State Wage and Hour Laws

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

We will keep you posted as this matter develops.

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

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

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

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

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

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

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

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

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

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

On October 14, 2017, California Governor Jerry Brown signed Assembly Bill 1701, which will make general contractors liable for their subcontractors’ employees’ unpaid wages if the subcontractor fails to pay wages due.  The new law will go into effect on January 1, 2018.

Specifically, section 218.7 has been added to the Labor Code. Subdivision (a)(1) provides the following:

For contracts entered into on or after January 1, 2018, a direct contractor making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other private work, shall assume, and is liable for, any debt owed to a wage claimant or third party on the wage claimant’s behalf, incurred by a subcontractor at any tier acting under, by, or for the direct contractor for the wage claimant’s performance of labor included in the subject of the contract between the direct contractor and the owner.

Under section 218.7, the direct contractor’s liability will extend only to any unpaid wage, fringe benefit or other benefit payments or contributions – including interest – but will not extend to penalties or liquidated damages.

Section 218.7 makes clear that nothing in it “shall be construed to impose liability on a direct contractor for anything other than unpaid wages and fringe or other benefit payments or contributions including interest owed.”

Notably, employees will not have standing to enforce section 218.7 on their own. That is, AB 1701 gives the California Labor Commissioner, labor-management cooperation committees, and unions the right to bring an action against the direct contractor, but it does not provide any private right of action to potentially unpaid employees themselves to bring a claim against the direct contractor for unpaid wages.

For labor-management cooperation committees and unions who prevail in an action against a direct contractor for unpaid wages, they will be entitled to their reasonable attorney’s fees and costs, including expert witness fees.

For judgments rendered against direct contractors, their property may be attached to satisfy judgment.

Direct contractors will now be provided the right to request from their subcontractors their employees’ wage statements under Labor Code section 226(a) and payroll records that must be maintained under section 1174.  Such “records must contain information sufficient to apprise the requesting party of the subcontractor’s payment status in making fringe or other benefit payments or contributions to a third party on the employee’s behalf.”

Direct contractors and subcontractors also have the right to request from subcontractors below them “award information that includes the project name, name and address of the subcontractor, contractor with whom the subcontractor is under contract, anticipated start date, duration, and estimated journeymen and apprentice hours, and contact information for its subcontractors on the project.”

Significantly, a direct contractor may withhold as “disputed” all sums owed if a subcontractor fails to timely provide the payroll or project information referenced above, until that information is provided.

The new statute will make it more important than ever for contractors in California to ensure that they are doing business with reputable subcontractors. As part of those efforts, they will want to consider taking steps to ensure that their subcontractor agreements include adequate indemnification provisions and assurances that the subcontractors will comply with wage-hour laws, and perhaps even a term requiring subcontractors to provide periodic statements ensuring compliance with the law.  Of course, there will be a delicate balance to strike to avoid “joint employer” status.

Additionally, the Labor Commissioner, labor-management cooperation committees, and unions may argue that the term “wages” extends to meal and rest period premiums for missed, short, or non-compliant meal and rest periods. Accordingly, contractors in California may want to include specific assurances that subcontractors have compliant meal and rest period policies and practices, in addition to compliant wage and overtime policies and practices.

Since last November, much of the discussion regarding the Obama-era overtime regulations that, among other things, more than doubled the minimum salary threshold for executive, administrative, and professional employees under the Fair Labor Standards Act (“FLSA”) has focused on the Department of Labor’s appeal of the nationwide preliminary injunction barring implementation and enforcement of the rule.

While everyone is awaiting the oral argument before the Fifth Circuit, currently scheduled for October 3, 2017, Judge Amos Mazzant of the Eastern District of Texas once again issued a bold ruling sure to grab the public’s attention.

On August 31, 2017, Judge Mazzant granted summary judgment in favor of the plaintiffs in the two consolidated cases challenging the overtime rule, holding that the salary level the Department selected in 2016 conflicts with the FLSA, Nevada v. U.S. Department of Labor and Plano Chamber of Commerce, E.D. Tex. No. 4:16-CV-731.

