Wage and Hour Policies

As we previously shared in this blog, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) issued an opinion letter in November 2018 changing the Department’s position regarding whether and when an employer with tipped employees, such as a restaurant, can pay an employee a tipped wage less than the federal minimum wage.

The issue was whether an employer must pay a tipped employee the full minimum wage for time spent performing what the industry calls “side work”: tasks such as clearing tables or filling salt and pepper shakers that do not immediately generate tips.

The Department concluded that, under federal law, there is no limit on the amount of time a tipped employee can spend on side work while still receiving a tipped wage so long as the employee also performs the normal tip-generating activities of the role at or around the same time. The Department indicated that the opinion letter supersedes the Department’s prior guidance on the topic, contained in section 30d00(f) of the WHD Field Operations Handbook (“FOH”), and that “[a] revised FOH statement will be forthcoming.”

On February 15, 2019, the Department issued two new guidance documents reflecting the Department’s updated enforcement position:

  • First, a revised FOH section 30d00(f) consistent with the November 2018 opinion letter now appears on WHD’s website.
  • Second, Acting WHD Administrator Keith Sonderling issued Field Assistance Bulletin No. 2019-2 explaining the reasons for the change in policy, including noting that the Department’s “prior interpretation created confusion for the public about whether” the law “requires certain, non-tipped duties to be excluded from the tip credit.” This bulletin instructs WHD’s staff to apply the revised FOH principles not only to work performed after the issuance of the opinion letter but also “in any open or new investigation concerning work performed prior to the issuance of WHD Opinion Letter FLSA2018-27 on November 8, 23018.” (Emphasis added.)

This new guidance finishes what the November 2018 opinion letter set in motion—removing the prior interpretation from the FOH, promulgating the current interpretation, and declaring that the current position applies both prospectively and retroactively.

On February 4, 2019, a divided panel of the California Court of Appeal issued their majority and dissenting opinion in Ward v. Tilly’s, Inc.  It appears to be a precedent-setting decision in California, holding that an employee scheduled for an on-call shift may be entitled to certain wages for that shift despite never physically reporting to work.

Each of California’s Industrial Welfare Commission (“IWC”) wage orders requires employers to pay employees “reporting time pay” for each workday “an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work.”

In Ward, the plaintiff alleged that when on-call employees contact their employer two hours before on-call shifts, they are effectively “report[ing] for work” and thus are owed reporting time pay.  The employer disagreed, arguing that employees “report for work” only by physically appearing at the work site at the start of a scheduled shift.  That is, the Ward employer argued that employees who merely call in and are told not to come to work are not owed reporting time pay.

Two justices of the California Court of Appeal took a public policy-centric position and agreed with the employee’s view of the law, concluding “that the on-call scheduling alleged in th[at] case triggers Wage Order 7’s reporting time pay requirements” because “on-call shifts burden employees, who cannot take other jobs, go to school, or make social plans during on-call shifts – but who nonetheless receive no compensation from [the employer] unless they ultimately are called in to work.”

After concluding that it is not clear from the phrase “report for work,” whether that means a requirement that the employee be physically present at the work site or whether it may also mean “presenting himself or herself in whatever manner the employer has directed, including, as in th[at] case, by telephone, two hours before the scheduled start of an on-call shift,” the Ward majority considered other methods of statutory construction.  After considering other cases where statutes were enacted before developing technologies, the Ward majority concluded that “Wage Order 7 does not reference telephonic reporting, nor is there evidence that the IWC ever considered whether telephonic reporting should trigger the reporting time pay requirement.”

After rejecting the Ward employer’s interpretation of “report for work,” the Ward majority announced a new interpretation for the reporting time pay requirement of California’s IWC wage orders:

“If an employer directs employees to present themselves for work by physically appearing at the workplace at the shift’s start, then the reporting time requirement is triggered by the employee’s appearance at the job site.  But if the employer directs employees to present themselves for work by logging on to a computer remotely, or by appearing at a client’s job site, or by setting out on a trucking route, then the employee “reports for work” by doing those things.  And if . . . the employer directs employees to present themselves for work by telephoning the store two hours prior to the start of a shift, then the reporting time requirement is triggered by the telephonic contact.”

