The Acting Administrator of the U.S. Department of Labor’s Wage and Hour Division recently issued opinion letters addressing (i) the 8-and-80 overtime pay system available to certain healthcare employers; (ii) the overtime exemption for teachers, and (iii) the exemption for employees in agriculture.  The analyses and conclusions in those opinion letters are instructive for employers not only in those industries, but in many other industries as well, because they confirm the Department’s commitment to construing FLSA exemptions fairly rather than narrowly.

“8 and 80” Overtime

The first opinion letter, FLSA2019-3 (Apr. 2, 2019), addresses whether the “8 and 80” method of computing overtime is available to a private, 24-hour youth residential care facility that accepts adolescents placed there by county child services bureaus.

In addition to the general provision for overtime after 40 hours in a seven-day workweek, section 7(j) of the FLSA allows an alternative overtime calculation for certain health employers.  Known as the “8 and 80” method, this alternative allows “a hospital or an establishment which is an institution primarily engaged in the care of the sick, the aged, or the mentally ill . . . who reside on the premises” to enter into agreements with employees to pay overtime for hours in excess of 8 hours in a workday or 80 hours in a 14-day work period.

The Acting Administrator explained that, in addition to hospitals, section 7(j) is available to a residential care institution that meets any of the following criteria:

  • deriving more that 50 percent of its income from providing “domiciliary care to individuals who reside on the premises” in order to receive care “of a less critical nature than that provided by a hospital”;
  • providing care for residents, the majority of whom obtain admission by a qualified physician, psychiatrist, or psychologist; or
  • retaining a qualified physician, psychiatrist, or psychologist who regularly provides therapy to more than 50 percent of the residents.

The letter states that the Wage and Hour Division does not have sufficient information to determine whether the facility described in the request for the opinion letter qualifies under section 7(j), and it refers the requester to these standards to evaluate the availability of the 8 and 80 method.

The Overtime Exemption for Teachers

The second recent opinion letter, FLSA2019-4 (Apr. 2, 2019), considers whether “Nutritional Outreach Instructors” at a public university are subject to the FLSA’s exemption for teachers.

The teachers addressed in the letter are part of the university’s Extension Service Department and teach classes on healthy nutrition and cooking techniques.  The position requires a high school diploma or GED.  These classes are open to the public, and they place in locations such as community centers, churches, and homes.

After setting forth the statutory language applicable to teachers, the letter turns to the United States Supreme Court’s 2018 decision in Encino Motorcars, LLC v. Navarro, in which the Court rejected the longstanding rule of narrowly construing FLSA exemptions to effectuate the statute’s remedial purpose, in favor of giving exemptions a “fair (rather than narrow) interpretation[.]”  The letter notes that the Wage and Hour Division now applies this “fair reading” standard to interpreting exemptions.

The FLSA’s regulations provide that an employee is an exempt teacher if his or her primary duty is “teaching, tutoring, instructing or lecturing in the activity of imparting knowledge” while employed in an “educational establishment.”  The letter notes that an educational establishment is any form of public or private educational institution and that “[t]he teacher exemption has no minimum education or academic degree requirement.”  Furthermore, because the regulations do not restrict where a teacher may teach, an employee who teaches online or remotely may qualify for the teacher exemption.

The Acting Administrator determined that because the primary duty of the Nutritional Outreach Instructors is teaching, and because they do so for an educational institution, the Instructors qualify as exempt teachers.

The Agricultural Exemption

Finally, in FLSA2019-5 (Apr. 2, 2019), the Wage and Hour Division addresses whether the exemption from overtime pay for employees in agriculture extends to a farm’s “light processing” activities—i.e., cutting or freezing its own agricultural products—and to packing, storing, and delivering those products.

As in the letter regarding teachers (and an August 2018 opinion letter), the Acting Administrator again cites Encino Motorcars for the requirement to construe FLSA exemptions “fairly” rather than narrowly.

The letter then notes that the exemption for agriculture extends to farming (known as “primary agriculture”) as well as activities performed by a farmer or on a farm in conjunction with such farming operations (known as “secondary agriculture”).  An activity qualifies as secondary agriculture only if it (1) is more akin to agriculture than manufacturing, (2) is subordinate to the farming operations involved, and (3) does not amount to an independent business.

