The New York State Department of Labor (“NYSDOL”) recently announced that it would no longer pursue employee scheduling regulations concerning “call-in” (or “on-call”) pay and other so-called predictive scheduling matters. As we previously reported, the proposed regulations, if adopted, would have required most employers in New York State to provide call-in pay under various circumstances, even though the employee had not actually worked or, in some situations, had not even reported to work.

Proposed Regulations

The NYSDOL’s proposed regulations had been in the works for several years. As recently as December 2018, the NYSDOL published revised proposed regulations for which they sought the public’s comments. Among other measures, the revised proposed rules would have required covered employers to provide “call-in pay” ranging from two to four hours at the minimum wage rate if the employer (i) failed to provide employees with 14 days’ notice of either their scheduled work shift or the cancellation of their scheduled work shift, (ii) required an employee to work “on-call” or to call in up to 72 hours ahead of their potential next shift, or (iii) decided to send a non-exempt employee home after the employee was instructed to report to work. …

Read the full Advisory online.

The U.S. Department of Labor has released a proposal to update the overtime rules under the federal Fair Labor Standards Act. Employers should be prepared to raise salaries to meet the minimum thresholds, pay overtime when appropriate, and otherwise adhere to the new rules if they go into effect.

Federal overtime provisions are contained in the Fair Labor Standards Act (“FLSA”). Unless exempt, employees covered by the FLSA must receive overtime pay for hours worked over 40 in a workweek. To be exempt from overtime (i.e., not entitled to receive overtime), an exemption must apply. For an exemption to apply, an employee’s specific job duties and salary must meet certain minimum requirements. The “salary test” presently requires workers to make at least $23,660 on an annual basis to be exempt from overtime.

In March 2014, President Obama directed the Secretary of Labor to update the overtime regulations in the FLSA. In May 2016, after receiving more than 270,000 comments, the Department of Labor issued a final rule that raised the minimum salary threshold to $47,476 per year. That rule was declared invalid by the United States District Court for the Eastern District of Texas, and the Fifth Circuit dismissed the Department of Labor’s appeal – at the Department’s request – in September 2017.

The Department is now proposing to formally rescind the 2016 rule and is proposing a new rule that:

  • Raises the salary threshold from $455 per week ($23,660 per year) to $679 per week ($35,308 per year);
  • Allows employers to include “certain nondiscretionary bonuses and incentive payments” as up to 10% of the new $679 per week salary threshold; and
  • Raises the total annual compensation requirement for highly compensated employees – which are subject to a minimal duties test – from $100,000 to $147,414.

The proposed rule makes no changes to the duties test for executive, administrative, and professional employees. The Department intends to propose updates to the salary levels every four years.

More information about the proposed rule is available here. Employers with salaried employees under $35,308 annually should closely monitor the development of the rule and be prepared to adjust their pay practices. If it goes into effect, the new threshold will likely take effect in early 2020.

The obligations of a district court to analyze conflicting evidence regarding class and collective action certification was recently addressed by the Third Circuit Court of Appeals in Reinig v. RBS Citizens N.A., 912 F.3d 115, (3d Cir. 2018) (“Citizens”). In that case, the Third Circuit opined that Fed.R.Civ.P. 23 class certification orders (i) must explicitly define the classes and claims that are the subject of a certification order and (ii) provide an analysis of how the court reconciled any conflicting evidence supporting class certification.

In addition, the Third Circuit held that while Rule 23(f) permits an interlocutory appeal from a class certification order relating to 10 state law wage hour claims, the court did not have pendent appellate jurisdiction to review a related order certifying a nationwide collective action under Section 216(b) of the Fair Labor Standards Act (“FLSA”).

Facts

Plaintiffs, a group of mortgage loan officers, alleged that, among other things, Citizens failed to pay overtime wages in accordance with the FLSA and state law. Plaintiffs pursued a collective action under Section 216(b) of the FLSA and separate Rule 23 class actions under the laws of 10 states.