After dealing with preliminary procedural issues including standing, ripeness, and the applicability of the FLSA to the States, Judge Mazzant focused on the substance of the 2016 rule.  Applying the legal framework set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984), the Court determined that the statutory language establishing the exemptions, section 13(a)(1) of the FLSA, 29 U.S.C. § 213(a)(1), “is unambiguous because the plain meanings of the words in the statute indicate Congress’s intent for employees doing ‘bona fide executive, administrative, or professional capacity’ duties to be exempt from overtime pay.”  (Slip Op. at 13.)

In the Court’s words, “the Department does not have the authority to use a salary-level test that will effectively eliminate the duties test as prescribed by” the FLSA.  (Slip Op. at 14.)  “Nor does the Department have the authority to categorically exclude those who perform ‘bona fide executive, administrative, or professional capacity’ duties based on salary level alone.”  (Id.)

In short, “[t]he updated salary-level test under the Final Rule does not give effect to Congress’s unambiguous intent.”  (Slip Op. at 14.)  The Court noted that “[t]he Department estimates 4.2 million workers currently ineligible for overtime, and who fall below the minimum salary level, will automatically become eligible under the Final Rule without a change to their duties.”  (Id. at 16.)

The Court held that “the Department’s Final Rule is not ‘based on a permissible construction’ of Section 213(a)(1)” because by “doubl[ing] the previous minimum salary level” the regulation “eliminates a consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties.”  (Slip Op. at 16-17.)  For Judge Mazzant, “[t]he Department has exceeded its authority and gone too far with the Final Rule.  Nothing in Section 213(a)(1) allows the Department to make salary rather than an employee’s duties determinative of whether” an employee “should be exempt from overtime pay.  Accordingly, the Final Rule is not a reasonable interpretation of Section 213(a)(1) and thus is not entitled to Chevron deference.”  (Id. at 17.)

The Court also struck down the regulation’s mechanism for automatically updating the minimum salary threshold every three years.  (Slip Op. at 17.)

In a portion of the decision that may have a direct effect on the pending appeal, the Court “acknowledges its injunction order might have been confusing” insofar as some have read that decision as “invalidat[ing] all versions of the salary-level test that the Department has used for the last seventy-five years.”  (Slip Op. at 4 n.1.)

The Court clarified that “the Department has the authority to implement a salary-level test” and that the summary judgment ruling “is not making any assessments regarding the general lawfulness of the salary-level test or the Department’s authority to implement such a test.  Instead, the Court is evaluating only the salary-level test as amended by the Department’s Final Rule, which is invalid under both steps of Chevron.”  (Id. at 13 n.5.)

As a result of Judge Mazzant’s ruling, the pending appeal may be moot.  The Department’s reply brief before the Fifth Circuit expressly disavowed a defense of the salary level selected in the Final Rule, instead asking the Fifth Circuit to rule only on the question of whether the Department has the authority to implement a salary-level test at all.  Judge Mazzant’s decision acknowledges that the Department has that authority, which appears to address the Department’s concern. In light of the decision, the Department may well withdraw its appeal.

In a much anticipated filing with the Fifth Circuit Court of Appeal in State of Nevada, et a. v. United States Department of Labor, et al, the United States Department of Labor has made clear that it is not defending the Obama Administration’s overtime rule that would more than double the threshold for employees to qualify for most overtime exemptions. However, the Department has taken up the appeal filed by the previous Administration to reverse the preliminary injunction issued blocking implementation of the rule, requesting that the Court overturn as erroneous the Eastern District of Texas’ finding, and reaffirm the Department’s authority to establish a salary level test. And the Department has requested that the Court not address the validity of the specific salary level set by the 2016 final rule because the Department intends to revisit the salary level threshold through new rulemaking.

The litigation stems from action taken by the Department in May 2016 to issue a final rule that would have increased the minimum salary threshold for most overtime exemptions under the Fair Labor Standards Act (“FLSA”) from $23,660 per year to $47,476 per year. The rule was scheduled to become effective on December 1, 2016, but a federal judge issued a temporary injunction blocking its implementation just days beforehand.

Section 13(a) of the FLSA exempts from the Act’s minimum wage and overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional [(“EAP”)] capacity * * * [specifically providing,] as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor].” 29 U.S.C. § 213(a)(1). To be subject to this exemption, a worker must (1) be paid on a salary basis; (2) earn a specified salary level; and (3) satisfy a duties test.  In enjoining the 2016 rule, the District Court for the Eastern District of Texas reasoned that the salary-level component of this three-part test is unlawful, concluding that “Congress defined the EAP exemption with regard to duties, which does not include a minimum salary level,” and that the statute “does not grant the Department the authority to utilize a salary-level test.”

