that the 10,000 arbitrations Postmates seeks to enjoin include the 5,000 individual arbitrations it was already ordered to conduct by a federal judge in Oakland – but there seems to be little question that the injunction Postmates seeks would be useful in trying to enjoin those arbitrations from proceeding, too.

But, of course, that is only if Postmates succeeds in obtaining such an injunction.

It is not difficult to imagine the first sentence of whatever the drivers might file in response to Postmates’request: “Postmates is arguing on the one hand that drivers cannot bring their claims together, and argues on the other hand that the drivers cannot bring their claims individually.”

It will be fascinating to see how Postmates responds to that.

Just as fascinating will be seeing which court ultimately addresses Postmates’ new complaint and its request to enjoin individual arbitrations.

By filing the suit in Los Angeles, Postmates likely believes that it will find a more favorable audience for its arguments in Los Angeles than in Oakland.

It may never find out.

Without delving into all of the procedural nuances, Postmates’ new lawsuit in Los Angeles seems likely to be considered to be related to the case in Oakland.  That suggests that the new lawsuit may well be transferred to Oakland, where it would be assigned to the very same judge whose order Postmates is trying to undo through the new complaint.

The very judge who accused Postmates of hypocrisy for trying to escape its own arbitration agreements.

The very judge who had this to say about Postmates in ordering it to conduct more than 5,000 individual arbitrations: “Postmates’ obligation to tender $10 million in filing fees as a result of those arbitration demands is a direct result of [its own] agreement — which Postmates drafted and which Postmates required each courier to sign as a condition of working for Postmates. It strains credulity for Postmates to argue that the amount of filing fees due constitute irreparable harm when that ‘harm’ is entirely of its own making.”

Think that judge might be displeased that Postmates was trying to get another judge to essentially undo her order?

No need to answer that question.  It was rhetorical.

As previously discussed, Colorado officially adopted the Colorado Overtime and Minimum Pay Standards Order # 36 (“COMPS Order”) on January 22, 2020, which went into effect on March 16, 2020.  However, the Division of Labor Standards and Statistics in the Colorado Department of Labor and Employment (“the Division”) has recently implemented temporary emergency modifications to the COMPS Order.  The temporary changes will remain in effect through July 14, 2020 (the “temporary period”), although the State intends to go through a formal notice and comment period to make these temporary changes permanent.

Joint Employment

Under the revised temporary COMPS Order, the Division has clarified the “joint employment” standard under the Colorado wage and hour law.  Joint employment, under Colorado wage and hour law, will continue to be analyzed under the versions of the federal Fair Labor Standards Act (“FLSA”) and applicable FLSA regulations that were in effect as of the enactment of H.B. 19-1267 by Colorado on May 16, 2019.  This modification reflects a rejection of the revised federal joint employment regulation issued in January 2020

Earnings Statements

The COMPS Order required employers to provide employees with earnings statements each pay period including: (a) an employee’s name, address, occupation, and date of hire; (b) date of birth (if the employee is under 18); (c) daily record of all hours worked; (d) record of credits claimed and of tips; and (e) regular rates of pay, gross wages earned, withholdings made, and net amounts paid each pay period.  However, during the temporary period, employers need to provide only the information set forth in (d) and (e), along with the total hours worked in the pay period, and the employee’s and employer’s names.

While this additional information does not need to be on an earnings statement during the temporary period, employers must still retain records reflecting the information contained in an employee’s itemized earnings statement and provide employees access to information regarding the name, address, occupation, and date of hire of the employee, along with the daily record of all hours worked.  Employers can provide access to these records via any of the following methods:

  • provide the information with the regular earnings statements;
  • provide each employee with access to a functioning electronic portal that shows the information (but this method is permissible only if the employer knows an email address of the employee); or
  • provide each employee with the information for the entire calendar year by January 31st of the following year and, in addition, provide the information to an employee upon a request that an employee may make once per year.