Each mortgage loan officer was informed of Citizens’ policy that he or she was “required to obtain prior approval from [his or her] supervisor for any hours worked in excess of 40 hours per week,” and could be disciplined for working unapproved overtime. But, plaintiffs claimed, Citizens’ written overtime policy was a “ruse,” and that the company actually had a “policy-to-violate-the-policy.” Specifically, plaintiffs alleged that Citizens’ “coordinated, overarching scheme” was to encourage unreported overtime by: (1) disciplining mortgage loan officers who reported working overtime that was not preapproved; (2) restricting the amount of overtime hours that could be approved; (3) violating its own attendance monitoring and timesheet approval policies so that overtime hours could go unreported; and (4) discouraging or harassing mortgage loan officers who reported or requested overtime.

In May 2016, the District Court for the Western District of Pennsylvania granted plaintiffs’ Section 216(b) motion for conditional certification of a collective action. In August 2017, based on the recommendations of a Special Master, the District Court denied Citizens’ motion to decertify the FLSA collective action, granted the plaintiffs’ motion for certification of the FLSA collective action claims, and granted plaintiffs’ Rule 23 motion for certification of 10 state wage/hour class actions.

Pursuant to Rule 23(f), Citizens appealed from the District Court’s order certifying the state law wage class claims.

A Rule 23 Class Certification Order Must Define Class and its Claims

Reiterating its earlier decision in Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 592 (3d Cir. 2012), the Third Circuit vacated the District Court’s order, because it failed to define the classes being certified and to define the claims, issues, or defenses accorded class treatment. The District Court’s order stated only that Plaintiffs’ “state law subclasses are for Pennsylvania, Connecticut, New York, Massachusetts, Rhode Island, Illinois, Michigan, New Hampshire, North Carolina, and Ohio,” without defining the scope of those subclasses.

The Third Circuit commented that the District Court’s analysis was insufficient to allow it to determine whether the evidence proffered by the plaintiffs satisfied Rule 23’s commonality and preponderance requirements. It opined that, when ruling on a motion for class certification, a district court must “clearly articulate its reasons,” so that the certification decision can be reviewed on appeal.

Rule 23(a)(2) requires that the putative class members “share at least one question of fact or law in common with each other,” and Rule 23(b)(3) requires that common issues predominate over issues affecting only individual class members. Analyzing these elements together, the Third Circuit stated that the plaintiffs had to demonstrate that (1) Citizens’ managers were carrying out a “common mode” of conduct through the company’s internal “policy-to-violate-the-policy,” and (2) Citizens had actual or constructive knowledge of this conduct.

Rather than conduct its own rigorous analysis, the District Court relied on the Special Master’s reports, which cited to testimony from “roughly two dozen [mortgage loan officers]” that “Citizens’ managers nonetheless regularly and almost uniformly instructed [mortgage loan officers] not to report all the hours that they worked.” The Third Circuit commented that the Special Master’s reports did not specifically identify the testimony relied upon to reach this conclusion and did not reference the evidence showing that knowledge of the purported policy was imputable to Citizens.

The record on appeal failed to support uniform application of the “policy to violate the policy,” but rather evidenced different, individualized experiences. Witness testimony was “confined to interactions with specific managers in distinct offices.” On multiple occasions, the testimony of putative class members contradicted the plaintiffs’ argument that managers “almost uniformly” instructed mortgage loan officers not to report all hours worked. The District Court did not reconcile these record conflicts. The Third Circuit was unable to determine whether the evidence met the commonality and predominance requirements of Rule 23.

Relying on Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1046-47 (2016), the Third Circuit stated that, for the plaintiffs’ representative evidence to satisfy the commonality/predominance requirements of Rule 23, the evidence must be sufficiently representative of the class as a whole, such that each individual plaintiff “could have relied on [the] sample to establish liability if he or she had brought an individual action.” The record on appeal was to the contrary.