The Hon. Anne H. Egerton dissented in Ward, concluding that the “legislative history of the phrase ‘report for work’ reflects the drafters’ intent that – to qualify for reporting time pay – a retail salesperson must physically appear at the workplace: the store.”  Supporting that conclusion, Justice Egerton cited a federal district court decision made by the Hon. George Wu, where he concluded that a court’s “fundamental task in interpreting Wage Orders is ascertaining the drafters’ intent, not drawing up interpretations that promote the Court’s view of good policy,” and held that “call-in shifts do not trigger reporting-time penalties, even if the scheduling practice is inconvenient and employee-unfriendly.”

Given the well-reasoned dissent, this may be a case for the California Supreme Court to review.  In the interim, however, the Ward majority is arguably the precedent in California.

Following Ward, entities doing business in California will want to review their on-call scheduling and payment practices.

On January 17, 2019, New Jersey Governor Phil Murphy and legislative leaders announced an agreement to raise New Jersey’s minimum wage to $15 an hour by 2024. Under the agreement, and presuming enactment, effective July 1, 2019, the state’s minimum wage for most workers will increase from $8.85 to $10 an hour; thereafter, it will increase $1 an hour every January 1 until reaching $15 on January 1, 2024.

For seasonal workers and employees of small businesses (i.e., five or fewer workers), the ramp-up to $15 an hour would extend to 2026. For farmworkers, the base minimum wage would increase incrementally to $12.50 by January 1, 2024. Then, a special committee would review to determine whether to raise the farmworkers’ minimum wage to $15 an hour. …

Read the full Advisory online.

For years, EBG’s free wage-hour app has put federal, state and local wage-laws at your fingertips.

One of the most significant developments in wage-hour law in recent years has been the implementation of new state and local minimum wages, many of which just went into effect on January 1, 2019.

EBG’s free wage-hour app includes those new 2019 minimum wages.

Downloading the app couldn’t be easier.

Available without charge for iPhone, iPad, and Android devices.

On January 15, 2019, the U.S. Supreme Court issued a unanimous decision in New Prime Inc. v. Oliveira, a case concerning the enforceability of arbitration agreements.

Petitioner New Prime Inc. (“New Prime”) is an interstate trucking company that engaged Dominic Oliveira to perform work as a driver pursuant to an “Independent Contractor Operating Agreement,” containing both an arbitration clause and a delegation clause giving the arbitrator authority to decide threshold questions of arbitrability.

Oliveira filed a putative class action against New Prime in federal court in Massachusetts alleging failure to pay truck drivers minimum wage pursuant to the Fair Labor Standards Act and Missouri and Maine labor laws. New Prime filed a motion to compel arbitration under Section 4 of the Federal Arbitration Act (“FAA”). In response, Oliveira argued that New Prime cannot compel arbitration because Section 1 of the FAA excludes “contracts of employment of . . . seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” commonly known as the transportation workers exclusion.

The district court determined that although the parties agreed to arbitrate gateway questions of arbitrability, the applicability of the transportation worker exclusion is not a question of arbitrability that the parties may delegate to an arbitrator. The court concluded that the exclusion does not extend to independent contractors and therefore ordered the parties to conduct discovery as to whether Oliveira was an independent contractor or an employee.

On appeal, the First Circuit agreed that applicability of the transportation worker exclusion is an “antecedent determination” that must be made by the court before arbitration can be compelled under the FAA. However, the First Circuit overturned the district court’s holding that the exclusion does not apply to independent contractors, relying on the ordinary meaning of the statutory phrase “contracts of employment” at the time Congress enacted the FAA.

The Supreme Court focused on two legal issues:

  1. Should a court determine whether a Section 1 exclusion to the FAA applies before ordering arbitration where the parties’ contract contains a delegation clause?
  2. Does the transportation worker exclusion apply to independent contractors as well as employees?

The Court answered both inquiries in the affirmative. On the question of arbitrability, the Court reasoned that courts do not have limitless power to compel arbitration of all private contracts. Rather, Section 2 of the FAA states that such power is limited to arbitration agreements involving commerce or maritime transactions, which is informed by Section 1. Thus, in order to properly assert its power to compel arbitration, a court must first determine whether the FAA applies to the contract at issue. The Court rejected the proposition that courts are barred from making this threshold determination when the parties’ contract contains a delegation clause, emphasizing that a delegation clause is “merely a specialized type of arbitration agreement,” enforceable only to the extent that the “involving commerce” requirement under Section 2 of the FAA is satisfied and the exclusion under Section 1 is inapplicable.