Medicaid-Funded Workers

The revised COMPS Order also modifies provisions relating to Medicaid-funded workers.  In-residence workers’ daily overtime does not apply in the COMPS Order to companions designated as direct support professionals or direct care workers who: (1) are scheduled for, and work, shifts of at least 24 hours providing residential or respite services; (2) are employed by service providers and agencies that receive at least 75% of their total revenue from Medicaid or other governmental sources; and (3) provide services within Medicaid home and community-based service waivers.  Further, rest periods need not be 10 minutes every four hours for any employees who are providing Medicaid-funded services for a service provider or agency receiving at least 75% of its annual total gross revenue from Medicaid (or other governmental funds for providing such service within Medicaid home and community-based services, waivers (COMPS Order, Rule 5.2.1 (B)) and the services provided require continuous supervision of the service recipient, or providing rest period would interfere with ensuring the service recipient’s health, safety, and welfare.

Additionally, when direct support professionals or direct care workers servicing individuals with disabilities spend time in community outings with individuals with disabilities, as part of day programs, supported living services, or one-to-one respite or personal care, the time in such outings does not require employers to provide rest breaks or pay for rest breaks.  Employees within this category must receive rest periods that average, over the workday, at least 10 minutes per four hours worked and at least five minutes of rest in every four hours worked.

Required Posting

The Division has also released the COMPS Order poster, which employers must display where workers may easily read it during the workday.  If workplace conditions make physical posting impracticable, employers must provide a copy of the poster to each worker within the first month of hire and make the poster available to employees upon request.  If an employer provides its employees with a handbook, manual, or written or posted policies, the employer must include a copy of the COMPS Order, or the COMPS Order poster, with these materials, and obtain a signature of acknowledgement from the employee.

During the temporary period, employers in Colorado should review the modified earnings statements requirements.  Employers should begin to implement the other provisions of the COMPS Order, including notice, posting, and daily overtime and breaks.

Given the number of states that have already ordered the closure of non-essential businesses due to the COVID-19 pandemic, employers fortunate to remain operational are likely dealing with the myriad challenges of a remote workforce.

As we previously wrote here, employers with work-from-home (“WFH”) policies in place need to make sure they are appropriately compensating their workers and are otherwise complying with all applicable federal, state, and local wage and hour laws.

In the WFH context, the related wage and hour concepts of “waiting time” and “on-call time” can be particularly thorny. At a high level, these terms refer to periods of time when non-exempt employees are not engaged in active productive labor, but are scheduled and available to work, or expected to work upon demand. Under the Fair Labor Standards Act (“FLSA”),  if an employee’s on-call or waiting time at home are “hours worked,” then the employee must receive compensation for such time.

Waiting Time

With many businesses operating at reduced capacity and/or focused on providing core services, a large number of non-exempt employees working from home may not have eight hours’ worth of work to do during their regularly scheduled hours and may find themselves idle for significant amounts of time as they await direction from management.  Are employers required to pay employees for all time when employees are at home waiting for work?  Not necessarily.

Under the FLSA, the threshold inquiry  is fact driven —  is an employee is “engaged to wait,” which is compensable, or “waiting to be engaged” to work, which is non-compensable?  See 29 C.F.R. §§ 785.14–16.

Under the implementing regulations, an employee is “engaged to wait” and considered on-duty when “waiting is an integral part of the job,” which may often be during “unpredictable” periods or periods “usually of short duration” in which the employee’s time “belongs to and is controlled by the employer.”  29 C.F.R. § 785.15.  “Waiting is an integral part of the job” when, e.g., a truck driver waits for others to load or unload goods from his truck or a bus driver guards the bus before making a scheduled return trip.  On the other hand, when an employee is “completely relieved from duty” and can “use the [inactive] time effectively for his own purposes,” he is “waiting to be engaged” (unpaid time). 29 C.F.R. § 785.16(a).

When employees are working from home as opposed to at an office, one might assume that they are completely relieved of duty during down periods and can use inactive time for their own purposes – e.g., watching television, playing video games, reading a book, doing yoga, basket-weaving, or any other personal pursuits.  However, that is not necessarily the case.

For example, where a supervisor informs a non-exempt employee that they will receive a draft document to review in the next 15 to 45 minutes and must immediately edit that document, the facts would tend to suggest that the employee is engaged to wait during this time (which is work time).