The letter states that the Wage and Hour Division lacks information sufficient to determine whether the exemption applies in this instance.  However, it notes that the activities are likely to be secondary agriculture if the farm’s activities of cutting or freezing its own fruit, vegetables, or meat do not amount to an independent business, and the farm’s employees perform any delivery involving travel off of the farm.

Conclusion

The new batch of opinion letters provides a useful overview of the 8 and 80 method of computing overtime, as well as the exemptions for teachers and agricultural employees.

More broadly, although many past Wage and Hour Division opinion letters stated that exemptions from minimum wage and overtime requirements under the FLSA “are to be narrowly construed against the employers seeking to assert them,” it is now clear that the Wage and Hour Division views that principle as supplanted by the rule in Encino Motorcars requiring the “fair” reading of exemptions.

Our colleagues Adriana S. Kosovych, Jeffrey H. Ruzal, and Steven M. Swirsky at Epstein Becker Green have a post on the Hospitality Labor and Employment Law blog that will be of interest to our readers: “DOL Proposes New Rule to Determine Joint Employer Status under the FLSA.”

Following is an excerpt:

In the first meaningful revision of its joint employer regulations in over 60 years, on Monday, April 1, 2019 the Department of Labor (“DOL”) proposed a new rule establishing a four-part test to determine whether a person or company will be deemed to be the joint employer of persons employed by another employer. Joint employer status confers joint and several liability with the primary employer and any other joint employers for all wages due to the employee under the Fair Labor Standards Act (“FLSA”), and it’s often a point of dispute when an employee lodges claims for unpaid wages or overtime.

Under current DOL regulations, two or more employers acting entirely independently of each other may be deemed joint employers if they are “not completely disassociated” with respect to the employment of an employee who performs work for more than one employer in a workweek. In its proposal – a sharp departure from earlier Obama-era proposals to broaden the test for determining joint employer status to one based on economic realities – the DOL seeks to abandon the “not completely disassociated” test and has proposed to replace it with a four-part balancing test derived from Bonnette v. California Health & Welfare Agency, a 1983 decision by the Ninth Circuit Court of Appeals. …

Read the full post here.

On March 22, 2019, we wrote that the two houses of the Maryland General Assembly had agreed on a conference report adopting the Senate’s version of a bill that would increase the state-wide minimum wage to $15 by 2025 or 2026, depending on the size of the company, with two minor changes. We also discussed the bill on March 18, 2019.

As we predicted, Governor Hogan vetoed the bill on March 27, but the General Assembly on March 28, 2019 voted to override the veto. This means the first increase in the state-wide minimum wage will be on January 1, 2020, from $10.10 to $11 for all employers.

On March 18, 2019, we wrote that both houses of the Maryland Assembly had passed bills that would increase the state-wide minimum wage to $15 by 2025 or 2028, depending on the size of the company, but that the House and the Senate still had to work out their differences.

The two chambers acted quickly and on March 20, 2019 (Senate) and March 21, 2019 (House) adopted a conference report that essentially adopted the Senate version (SB 280), with two changes: (1) a two-year acceleration in the timing for companies with fewer than 14 employees, from January 1, 2028 to January 1, 2026, and (2) slightly lower annual increases, except for a higher increase in 2025, for reimbursements of certain health and human service organizations.

The bill now goes to Governor Hogan, but as previously noted, even if he vetoes the bill, he would face a likely veto override.

Maryland appears poised to increase its minimum wage to $15 per hour over the next few years, joining California, Illinois, Massachusetts, New Jersey, New York, and various local jurisdictions, including its own Montgomery County and neighboring District of Columbia.

On March 14, 2019, the Maryland Senate approved a bill (SB 280) that would increase the state-wide minimum wage for companies with at least 14 employees from $10.10 to $15 by January 1, 2025, starting with an increase to $11 on January 1, 2020. Smaller business would have until January 1, 2028 to reach $15. Although this differs slightly from the version (HB 166) that the Maryland House approved on March 1, 2019, which would require all business to reach $15 by 2025, it seems likely that the two chambers will work out their differences.