On the merits of the New Prime’s Section 1 challenge, the Court looked to the meaning of “contracts of employment” as that phrase was used at the time the FAA was adopted in 1925. The Court sought to avoid ascribing new meaning to “old statutory terms” in a way that would effectively and improperly amend legislation. The Court looked at dictionary entries from the time for this phrase and, in finding none, concluded that the phrase was not a term of art and was construed broadly to cover any “work,” not just work in a formal employer-employee relationship. The Court found further support for this conclusion in early twentieth-century case law and statutes that construe this phrase to cover work agreements involving independent contractors. The Court also noted that Section 1’s statutory text also includes—in close proximity to the phrase “contract of employment”—the term “workers” (i.e., “workers engaged in interstate commerce”). Finally, the Court refused to stray from the statutory text in favor of indiscriminately enforcing the policy behind the FAA, concluding that even a liberal federal policy favoring arbitration agreements has limits, and that courts must respect such limits.

While the New Prime decision is being heralded by some as a great victory to employees, likely because it is the first Supreme Court decision in years to ultimately reject a claim for arbitration, its impact on employers and employees appears to be rather limited in scope. First, the Court took no position as to whether Oliveira was an independent contractor or an employee, as Oliveira assumed for purposes of appeal that his contract established only an independent contractor relationship. Second, the Court did not affirmatively find that Oliveira qualified as a “worker[] engaged in . . . interstate commerce,” as again, the parties did not dispute this point. Third, the Court declined to address New Prime’s argument that courts have inherent authority to stay litigation in favor of the alternative dispute resolution of parties’ voluntary agreement.

Most importantly, the Court’s decision in no way broadens the transportation workers exclusion to cover workers in other industries. The decision does not curtail earlier rulings in which the Court construed Section 1’s language “any other class of workers engaged in . . . commerce” as excluding from the FAA only contracts of employment of transportation workers. Nothing in New Prime suggests that the Court would now deviate from this position. Although there is no longer a distinction between employee and independent contractor for purposes of Section 1, New Prime does not allow all contractors to suddenly bypass arbitration and vindicate their rights in court because this exception is limited to transportation workers.

The Court’s decision resolves only questions of federal law, meaning that courts presented in the future with arbitration agreements involving transportation workers will need to determine the enforceability of the agreements under state law. This issue will turn on state arbitration statutes, as well as contract law, public policy, and other considerations. Significant variation by jurisdiction seems likely.

The Illinois State Legislature expanded the Illinois Wage Payment and Collection Act to include a new section (820 Illinois Compiled Statues 115/9.5) (“Amendment”) that now requires every Illinois employer to reimburse an employee for all “necessary expenditures or losses incurred by the employee within the employee’s scope of employment and directly related to services performed for the employer.” The Amendment became effective January 1, 2019.

“Necessary expenditures” include any reasonable expenses or losses that the employee incurs that primarily benefit the employer and are a result of the employee discharging the duties of his or her position (e.g., required travel to an off-premises work site or required usage of a personal data plan, but not an ordinary commuting expense). Importantly, the Amendment allows employers to establish written guidelines for “necessary expenditures,” and an employer is not required to reimburse any expenses exceeding those guidelines. For example, employers that reimburse for an employee’s data or Internet charges for a personal device may establish a certain limit on the amount that is reimbursable.

Read the full Advisory online.

On December 12, 2018, in Furry v. East Bay Publishing, LLC, the California Court of Appeal held that if an employer fails to keep accurate records of an employee’s work hours, even “imprecise evidence” by the employee “can provide a sufficient basis for damages.”

In the case, not only did the employer in Furry not keep accurate records of the employee’s time, but only the amount of damages, and not the fact of the underlying violation, was in dispute. Under those circumstances, the Court held that the employee’s “imprecise evidence” of the unpaid hours that he worked was permissible to establish the amount of unpaid overtime.