The Third Circuit vacated the order and remanded the matter to District Court with instructions that a class certification order must include: “(1) a readily discernible, clear, and precise statement of the parameters defining the class or classes to be certified, and (2) a readily discernible, clear, and complete list of claims, issues or defense to be treated on a class basis.”

No Pendent Appellate Jurisdiction over the District Court’s FLSA Collective Action Order

The Third Circuit’s decision is also important because it signaled an unwillingness to conflate the FLSA’s similarly situated standard for a collective action with FRCP Rule 23’s more stringent test for class certification. In declining to do so, the Third Circuit recognized that other circuit courts have “treated FLSA and Rule 23 certification as nearly one and the same.” See Epenscheid v. DirectSat USA, LLC, 705 F.3d 770, 772 (7th Cir. 2013), and Theissen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1105 (10th Cir. 2001).

Rule 23(f) permits interlocutory review of a Court’s order granting or denying class action certification. No comparable procedural rule permits review of an order certifying a collective action pursuant to FLSA Section 216(b). In Citizens, defendant sought appellate review of the District Court’s interlocutory order denying defendant’s motion to decertify the collective action through the doctrine of pendant appellate jurisdiction.

Pendant appellate review is available in two limited circumstances, to wit: (i) ‘”inextricably intertwined’” orders and (ii) review of a “non-appealable order when it is necessary to ensure meaningful review of [an] appealable order.” Neither circumstance was met to permit appellate review of the District Court’s order certifying a Section 216(b) collective action, while vacating an order certifying a Rule 23 class.

Pendent appellate jurisdiction allows an appellate court to exercise jurisdiction over issues that are not independently appealable, but that are inextricably intertwined with issues over which that court has independent jurisdiction. The question before the Third Circuit was whether Rule 23(b)(3)’s requirement that common state law issues predominate over issues affecting only individual class members was inextricably intertwined with the issue of whether the plaintiffs were “similarly situated” as required to certify an FLSA collective action. The Third Circuit opined that the doctrine of pendant appellate jurisdiction is “narrow” and “should be used ‘sparing.’” (Citations omitted).

The Third Circuit joined with the Second Circuit in Myers v. Hertz Corp., 624 F.3d 537, 553-54 (2d Cir. 2010), to conclude that FLSA and Rule 23 certification orders were not inextricably intertwined, because the requirements of Rule 23’s predominance standard were significantly higher than the FLSA’s similarly situated standard. Therefore, a court may find that Rule 23 requirements had not been met without addressing whether the lower FLSA standard had been satisfied. The Third Circuit aligned with the Second Circuit in holding that Rule 23 certification is not “inextricably intertwined” with an FLSA collective action certification, and, therefore, declined to exercise pendent appellate jurisdiction over the interlocutory FLSA certification order.

The Third Circuit’s ruling in Reinig will assist employers who are faced with Rule 23 class certification motions that seek to certify ill-defined classes and ambiguous claims based on anecdotal evidence. However, under Reinig, employers will be hard pressed to obtain immediate appellate review of the certification of an FLSA collective action.

Illinois Governor Pritzger has signed a bill raising the Illinois minimum wage to $15 per hour by 2025, making Illinois the first Midwestern state to hike the minimum wage to that level. States on both coasts, including California, Massachusetts, and New Jersey, have already moved to enact such a hike.

Currently, the minimum wage in Illinois is $8.25 per hour. Under the new legislation, the minimum wage will increase to $9.25 by January 1, 2020 and to $10 on July 1, 2020. The minimum wage will then increase by $1 per hour each January 1 until it reaches $15 per hour in 2025.

The business community opposed this across the board increase, arguing that there should be a longer phase-in and a regional approach with a lower minimum wage outside the city of Chicago. Payroll tax credits provided for in the new legislation are supposed to ease the burden for the business community.

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.

