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.

Almost four years ago, we wrote about how a California Court of Appeal’s decision exposed health care employers to litigation if they relied upon IWC Wage Order 5 for meal period waivers. That decision was Gerard v. Orange Coast Memorial Medical Center (“Gerard I”), where the Court of Appeal concluded that IWC Wage Order 5 was partially invalid to the extent it authorized second meal period waivers on shifts over 12 hours.

Last year, we wrote about how the California Court of Appeal in Gerard II reversed its previous decision after the Legislature enacted SB 327 shortly after Gerard I. SB 327 amended Labor Code section 516 to state in pertinent part that “the health care employee meal period waiver provisions in Section 11(D) of [IWC] Wage Orders 4 and 5 were valid and enforceable on and after October 1, 2000, and continue to be valid and enforceable. This subdivision is declarative of, and clarifies, existing law.” In Gerard II, the California Court of Appeal held that SB 327 is effective retroactively. As a result, the second meal period waivers that the plaintiffs had signed were valid and enforceable.

The Gerard plaintiffs appealed to the California Supreme Court. Last week, the California Supreme Court issued its decision affirming the lower court’s decision in full. Not only did the California Supreme Court confirm that second meal period waivers are valid for employees in the health care industry who work more than 12 hours in a shift, but it also confirmed that the SB 327 is effective retroactively.

The Gerard decision is a welcome development for California health care employers who have relied upon IWC Wage Order 5 for second meal period waivers, reinforcing the use of such waivers for employees who work more than 12 hours in a shift.

On December 7, 2018, Governor Andrew M. Cuomo signed into law an amendment to New York Labor Law (“NYLL”) Section 193 (“NY Wage Deduction Law”) extending the NY Wage Deduction Law, which had expired on November 6, 2018, until November 6, 2020.

Introduced in 2012, the NY Wage Deduction Law amended the NYLL to permit employers to make certain deductions from the wages of their employees, including deductions for accidental overpayments, salary advances (including advances of vacation time), and insurance premiums. The NY Wage Deduction Law also introduced rules regulating the scope and limitations on such deductions, as well as the required authorization that employers must obtain from employees prior to making a deduction.

Additional information about the regulations pertaining to wage deductions under the NY Wage Deduction Law is provided in Epstein Becker Green’s Act Now Advisory titled “New York Wage Deduction Rules Extended for Three Years.”

Read the full Advisory online.

In recent years, a growing number of states and localities have enacted unique minimum wage laws and ordinances entitling employees to be paid more – in some cases, substantially more – than the federal minimum wage, which has stood at $7.25 for nearly a decade.

As these minimum wages become more particularized, multi-jurisdictional employers face an increasing challenge to maintain compliance.

Below is an overview of notable increases slated to take effect on January 1, 2019, unless otherwise noted.

Please note that, at this late date, the 2019 minimum wage remains the subject of debate in several jurisdictions, including Michigan, where the modification of a bill in December 2018 has stirred controversy as it awaits executive signature.

Minimum Wage Hikes Applicable in the States and Territories

   

Current

New

State

Categories
(if any)
Minimum Wage Tipped Minimum Wage Minimum Wage

Tipped Minimum Wage

Alaska $9.84 $9.89
Arizona $10.50 $7.50 $11.00 $8.00
Arkansas $8.50 $9.25
California 26 or more employees $11.00 $12.00
25 or fewer employees $10.50 $11.00
Colorado $10.20 $7.18 $11.10 $8.08
Delaware $8.25 $8.75
District of Columbia $13.25 $14.00
Florida $8.25 $5.23 $8.46 $5.44
Maine $10.00 $5.00 $11.00 $5.50
Massachusetts $11.00 $3.75 $12.00 $4.35
Minnesota Large employer (annual gross revenue of $500,000 or more) $9.65 $9.86
Large employer 90-day training wage $7.87 $8.04
Large employer youth wage (under 18 years of age) $7.87 $8.04
Small employer (annual gross revenue of less than $500,000) $7.87 $8.04
Missouri $7.85 $3.93 $8.60 $4.30
Montana $8.30 $8.50
New Jersey $8.60 $8.85
New York (effective December 31, 2018)* $10.40 $7.85 (when tips are $2.55 or more)

$8.85 (when tips are at least $1.55, but less than $2.55)

11.10 $8.40 (when tips are $2.70 or more)

$9.45 (when tips are at least $1.65 but less than $2.70)