Further, short breaks of less than 20 minutes is compensable time pursuant to federal regulations (as well as many state wage and hour laws).  Similarly, if a manager has a standing policy that his direct reports must read and respond to all emails within five-to-ten minutes, at most, and the manager sends emails at regular intervals, then reports could be considering working when they pursue personal pursuits while waiting for an assignment.  See, e.g., U.S. Department of Labor Fact Sheet #22 (July 2008), available at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/whdfs22.pdf; see also Yu G. Ke v. Saigon Grill, Inc., 595 F.Supp. 2d 240, 255-56 (S.D.N.Y. 2008).

By contrast, if an employer sends employees work infrequently and does not require an immediate response, such employees are likely waiting to be engaged during their inactive time – i.e., not working.  Non-exempt employees hired shortly before the COVID-19 crisis, who have yet to fully ramp-up, may fall in this category.  In the same vein, non-exempt employees who have flexibility in deciding when to complete their daily and/or weekly tasks and can use the time in between such tasks as they want, with little to no interruptions, are likely “waiting to be engaged” in between tasks, i.e. non-compensable time.

On-Call Time

Non-exempt employees who are on-call – meaning that they  must be ready to work during a particular period — such as nurses, doctors, and appliance repair technicians, may need to be compensated for that on-call time.

As with “waiting time,” the particular factual context of each case will be determinative of whether on-call time is compensable.  Employers who require employees who are on-call to remain on their premises or so close to their premises that the employee cannot use the time effectively for his or her own purposes are considered working while on-call.  See 29 CFR § 285.17.  In fact, employees who are on-call at home may also be entitled to compensation.

Pursuant to federal regulations, “[t]ime spent home on call may or may not be compensable depending on whether the restrictions placed on the employee preclude using the time for personal pursuits.”  29 C.F.R. § 553.221(d).  Importantly, an employee’s ability to use on-call time for personal pursuits need not be identical or even substantially similar to his or her ability to use off-duty time for personal pursuits in order for the time to be considered non-compensable.

To determine whether an employee can use on-call time effectively for personal pursuits, the U.S. Department of Labor and the courts look at a variety of non-dispositive and non-exhaustive factors, including:

  • whether there are excessive geographical limitations on an employee’s movements;
  • whether the frequency of calls received or a fixed time limit for response is unduly restrictive;
  • whether the employee could easily trade on-call responsibilities;
  • whether use of a pager could ease restrictions; and
  • whether the on-call policy is based on an agreement between the parties.

U.S. Department of Labor Opinion Letter No. FLSA2008-14NA (Dec. 18, 2008), available at https://www.dol.gov/whd/opinion/FLSANA/2008/2008_12_18_14NA_FLSA.htm.

 Accordingly, to limit compensable on-call time under the FLSA, employers should allow non-exempt employees to trade/swap assignments, minimize restrictions on freedom of movement (to the extent that is even feasible given the current constrains occasioned by the COVID-19 crisis), and permit other unrestricted activities during on-call periods, and provide employees significant time, e.g., 30 minutes to one hour, to respond to calls, voicemails, etc.

What Should Employers Do?

Employers should review their practices to determine whether employees should be compensated for their waiting time or on-call time to ensure that they comply with the FLSA.

Importantly, state laws may differ with regard to both waiting time and on-call time.  Accordingly, employers should ensure that they are complying not just with the FLSA, but with the laws of the states where they operate.

The U.S. Department of Labor (“DOL”) has invited employers and employees to engage in a “national online dialogue” in connection with the expected April 2, 2020 implementation of the Families First Coronavirus Response Act (FFCRA).  The DOL is soliciting comments and questions as it develops compliance assistance materials and outreach strategies related to FFCRA.

Input may be offered online at https://ffcra.ideascale.com through March 29, 2020, or through Twitter chat hosted by @ePolicyWorks on March 25, 2020 at 2:00 p.m. using the hashtag: #EPWChat.

Employers may want to speak with their counsel about comments, questions, ideas or concerns to present to the DOL.