Both bills contain a provision allowing the Board of Public Works to temporarily suspend an increase on a one-time basis if it determines as of October 1 2020, and each year thereafter until October 1, 2024, that the seasonally adjusted total employment for the most recent six months is negative as compared with the immediately preceding six month period. If it does so, the remaining increases will be delayed by one year.

Both bills also require future annual increases of 4% in state funding of reimbursements to providers of nursing home, medical day care, private duty nursing, personal care and Home-and-Community-Based services provided through the Community First Choice Program to help them pay the higher minimum wage, although these do not necessarily make up the full cost of the required minimum wage increases. However, the Senate bill provides slightly higher annual increases than the House bill for reimbursements of health and human services organizations such as those that that serve people with disabilities or offer addiction treatment.

Although neither version changes the existing tip credit of $3.13, the Senate bill would require the Commissioner of Labor and Industry to adopt regulations requiring restaurant employers using the tip credit to provide a written or electronic wage statement for each pay period that shows the effective hourly tip rate as derived from cash wages plus all reported tips.

Finally, both bills lower the age at which employer can pay a so-called “training” wage of 85% of the state minimum wage from under age 20 to under age 18.

The House and Senate still have to work out their differences before sending the bill to Governor Hogan. However, even if he vetoes the bill, he would face a likely override because both the House and Senate passed their bills by veto-proof margins.

In the meantime, the minimum wage in Montgomery County is already set to increase to $13 on July 1, 2019, and to $15 by July 1, 2021. And the minimum wage is already at $11.50 in Prince George’s County.

A Trending News interview from Employment Law This Week: New Proposed Overtime Rule.

Paul DeCamp discusses the U.S. Department of Labor (“DOL”) issued its long-awaited proposed overtime rule on March 7, 2019. This proposed rule would take the place of the Obama-era overtime rule that was blocked by a Texas federal judge in 2017.

Watch the interview below and read our recent post.

On March 14, 2019, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) released two opinion letters concerning the Fair Labor Standards Act (“FLSA”). One letter addresses the interplay between New York State’s overtime exemption for residential janitors (colloquially referred to as apartment “supers”) and the FLSA, which does not exempt such employees, and the other addresses whether time spent participating in an employer’s optional volunteer program constitutes “hours worked” requiring compensation under the FLSA.

While these opinion letters may not apply to all employers, they discuss general legal principles of broad applicability and so should be studied closely. In particular, these opinion letters are a useful reminder that (1) compliance with state law does not excuse noncompliance with the FLSA and generally will not constitute a good faith defense, and (2) when an employer directs or pressures an employee to volunteer, such as imposing consequences for not volunteering or guaranteeing a bonus for volunteering, volunteer time will likely constitute “hours worked” under the FLSA.

New York’s Residential Janitor Exemption:

In Opinion Letter FLSA 2019-1, the WHD addressed the interplay between federal and state minimum wage and overtime law in the context of live-in superintendents exempt from state minimum wage and overtime requirements under New York’s “residential janitor” exemption.

Starting with general legal principles, the WHD advised that when federal wage and hour law diverges from state or local law, the employer must comply with both laws and meet the standard of whichever law gives the employee the most protection.

The WHD then confirmed that the FLSA offers no analogue to New York’s residential janitor exemption, and that employers cannot rely on this or other state law exemptions from state law minimum wage and overtime requirements to establish a good faith defense to noncompliance with the FLSA.

But the WHD’s analysis did not end there. It explained that when an employee resides on the employer’s premises either permanently or for extended periods of time (whether as a building superintendent or otherwise), not all of the employee’s time at the residence is necessarily “hours worked” under the FLSA.

Here, the WHD cited the longstanding principle that time an employee spends on the premises eating, sleeping, entertaining or engaging in his own pursuits, free from any job-related duties, is not hours worked under the FLSA and need not be compensated. To reduce confusion about when an employee is actually working, the parties can establish a “reasonable agreement” establishing which hours on the premises are hours worked, thereby eliminating the need for precise recordkeeping of work hours. 