The Court found that the level of detail that the employee advanced regarding his uncompensated hours was sufficient to shift the burden of proof to the employer to either give specific evidence of the hours actually worked or disprove the employee’s recollection. The Court stated that the fact “[t]hat [the employee] had to draw his time estimates from memory was no basis to completely deny him relief,” overruling the trial court’s complete denial of damages for the employee’s overtime claim.

In reaching reversing the trial court’s ruling on this issue, the Court rejected the employer’s argument that the trial court’s ruling was merely a credibility determination that was entitled to deference. Instead, the Court held that the trial court had a duty to draw “reasonable inferences” from the employee’s evidence – and had failed to do so.

Notably, the Court expressly distinguished this case from one where the underlying violation was in dispute. Therefore, this decision should only apply to disputes regarding damages.

While it reversed the trial court’s finding on that issue, the Court of Appeal upheld the trial court’s denial of relief on the employee’s meal period claim. The employee argued that although he was provided the opportunity to take off-duty meal periods and chose to take them at his desk, he was still entitled to regular compensation for time and meal period premiums when he worked through his meal periods. The Court held that the employee failed to show that the employer “knew or reasonably should have known” that he was working through his meal periods. Therefore, he was not entitled to relief on his meal period claim.

This decision reinforces for employers the importance of keeping and maintaining accurate time and payroll records. Of course, this decision is not binding on other Courts of Appeal, and it is possible that the California Supreme Court would reach a different conclusion, should it hear this case.

True to its promise last year, the U.S. Department of Labor’s Wage and Hour Division (the “WHD”) continues to issue a steady stream of opinion letters designed to offer practical guidance to employers on specific wage and hour issues solicited by employers. This past week, the WHD issued two new opinion letters concerning the Fair Labor and Standards Act (“FLSA”), where one addresses an employer’s hourly pay methodology vis-à-vis the FLSA’s minimum wage requirement, and the other the ministerial exception to the FLSA. While not universally applicable, employers should consider the general principles set forth in these opinion letters, and then further research the underlying relevant regulations and the DOL’s interpretive guidance to more fully understand the basic requirements to ensure legal compliance.

Varying Average Hourly Rate:

In Opinion Letter FLSA2018-28, the WHD examined a compensation plan in which a home-health aide employer paid employee aides on an hourly basis for each of their client appointments. While the employer did not specifically pay aides for their travel time between client locations, the hourly rate they received for the client appointments was sufficiently large enough when averaged among all hours worked, including travel time, to satisfy the minimum wage requirements of the FLSA. Specifically, the employer multiplied each employee’s time with clients by his or her hourly pay rate (typically $10 per hour) and then divided the product by the employee’s total hours worked (which includes both the client time and the travel time). Employees who work over 40 hours (including travel time) in any given workweek are paid time and one-half for all time over 40 hours based on a regular rate of $10.00.

Based on these facts, the WHD concluded that this payment scheme complies with the FLSA’s minimum wage requirements, reaffirming the principle that an employee’s average hourly rate can vary from workweek to workweek as long as it exceeds the FLSA’s minimum wage requirements for all hours worked. On the issue of overtime pay, however, the WHD cautioned that the employer’s compensation plan may not comply with the FLSA because the employer assumed a regular rate of $10 when, in fact, certain of its employees have actual regular rates of pay greater than $10. In other words, the regular rate cannot be arbitrarily selected; it must be based on an actual “mathematical computation.”

Ministerial Exception:

In Opinion Letter FLSA2018-29, the WHD advised that members of a Christian cooperative who share all personal property and funds and work for the organization, either in the schools, kitchens, or laundries or for two onsite non-profits that generate income for the organization, are not “employees” under the FLSA. As a preliminary matter, the WHD emphasized that the members of the cooperative do not expect to receive compensation for their services, which is the hallmark of an employment relationship.   The WHD further reasoned that the organization’s members are similar to nuns, priests, and other members of a religious order who work for church-affiliated entities, who typically fall within the FLSA’s ministerial exception. The WHD reasoned that like priests and nuns, the members of the religious cooperative share resources, gather for communal meals and worship, and provide for their own education, healthcare, and other necessities. In light of these similarities and the absence of any expectation of compensation, the WHD determined that the members of the cooperative were not employees for purposes of the FLSA.