Joining California and New York, New Jersey has become the third state with a phased-in $15 minimum wage requirement for most employees. On February 4, 2019, Governor Phil Murphy signed into law A15 (“Law”), which raises the state minimum wage rate for employers with six or more employees to $10.00 per hour on July 1, 2019, and then to $11.00 per hour on January 1, 2020. Thereafter, the minimum wage will increase annually on January 1 by $1.00 per hour until it reaches $15.00 per hour on January 1, 2024. The minimum wage hike will phase in at a slower rate for employers with five or fewer employees and for “seasonal employers” (defined below). Thus, the current minimum wage of $8.85 per hour will increase as follows: ­­

Date of Increase in Minimum Wage Rate

Minimum Wage Rate for Employers with 6 or More Employees

Minimum Wage Rate for “Small Employers” (those with 5 or fewer employees) and Seasonal Employers

July 1, 2019

$10.00 $8.85 (no change)

January 1, 2020

$11.00 $10.30

January 1, 2021

$12.00 $11.10

January 1, 2022

$13.00 $11.90
January 1, 2023 $14.00

$12.70

January 1, 2024 $15.00

$13.50

January 1, 2025 $15.00 + inflation adjusted*

$14.30

January 1, 2026 $15.00 + inflation adjusted*

$15.00**

*As a result of a state constitutional amendment passed in 2013, the minimum wage rate after 2024 will increase for this group based on the inflation rate at the time (and the federal minimum wage rate, if higher).

** The Law provides for further annual inflation adjustments to the minimum wage after 2026 for seasonal workers and employees of small employers so that by January 1, 2028, workers in those groups will receive the same minimum wage as employees of larger employers.  …         

Read the full Advisory online.

The Third Circuit Court of Appeals ruled that a federal statute that governs interstate trucking does not preempt the application New Jersey’s ABC test for distinguishing between employees and independent contractors.

In Bedoya v. American Eagle Express Inc., New Jersey-based delivery drivers for AEX alleged that the company misclassified them as independent contractors rather than employees in violation of the New Jersey Wage and Hour Law and the New Jersey Wage Payment Law. AEX moved to dismiss the drivers’ claims as preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”), which regulates air carriers and motor carriers. The District Court for the District of New Jersey denied the motion, and the issue proceeded to the Third Circuit on interlocutory appeal.

The ABC test is New Jersey’s method of determining whether a worker is an employee or an independent contractor for purposes of the Wage and Hour Law and the Wage Payment Law.  Under that test, a company has the burden of proving independent contractor status by demonstrating that:

A. the worker is free from control or direction over the performance of his or her services; and

B. the services provided are either outside the usual course of the company’s business, or the services are performed outside of the company’s places of business; and

C. the worker has an independently established business.

N.J. Stat. Ann. § 43:21-19(i)(6)(A)-(C) (“ABC test”).

The Third Circuit explained that Congress enacted the FAAAA and the Airline Deregulation Act of 1978 to deregulate the air and motor carrier industry, “maxim[ize] reliance on competitive market forces,” and “level the playing field” between air carriers and motor carriers. To prevent state laws from interfering with that goal, the FAAAA provides that (with limited exceptions) a state “may not enact or enforce a law, regulation, or other provision . . . related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). The Third Circuit further noted that there is a presumption against preemption because “the historic police powers of the States” are “not to be superseded . . . unless that was the clear and manifest purpose of Congress.”

In determining whether the FAAAA preempts a state law, courts consider whether the law’s effect on carrier prices, services, or routes is (a) direct or indirect and (b) significant or insignificant. The Third Circuit pointed out that “garden variety employment claims” often evade FAAAA preemption because they are “too remote and too attenuated” from carrier prices, services, or routes.