Participation in Employer-Sponsored Optional Volunteer Program:

 In FLSA 2019-2, the WHD examined employee participation in an employer’s optional community service program, pursuant to which employees were compensated for the time they spent volunteering during working hours or while they were required to be on the employer’s premises but were not compensated for hours that they spent volunteering outside of normal working hours (which occurred frequently). At the end of the year, those employees with the greatest community impact, decided, in part, based on the total overall hours each employee volunteered, receive a monetary award.

Relying on several previous opinion letters concerning volunteer activities, the WHD concluded that participation in the described program does not count as hours worked under the FLSA because:

  • The employer does not require participation in the program nor control or direct volunteer work;
  • Employees do not suffer adverse employment consequences if they do not participate in the program;
  • The employer does not guarantee participating employees a bonus for volunteering; and
  • The employer does not pressure its employees to participate in the program.

The WHD also confirmed that an employer can use a mobile device application to track a participating employee’s time spent volunteering and determine which team’s volunteering has the greatest community impact, provided that this application is not used to direct or control the volunteering activities.

As we wrote in this space just last week, the U.S. Department of Labor (“DOL”) has proposed a new salary threshold for most “white collar” exemptions.  The new rule would increase the minimum salary to $35,308 per year ($679 per week) – nearly the exact midpoint between the longtime $23,600 salary threshold and the $47,476 threshold that had been proposed by the Obama Administration.  The threshold for “highly compensated” employees would also increase — from $100,000 to $147,414 per year.

Should the proposed rule go into effect – and there is every reason to believe it will – it would be effective on January 1, 2020.  That gives employers plenty of time to consider their options and make necessary changes.

On first glance, dealing with the increase in the minimum salaries for white-collar exemptions would not appear to create much of a challenge for employers—they must decide whether to increase employees’ salaries or convert them to non-exempt status. Many employers that reviewed the issue and its repercussions back in 2016, when it was expected that the Obama Administration’s rules would go into effect, would likely disagree with the assessment that this is a simple task. The decisions not only impact the affected employees, but they also affect the employers’ budgets and compensation structures, potentially creating unwanted salary compressions or forcing employers to adjust the salaries of other employees.

In addition, converting employees to non-exempt status requires an employer to set new hourly rates for the employees. If that is not done carefully, it could result in employees receiving unanticipated increases in compensation—perhaps huge ones— or unexpected decreases in annual compensation.

The Impact on Compensation Structures

For otherwise exempt employees whose compensation already satisfies the new minimum salaries, nothing would need be done to comply with the new DOL rule. But that does not mean that those employees will not be affected by the new rule. Employers that raise the salaries of other employees to comply with the new thresholds could create operational or morale issues for those whose salaries are not being adjusted. It is not difficult to conceive of situations where complying with the rule by only addressing the compensation of those who fall below the threshold would result in a lower-level employee leapfrogging over a higher-level employee in terms of compensation, or where it results in unwanted salary compression.

Salary shifts could also affect any analysis of whether the new compensation structure adversely affects individuals in protected categories. A female senior manager who is now being paid only several hundred dollars per year more than the lower-level male manager might well raise a concern about gender discrimination if her salary is not also adjusted.

The Impact of Increasing Salaries

For otherwise exempt employees who currently do not earn enough to satisfy the new minimum salary thresholds, employers would have two choices: increase the salary to satisfy the new threshold or convert the employee to non-exempt status. Converting employees to non-exempt status can create challenges in attempting to set their hourly rates (addressed separately below).

If, for example, an otherwise exempt employee currently earns a salary of $35,000 per year, the employer may have an easy decision to give the employee a raise of at least $308 to satisfy the new threshold. But many decisions would not be so simple, particularly once they are viewed outside of a vacuum. What about the employee who is earning $30,000 per year? Should that employee be given a raise of more than $5,000 or should she be converted to non-exempt status? It is not difficult to see how one employer would choose to give an employee a $5,000 raise while another would choose to convert that employee to non-exempt status.

What if the amount of an increase seems small, but it would have a large impact because of the number of employees affected? A salary increase of $5,000 for a single employee to meet the new salary threshold may not have a substantial impact upon many employers. But what if the employer would need to give that $5,000 increase to 500 employees across the country to maintain their exempt status? Suddenly, maintaining the exemption would carry a $2,500,000 price tag. And that is not a one-time cost; it is an annual one that would likely increase as those employees received subsequent raises.