The Opinion Letter further noted that the fact that some members work for non-profit, income-generating ventures did not alter the WHD’s conclusion. Relying on U.S. Supreme Court precedent exempting religious activities from the FLSA’s reach, the WHD explained that the members consider the work indivisible from prayer and reiterated that individuals can work for entities covered by the FLSA without being deemed employees under the FLSA.

Under the Fair Labor Standards Act (“FLSA”), employers can satisfy their minimum wage obligations to tipped employees by paying them a tipped wage of as low as $2.13 per hour, so long as the employees earn enough in tips to make up the difference between the tipped wage and the full minimum wage. (Other conditions apply that are not important here.) Back in 1988, the U.S. Department of Labor’s Wage and Hour Division amended its Field Operations Handbook, the agency’s internal guidance manual for investigators, to include a new requirement the agency sought to apply to restaurants. Under that then-new guidance, when tipped employees spend more than 20% of their working time on tasks that do not specifically generate tips—tasks such as wiping down tables, filling salt and pepper shakers, and rolling silverware into napkins, duties generally referred to in the industry as “side work”—the employer must pay full minimum wage, rather than the lesser tipped wage, for the side work.

This provision of the Handbook flew largely under the radar for years. This was partly because the Department did not publicize the contents of the Handbook, and party because the Department did not bring enforcement actions premised on a violation of this 20% standard. And historically, virtually nobody in the restaurant industry maintained records specifically segregating hours and minutes spent on tip-generating tasks as compared to side work.

In 2007, a federal district court in Missouri issued a ruling in a class action upholding the validity of the 20% standard, and that decision received an enormous amount of attention and publicity. In the years that followed, a wave of class actions against restaurants flooded the courts across the country, all contending that the restaurants owe the tipped employees extra money because of the Department’s 20% standard in the Handbook.

In January of 2009, in the waning days of the George W. Bush Administration, the Department issued an opinion letter rejecting the 20% standard, superseding the Handbook provision, and stating that there is no limit on the amount of time a tipped employee can spend on side work. Six weeks later, however, in March of 2009, the Obama Administration withdrew that opinion letter. In subsequent years, the Department filed several amicus curiae briefs in pending court cases endorsing the 20% standard, and the Department even modified the Handbook provision to make the requirements even more difficult for employers to satisfy.

In late 2017, a divided three-judge panel of the U.S. Court of Appeals for the Ninth Circuit concluded, in nine consolidated appeals presenting the same issue, that the Department’s 20% standard is not consistent with the FLSA and thus was unlawful. A few months later, however, a divided 11-judge en banc panel of the same court reached the opposite conclusion, ruling by an 8-3 vote that the 20% standard is worthy of deference.

In July of 2018, the Restaurant Law Center, represented by Epstein Becker Green, filed a declaratory judgment action against the Department in federal court in Texas challenging the validity of the 20% standard under the FLSA, the Administrative Procedure Act, and the U.S. Constitution. Roughly a month before the employers’ deadline to file a certiorari petition with the Supreme Court regarding the en banc Ninth Circuit ruling, and just days before the government’s response is due in the Texas litigation, the Department reissued the 2009 opinion letter.

This opinion letter, now designated as FLSA2018-27, once again rejects the 20% standard and clarifies that employers may pay a tipped wage when employees engage in side work so long as the side work occurs contemporaneously with, or in close proximity to, the employees’ normal tip-generating activity. This opinion letter should put an end to the many pending cases, including numerous class actions, that depend on the 20% standard.

The overall take-away for employers is that at least under federal law, side work performed during an employee’s shift, in between tip-generating tasks, should present no concern. The same should be true of side work performed at the start or end of an employee’s shift, so long as the side work does not take too long. An employee coming in fifteen or thirty minutes before the restaurant is open to help get the restaurant ready for the day, followed by the remainder of the shift in which the employee generates tips, seems to be consistent with the new opinion letter. Likewise for employees who spend some time at the end of the shift helping to close the restaurant for the day. But employers should use common sense and good judgment, as having tipped employees spend hours and hours performing side work may still give rise to risks. And it remains important to be aware of any state or local law requirements that may differ from federal law.