To assess the directness of a law’s effect on prices, routes, or services, courts examine factors such as whether the state law: (1) mentions a carrier’s prices, routes, or services; (2) specifically targets carriers as opposed to all businesses; and (3) addresses the carrier-customer relationship (rather than, for example, the relationship between the carrier and its workers). The Third Circuit concluded that New Jersey’s ABC test does not directly affect prices, routes, or services largely because the test does not mention carrier prices, routes, or services, does not single out carriers, and does not regulate carrier-customer interactions

To assess whether a law has a significant effect on a carrier’s prices, routes, or services, courts consider whether: (1) the law binds a carrier to provide or not provide a particular price, route, or service; (2) the carrier has various avenues to comply with the law; and (3) the law creates a patchwork of regulation that erects barriers to entry, imposes tariffs, or restricts the goods a carrier may transport. Courts also will consider whether the legislative history indicates that Congress believed that the state law did not regulate prices, routes, or services. The Third Circuit focused on the fact that New Jersey’s ABC test did not bind carriers to using employees to make deliveries, but rather allows carriers to continue to choose between independent contractors and employees. Therefore, the impact of the state law on the AEX’s operations was not significant.

The Third Circuit distinguished New Jersey’s ABC test from the Massachusetts ABC test at issue in Schwann v. FedEx Ground Package System, Inc., 813 F.3d 429 (1st Cir. 2016). The second prong of the Massachusetts ABC test limited independent contractor status to individuals who performed work that is “outside the usual course of the business of the employer.” Under that criterion, carriers could never hire independent contractor drivers to make deliveries, because deliveries are within the carrier’s usual course of business and therefore defeat independent contractor status. For that reason, the First Circuit Court of Appeals ruled in Schwann that the second prong of the Massachusetts law was preempted by the FAAAA.

In contrast to the Massachusetts law, the second prong of the New Jersey law requires either that services be provided outside the usual course of the company’s business or that the services are performed outside of the company’s places of business. Therefore, it is possible under the New Jersey ABC test for a carrier’s drivers to be independent contractors.

Because the effect the New Jersey ABC test has on prices, routes, or services with respect to the transportation of property is “tenuous and insignificant,” the Third Circuit concluded that the FAAAA does not preempt the New Jersey statutory test.

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 February 1, 2019, the U.S. Department of Labor publicly designated Keith Sonderling as Acting Administrator of the Wage and Hour Division (“WHD”).  He joined WHD in September 2017 as a Senior Policy Advisor, receiving a promotion to Deputy Administrator last month.  Before joining the Department, he was a shareholder in the Gunster law firm in West Palm Beach, Florida, where he represented businesses in labor and employment matters.

During his time with WHD, Sonderling has been a strong proponent of the agency’s Payroll Audit Independent Determination program (known as “PAID”), which under certain circumstances allows employers to self-report violations to WHD and to make the workers whole in exchange for a release.  He has also led numerous public listening sessions for stakeholders to express their views about the forthcoming revisions to the regulations implementing the executive, administrative, and professional exemptions to the minimum wage and overtime requirements of the Fair Labor Standards Act (the “FLSA”).

Sonderling steps into the role vacated last month by Bryan Jarrett, who led WHD since October 2017.  President Trump nominated Cheryl Stanton to serve as Administrator of WHD in September 2017, and she continues to wait for a confirmation vote in the Senate.

WHD enforces the minimum wage, overtime, and child labor provisions of the FLSA, as well as the Family & Medical Leave Act and several prevailing wage statutes applicable to federal government contracts, among other laws.

On January 24, 2019, Governor Cuomo’s office issued a press release announcing a new proposal to be included in the 2020 Executive Budget aimed at cracking down on wage theft and bolstering the State’s efforts to hold accountable employers who attempt to improperly withhold wages. This proposal would increase the criminal penalties for employers who either knowingly or intentionally commit wage theft violations to bring them in line with other forms of theft.

Presently, only employers who commit repeated wage theft can be prosecuted with a felony. The proposed legislation will amend the New York Labor Law to provide for criminal penalties for employers who knowingly steal wages, with criminal penalties ranging from a Class B misdemeanor for wage theft less than $1,000 to a Class B felony for wage theft exceeding $50,000. Notable effects of the proposal will be the enhancement of the New York State Department of Labor’s ability to make referrals for criminal prosecution to District Attorneys and the Attorney General, as well as the increased likelihood that wage theft violations will be prosecuted as crimes. In addition, the enhanced penalties may deter employers and thus reduce future occurrences of wage theft.