In seeking reversal of the preliminary injunction, the Department has argued that the Fifth Circuit expressly rejected the claim that the salary-level test is unlawful in Wirtz v. Mississippi Publishers Corp. In Wirtz, the Court reasoned that “[t]he statute gives the Secretary broad latitude to ‘define and delimit’ the meaning of the term ‘bona fide executive * * * capacity,” and he rejected the contention that “the minimum salary requirement is arbitrary or capricious.”  Further, the Department argues that every circuit to consider the issue has upheld the salary-level test as a permissible component of the EAP regulations.

By many accounts, the Department’s recently-appointed Labor Secretary, Alexander Acosta, has made clear that he does not think the salary level should be at $47,476 per year, but rather set at a more reasonable level between $30,000 and $35,000 per year. While Secretary Acosta may disagree with the salary level of the 2016 rule, the Department’s brief seems to make clear that he wants to ensure that he has the authority to set any salary threshold.

In issuing the preliminary injunction, the District Court did not address the validity of the salary level threshold set by the 2016 rule. Because the injunction rested on the legal conclusion that the Department lacks authority to set a salary level, it may be reversed on the ground that the legal ruling was erroneous. As a result, by requesting that the Fifth Circuit not address the validity of the salary level set by the 2016 rule, should the Court reverse the preliminary injunction without ruling on the salary level’s validity, it is unclear whether the 2016 rule will immediately go into effect pending new rulemaking. Employers need to stay tuned.

When an employer pays the minimum wage (or more) instead of taking the tip credit, who owns any tips – the employer or the employee? In Marlow v. The New Food Guy, Inc., No. 16-1134 (10th Cir. June 30, 2017), the United States Court of Appeals for the Tenth Circuit held they belong to the employer, who presumably can then either keep them or distribute them in whole or part to employees as it sees fit. This directly conflicts with the Ninth Circuit’s decision last year in Oregon Restaurant and Lodging Ass’n v. Perez, 816 F.3d 1080, 1086-89 (9th Cir. 2016), pet for cert. filed, No. 16-920 (Jan. 19, 2017) and likely sets up a showdown this fall in the U.S. Supreme Court.

The plaintiff in Marlow, who was paid $12 per hour, alleged her employer was obligated to turn over to her a share of all tips paid by catering customers. The Tenth Circuit first held that the statutory language of 29 U.S.C. §203(m), which allows employers the option of paying a reduced hourly wage of $2.13 so long as employees receive enough tips to bring them to the current federal minimum of $7.25, does not apply when the employer pays the full minimum wage, and thus the plaintiff had no claim to any tips. In this regard the Court followed the 2010 decision in Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010), as well as a number of cited district court cases.

Crucially, the Court went on to hold that the U.S. Department of Labor (DOL) had no authority to promulgate its post-Woody Woo regulation, 76 Fed. Reg. 18,855 (April 5, 2011), amending 29 C.F.R. §531.52, which, contrary to Woody Woo, states that tips are the property of the employee whether or not the employer takes the tip credit under section 2013(m). In so doing, it held that although agencies may promulgate rules to fill “ambiguities” or “gaps” in statutes, they cannot regulate when there is no ambiguity or gap that the agency was authorized to fill. It then found (1) there were no “ambiguities” in the statute that needed to be filled, as the statute clearly only applied when an employer sought to use the tip credit; (2) there were no undefined terms in the statute; and (3) there was no statutory directive to regulate the ownership of tips when the employer is not taking the tip credit. In so doing, the Tenth Circuit expressly rejected the Ninth Circuit’s decision last year in Oregon Restaurant, which held that the DOL had the discretion to issue the regulation precisely because the statute was silent on the subject.

Notably, the Supreme Court has four times extended the time for DOL to file its opposition to the petition for certiorari in Oregon Restaurant, most recently on June 30 granting an extension until September 8, 2017. It appears the current DOL may not yet be not sure what position to take as to the validity of its Obama-era regulation. Marlow’s direct conflict with Oregon Restaurant increases the likelihood that either DOL may choose not to defend the regulation or that the Supreme Court will grant review to resolve the conflict when it returns in October.