On July 26, 2018, the California Supreme Court issued its long-awaited opinion in Troester v. Starbucks Corporation, ostensibly clarifying the application of the widely adopted de minimis doctrine to California’s wage-hour laws. But while the Court rejected the application of the de minimis rule under the facts presented to it, the Court did not reject the doctrine outright. Instead, it left many questions unanswered.

And even while it rejected the application of the rule under the facts presented, it did not address a much larger question – whether the highly individualized issues regarding small increments of time allegedly worked “off the clock” could justify certification of a class on those claims.

For more than 70 years, federal courts have regularly applied the de minimis doctrine in certain “circumstances to excuse the payment of wages for small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record.” Those courts have concluded that as much as 15 minutes per day could be considered de minimis and, therefore, noncompensable.

In Troester, the California Supreme Court concluded that most of California’s wage and hour laws have not in fact adopted the de minimis doctrine found in the federal Fair Labor Standards Act (“FLSA”). However, the Court did not go so far as to reject the application in all instances. Indeed, the Court specifically declined to “decide whether there are circumstances where compensable time is so minute or irregular that it is unreasonable to expect the time to be recorded.” (Emphasis added.)

The key words in that sentence appear to be “minute” and “irregular.”

The Court declined to do so “given the wide range of scenarios in which this issue arises,” proffering what appear to be examples where the de minimis rule could apply – e.g., “paperwork involving a minute or less of an employee’s time” or “an employee reading an e-mail notification of a shift change during off-work hours.”

Under the facts presented to it, where the employer allegedly required employees to “work ‘off the clock’ several minutes per shift,” the Court found that the relevant statute and regulations did not permit application of the de minimis rule.

Specifically, it apparently was undisputed that the plaintiff “had various duties related to closing the store after he clocked out, and the parties [had] agree[d] for purposes of [the California Supreme Court] resolving the issue . . . that the time spent on these duties is compensable.” It also apparently was undisputed that these tasks took the plaintiff as few as 4 minutes and as much as 10 minutes each shift that he worked. Given those specific facts, the Court found that the de minimis rule would not be applicable, holding that, under California law generally, an “employer that requires its employees to work minutes off the clock on a regular basis or as a regular feature of the job may not evade the obligation to compensate the employee for that time by invoking the de minimis doctrine.” (Emphasis added.)

Consistent with prior language in the opinion, the key words in that conclusion appear to be “minutes” and “regular.”

In other words, while significant, regular time would not be de minimis, insignificant and irregular time could be.

And how that issue could be addressed on a classwide basis seems questionable, at best, given that the very nature of “off the clock” work is that there are no records of it. Individualized inquiries apparently would need to be conducted person-by-person, day-by-day, to determine if an individual in fact worked “minutes” off-the-clock on a “regular” basis.

Not unimportantly, in addition to the Court’s majority opinion, Justices Mariano-Florentino Cuéllar and Leondra Kruger wrote separate concurring opinions, each offering some additional support for employers.

Justice Cuéllar noted that while the Court’s majority opinion “protects workers from being denied compensation for minutes they regularly spend on work-related tasks,” it “does not consign employers or their workers to measure every last morsel of employees’ time.”

Justice Kruger also offered some examples where she opined that the de minimis rule could apply:

  • An employer requires workers to turn on their computers and log in to an application in order to start their shifts. Ordinarily this process takes employees no more than a minute (and often far less, depending on the employee’s typing speed), but on rare and unpredictable occasions a software glitch delays workers’ log-ins for as long as two to three minutes.
  • An employer ordinarily distributes work schedules and schedule changes during working hours at the place of employment. But occasionally employees are notified of schedule changes by e-mail or text message during their off hours and are expected to read and acknowledge the messages.
  • After their shifts have ended, employees in a retail store sometimes remain in the store for several minutes waiting for transportation. On occasion, a customer will ask a waiting employee a question, not realizing the employee is off duty. The employee – with the employer’s knowledge – spends a minute or two helping the customer.

Justice Kruger wrote that “a requirement that the employer accurately account for every second spent on work tasks may well be impractical and unreasonable” in the situations above.

Following Troester, entities doing business in California will want to review their practices and their timekeeping systems.

And while Troester certainly suggests that employers in California will face an increased number of class actions alleging that certain insignificant amounts of time should have been compensated, plaintiffs’ difficulty in actually getting classes certified on such claims appears relatively unchanged.