The Impact of Reclassifying an Employee as Non-Exempt

If an employer decides to convert an employee to non-exempt status, it faces a new challenge—setting the employee’s hourly rate. Doing that requires much more thought than punching numbers into a calculator.

If the employer “reverse engineers” an hourly rate by just taking the employee’s salary and assuming the employee works 52 weeks a year and 40 hours each week, it will result in the employee earning the same amount as before so long as she does not work any overtime at all during the year. The employee will earn more than she did previously if she works any overtime at all. And if she works a significant amount of overtime, the reclassification to non-exempt status could result in the employee earning significantly more than she earned before as an exempt employee. If she worked 10 hours of overtime a week, she would effectively receive a 37 percent increase in compensation.  And, depending on the hourly rate and the number of overtime hours she actually works, she could end up making more as a non-exempt employee than the $35,308 exemption threshold.

But calculating the employee’s new hourly rate based on an expectation that she will work more overtime than is realistic would result in the employee earning less than she did before. If, for instance, the employer calculated an hourly rate by assuming that the employee would work 10 hours of overtime each week, and if she worked less than that, she would earn less than she did before—perhaps significantly less. That, of course, could lead to a severe morale issue—or to the unwanted departure of a valued employee.

In putative class action lawsuits, it is not uncommon for counsel for the employer to interview putative class members about the claims in the lawsuit. A new decision from the United States District Court for the Eastern District of Pennsylvania has concluded that such communications could be improper, at least in that state.

In Weller v. Dollar General Corp., No. 17-2292 (E.D. Pa.), a case in which the plaintiff brought both putative class action claims under Fed. R. Civ. P. 23 and a proposed collective action on the Fair Labor Standards Act (“FLSA”), the employer interviewed putative class members and submitted declarations from some of them in opposition to the plaintiff’s motion for class certification.

The plaintiff moved to strike those declarations on the grounds that (i) defendant had not identified the declarants in its initial or supplemental disclosures and (ii) Pennsylvania law prohibits ex parte communications with putative members of class actions.

In its decision, the court held that defendant’s communications with putative class members in fact were improper, but allowed the plaintiff to depose the declarants rather than exclude this evidence. The court determined that the defendant did not violate Fed. R. Civ. P. 26 by failing to identifying the declarants in its disclosures.

On the issue of communications with putative class members, the court found the absence of an absolute bar on defense counsel’s communications with potential FLSA plaintiffs irrelevant for purposes of determining the propriety of counsel’s communications with putative Rule 23 class members. As the court explained, defense counsel was still required to comply with law governing Rule 23 class actions in Pennsylvania, and under Pennsylvania Rule of Professional Conduct 4.2, defense counsel may not contact or interview potential witnesses who are putative class members without the named plaintiffs’ consent. In so holding, the court rejected the defendant’s argument that the U.S. Supreme Court case of Gulf Oil Co. v. Bernard supports ex parte communications between defense counsel and putative class members, reasoning that Gulf Oil addressed a plaintiff’s efforts to communicate with putative class members and recognized the potential for abuse in any party’s communication with potential class members.

On the issue of insufficient disclosures, the court reasoned that the defendant did not violate Rule 26 by not identifying putative class member witnesses in its disclosures because defendant was barred from ex parte communications with putative class members and therefore could not identify such class members in its disclosures. Moreover, the court held that the defendant did not need to update its disclosures to identify employees that were already known to the plaintiff through other forms of discovery.

Finally, as to sanctions, while the court acknowledged the prejudice to the plaintiff arising from the defendant’s ex parte communications with current employees likely to cooperate with their current employer, it did not find bad faith on the defendant’s part (notwithstanding the court’s conclusion that it should have known the law) and determined that such prejudice could be cured by allowing plaintiff access to these employees in the form of depositions.

This decision is a reminder that the rules regarding counsel’s communications with putative class members are not uniform and that the consequences for improper ex parte communications can be severe. As the court in Weller advised, if in doubt about whether contact is permitted, a party should seek court authorization or request the information through formal discovery. At a minimum, counsel should consider the consequences of any communication before initiating contact with potential class members.