Ohio** Employers with gross revenues equal to or exceeding $314,000 (previously $305,000) $8.30 $4.15 $8.55 $4.30
Employers with gross revenues less than $314,000 (previously $305,000) $4.15 $4.30
Rhode Island $10.10 $10.50
South Dakota $8.85 $4.43 $9.10 $4.55
Vermont $10.50 $5.25 $10.78 $5.39
Washington $11.50 $11.50 $12.00 $12.00

* The minimum wages identified herein with respect to New York State and its localities are the general minimum wages. Different rules apply to certain categories of employees within certain regions and industries, including hospitality and building services.   Employers in New York State should take extra care to consult the state or local rules that may apply within their industries.

** Employees under the age of 16 may be paid no less than the federal minimum wage.

Localized Minimum Wage Hikes

Current New
Locality Categories
(if any)
Minimum Wage Tipped Minimum Wage Minimum Wage

Tipped Minimum Wage

Arizona          
Flagstaff, AZ $11.00 $12.00
California          
Belmont, CA $12.50 $13.50
Cupertino, CA $13.50 $15.00  
El Cerrito, CA $13.60 $15.00  
Los Altos, CA $13.50 $15.00  
Mountain View, CA $15.00 $15.65  
Oakland, CA $13.23 $13.80  
Palo Alto, CA $13.50 $15.00  
Redwood City, CA N/A $13.50  
Richmond, CA+ Without specified medical benefits $13.41 $15.00  
With specified medical benefits $11.91 $13.50  
San Diego, CA $11.50 $12.00  
San Jose, CA $13.50 $15.00  
San Mateo, CA 501(c)(3) non-profit $12.00 $13.50  
Other businesses $13.50 $15.00  
Santa Clara, CA $13.00 $15.00  
Sunnyvale, CA $15.00 $15.65  
New Mexico          
Albuquerque, NM++ Specified benefits not provided $8.95 $5.35 $9.20 $5.50
Specified benefits provided $7.95 $5.35 $8.20 $5.50
Bernalillo County, NM $8.85 $9.05
Las Cruces, NM $9.20 $3.68 $10.10 $4.04
New York

(effective December 31, 2018)

NYC more than 10 employees $13.00 $9.80 (when tips are $3.20 or more)

$11.05 (when tips are at least $1.95, but less than $3.20)

$15.00 $11.35 (when tips are $3.65 or more)

$12.75 (when tips are at least $2.25, but less than $3.65)

NYC 10 or fewer employees $12.00 $9.05 (when tips are $2.95 or more)

$10.20 (when tips are at least $1.80, but less than $2.95)

$13.50 $10.30 (when tips are $3.30 or more)

$11.45 (when tips are at least $2.05, but less than $3.30)

Nassau, Suffolk, & Westchester Counties, NY $11.00 $8.30 (when tips are more than $2.70)

$9.35 (when tips are at least $1.65, but less than $2.70)

$12.00 $9.05 (when tips are more than $2.95)

$10.20 (when tips are at least $1.80, but less than $2.95)

Washington          
Seattle, WA+++ Small employer (500 or fewer employees) $14.00

(or $11.50, with difference made up in tips or benefits)

$15.00

(or $12.00, with difference made up in tips or benefits)

 
Large employer (501 or more employees) – with medical benefits $15.45

(or $15.00, with difference made up in benefits)

$16.00  
SeaTac, WA Hospitality and transportation employees $15.64 $16.09  
Tacoma, WA $12.00 $12.35  

+ An employer may pay employees $1.50 less than the minimum hourly wage provided that the employer pays at least $1.50 per hour, per employee, towards an employee medical benefits plan that allows employees to receive employer-compensated care from a licensed physician.

++ Employers may offer a lower minimum wage if they provide the employee with healthcare and/or childcare benefits equal to or greater than an annualized cost of $2,500.00.

+++ In 2019, the two-tier system in which employees that offer certain benefits may offer a lower minimum wage will no longer apply to large employers.

Featured on Employment Law This Week:  The Department of Labor (“DOL”) rolls back the 80/20 rule.

The rule prohibited employers from paying the tipped minimum wage to workers whose untipped side work—such as wiping tables—accounted for more than 20 percent of their time. In the midst of a federal lawsuit challenging the rule, the DOL reissued a 2009 opinion letter that states that the agency will not limit the amount of side work a tipped employee performs, as long as that work is done “contemporaneously” with the tipped work or for a “reasonable time” before or after that work. The letter was previously withdrawn by the Obama administration.