The U. S. Supreme Court established limitations on personal jurisdiction over non-resident corporate defendants in state court “mass” actions in Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco Cty., 137 S. Ct 1773 (June 17, 2017) (hereafter “BMS”).  BMS’s key holding was that the necessary nexus between an appropriate court for a mass action and a corporate defendant required more than just the company’s connections in the state and the alleged similarity of claims by resident plaintiffs and non-resident plaintiffs.  The practical effect is to limit forum shopping by plaintiffs in large state mass or class actions and to require such suits be maintained only where a corporate defendant has significant contacts to support general jurisdiction.

Because BMS addressed personal jurisdiction in state courts, it did not directly address if the same personal jurisdiction requirements applied to federal court collective and class actions.  Since BMS, a number of federal district courts have addressed whether BMS is a basis for limiting FLSA or other wage hour class and collective claims in federal court.

Finding BMS does limit FLSA or other class and collective actions are four noteworthy decisions.  Mussat v. IQVIA, Inc., 2018 WL 5311903 (N.D. III. Oct. 26, 2018), put the matter most succinctly holding that “Whether it be an individual, mass, or class action, the defendants’ rights should remain constant.”  The District of Massachusetts directed that opt-in notices to drivers in a putative nationwide FLSA collective action be limited to drivers in the forum state, Massachusetts, in Roy v. FedEx Ground Package System, Inc., 2018 WL 6179504 (D. Mass. Nov. 27, 2018).  The court opined that “[n]othing in Bristol-Myers suggests that its basic holding is inapplicable to class actions.”  The court in Practice Management Support Services, Inc. v. Cirque du Soleil, Inc., 301 F. Sup. 3d 840 (N.D. III. 2018), similarly held that “It is not clear how [plaintiff] can distinguish the Supreme Court’s basic holding in Bristol-Myers simply because this is a class action.”  To the same effect is Maclin v. Reliable Reports of Texas, Inc., 1:17-cv-2612 (N.D. Ohio Mar. 26, 2018).

Two courts have held to the contrary.  In Dennis v. IDT Corp., 2108 WL 5631102 (N.D. Ga. Oct. 18, 2018), the court attempted to assert that the difference between state mass torts and federal class actions make BMS inapplicable.  The court argued that BMS was premised on federalism concerns generally not pertinent to federal court nationwide class actions.  Similarly, Hospital Auth. of Metro. Gov’t of Nashville v. Momenta Pharms., Inc., 2018 WL 6378457 (M.D. Tenn. Dec. 5, 2018), refused to grant a motion to dismiss for lack of personal jurisdiction.  The court asserted that defendants possess necessary due process safeguards because of the provisions of Rule 23, Fed. R. Civ. Pro.  That view, however, does not address if there is a sufficient basis for personal jurisdiction, a factor not really considered under Rule 23 and its requirements for determining whether there is a proper basis for a class action and, if so, under which subdivision of Rule 23.  Rule 23 was not designed as the basis for determining if the defendant can properly be held to answer claims in a particular federal court because necessary personal jurisdiction exists. That is an inquiry tested under the requirements of Rule 12 (b) Fed. R. Civ. Pro.

So far, no appellate courts have weighed in on whether the BMS decision applies to class and collective action in federal court.  The better reasoned district court decisions, however, have found that it does.  Accordingly, employers faced by putative wage hour class or collective actions in forums where they do not have significant contacts to justify personal jurisdiction should clearly consider asserting such a defense by early motion.  Should the motion be denied, consideration of a request for interlocutory appeal under 28 U.S.C. § 1292 (b) as presenting “a controlling question of law as to which there is substantial ground for difference of opinion” and where immediate appeal “may materially advance the ultimate termination of the litigation,” might also be appropriate.

While there is no definitive appellate court decision, and there is some disagreement among lower courts, a majority of the district courts that have rendered opinions on the subject are in agreement that the Supreme Court’s holding in BMS is applicable to federal FLSA cases.  These decisions provide strong support to employers who oppose forum shopping plaintiffs in wage-and-hour class and collective actions.