Watch the segment below and read our recent post.

Watch Paul DeCamp’s full segment here.

On December 4, 2018, New York City’s Taxi and Limousine Commission (“TLC”) voted to require ride-hailing companies operating in New York City to compensate its drivers who are treated as independent contractors, and not employees, on a per-minute and –mile payment formula, which will result in a $17.22 per hour wage floor.

This new rule is scheduled to take effect on December 31, 2018.

This new minimum wage for independent contractor drivers who operate vehicles on behalf of ride-hailing companies – including Uber, Lyft, Via, and Juno – will surpass the new $15 minimum wage for many New York City-based employees, which will also take effect on December 31, 2018.

This appears to be the first time a government entity has imposed wage rules on privately owned ride-hailing companies.

The main reason for this new requirement is that independent contractor drivers are often required to cover their own expenses that affects their hour wages.

Prior to this rule, ride-hailing app-based drivers were reportedly paid an average of $11.90 per hour (after deducting expenses), which resulted in drivers complaining of severe financial hardship. According to TLC Chair Meera Joshi, this rule would increase driver earnings by an average of $10,000 a year. Joshi also stated that traditional yellow taxicab drivers already earn on average at least $17.22 per hour pursuant to separate regulations.

The wage requirement is expected to have far-reaching repercussions, including:

  • Fare hikes by Uber that may result in customers using New York City yellow taxicabs and Boro Taxis, particularly given the rise of apps that allow riders to hail taxis from their phones, similar to Uber, Lyft, Via, and Juno.
  • Passage of similar minimum wage protections in other locales with a large population of ride-hailing drivers, such as San Francisco.
  • To avoid paying the higher wage prescribed by the rule, Uber, Lyft, Via, and Juno may consider reclassifying their for-hire vehicle drivers as employees, as the new minimum wage rule applies only to drivers who are independent contractors. However, it is anticipated that these companies will conclude that the others costs of employing drivers, such as providing employee benefits, would outweigh the costs of paying drivers the newly instituted minimum wage.

Effective December 31, 2018, New York State’s salary basis threshold for exempt executive and administrative employees[1] will increase again, as a part of amendments to the minimum wage orders put in place in 2016.[2] Employers must increase the salaries of employees classified as exempt under the executive and administrative exemptions by the end of the year to maintain these exemptions.

The increases to New York’s salary basis threshold for the executive and administrative exemptions will take effect as follows:

Employers in New York City 

  • Large employers (11 or more employees)
    • $1,125.00 per week ($58,500 annually) on and after 12/31/18
  • Small employers (10 or fewer employees)
    • $1,012.50 per week ($52,650 annually) on and after 12/31/18
    • $1,125.00 per week ($58,500 annually) on and after 12/31/19

Employers in Nassau, Suffolk, and Westchester Counties

  • $900.00 per week ($46,800 annually) on and after 12/31/18
  • $975.00 per week ($50,700 annually) on and after 12/31/19
  • $1,050.00 per week ($54,600 annually) on and after 12/31/20
  • $1,125.00 per week ($58,500 annually) on and after 12/31/21

Employers Outside of New York City and Nassau, Suffolk, and Westchester Counties

  • $832.00 per week ($43,264  annually) on and after 12/31/18
  • $885.00 per week ($46,020 annually) on and after 12/31/19
  • $937.50 per week ($48,750 annually) on and after 12/31/20

What New York Employers Should Do Now

  • Review executive and administrative exempt positions in New York State with salaries below the stated thresholds to determine whether (a) the employee’s salary should be increased or (b) the employee’s position should be reclassified as non-exempt.
    • For executive and administrative employees remaining exempt, increase their salaries to the new threshold based on their primary work location as of the December 31, 2018, effective date.
    • For employees reclassified to non-exempt, ensure that all of their work time is accurately recorded as of December 31, 2018.
  • Consider establishing procedures to track and update the weekly salaries for employees who work in different locations within New York State.
  • Conduct a regular review of primary duties tests for the executive, administrative, and professional exemptions because meeting the salary threshold alone does not confer exempt status upon employees.

Download a PDF of this Advisory.

_______________

[1] New York law does not contain a salary threshold for employees who meet the duties requirements of the professional exemption.

[2] See Epstein Becker Green’s prior Act Now Advisory titled “New York State Department of Labor Implements New Salary Basis Thresholds for Exempt Employees.”

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.