In our June 28, 2018 post on District of Columbia voters approving Initiative 77, which would incrementally increase the minimum cash wage for tipped workers to $15.00 per hour by July 1, 2025, and effectively eliminate the tip credit staring July 1, 2026, we noted the possibility of action by the D.C. Council to amend or overturn it. Consistent with the opposition to the initiative previously expressed by a majority of the Council, on July 9, 2018, a seven-member majority of the Council introduced a bill (Tipped Wage Workers Fairness Amendment Act of 2018) to repeal Initiative 77. As the Council is now on a two-month summer recess, no further formal action will occur until the fall. Furthermore, considerable publicly expressed opposition to repealing a voter-approved initiative may lead to a compromise that extends the phase-in period or otherwise modifies the terms of the initiative, rather than a complete repeal. Meanwhile, two federal Congressmen have sponsored a budget rider barring spending funds to implement the initiative, although such efforts often fail. In short, it appears the future effectiveness of the initiative will remain in doubt for some time.
Voters in the District of Columbia on June 19, 2018 approved an initiative (Initiative 77) that would incrementally increase the minimum cash wage for tipped workers to $15.00 per hour by July 1, 2025, and starting July 1, 2026 to the same amount as the then-minimum wage for all other workers, effectively eliminating the tip credit. If the initiative takes effect, the District would join seven states that do not have a separate minimum wage for tipped workers, i.e., Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington.
The D.C. Council previously enacted legislation raising the minimum cash wage for tipped workers to $3.33 on July 1, 2017; $3.89 on July 1, 2018; $4.45 on July 1, 2019; and $5.00 on July 1, 2020, consistent with increases in the general minimum wage to $12.50, $13.25, $14.00, and $15.00 that will take effect on the same dates. Each year thereafter, the minimum wage will increase in proportion to the annual average increase in the CPI-U for the Washington area. D.C. Code §32-10003.
The voter initiative would change the minimum cash wage for tipped workers to $4.50 on July 1, 2018; $6.00 on July 1, 2019; $7.50 on July 1, 2020; $9.00 on July 1, 2021; $10.50 on July 1, 2022; $12.00 on July 1, 2023; $13.50 on July 1, 2024; $15.00 on July 1, 2025; and to whatever the minimum wage then is for other workers on July 1, 2026. These provisions will not apply to employees of the District of Columbia, or employees performing services under contracts with the District of Columbia.
It is not yet clear whether the initiative will become law, at least it its present form. It passed by only 55 percent in an election in which turnout was only 16.7 percent. Before it becomes law, it must clear review by the D.C. Council, which could amend or overturn it. So far, the measure has faced public opposition from Mayor Muriel Bowser and a majority (eight) of the D.C. Council, as well as many restaurant owners, wait staff and bartenders, who fear it will increase direct labor costs, force staffing reductions, and significantly reduce the amount of tips received. Both the Restaurant Association of Metropolitan Washington and the separate “Save our Tips” campaign already have stated that they will take their fight to the Council. If the Council approves the measure, it must then clear a thirty-legislative-day review period by the Congress. At best, the initiative is not likely to take effect until sometime in the fall of 2018.
In the meantime, employers currently taking the tip credit should note the increase in the minimum for tipped employees to $3.89 (and for all other employees to $13.25) taking effect on July 1, 2018. Notably, supporters of the initiative have stated that they will not seek retroactive effect of the initiative’s July 1, 2018 increase to $4.50.
[Read the update—July 16, 2018—“Proposed D.C. Council Legislation Puts Voter-Approved Elimination of Tip Credit Into Question.”]
A year ago, employers across the country prepared for the implementation of a new overtime rule that would dramatically increase the salary threshold for white-collar exemptions, on the understanding that the new rule would soon go into effect “unless something dramatic happens,” a phrase we and others used repeatedly.
And, of course, something dramatic did happen—a preliminary injunction, followed by a lengthy appeal, which itself took more left turns following the U.S. presidential election than a driver in a NASCAR race. The effect was to put employers in a constant holding pattern as they were left to speculate whether and when the rule would ever go into effect.
The current status of the overtime rule is but one of several prominent issues to reckon with as wage and hour issues, investigations, and litigation remain as prevalent as they have ever been.
The articles in this edition of Take 5 include the following:
- The Status of the Department of Labor’s 2016 Overtime Rule
- Recent Developments Regarding Tip Pooling
- Mandatory Class Action Waivers in Employment Agreements: Is a Final Answer Forthcoming?
- “Time Rounding”: The Next Wave of Class and Collective Actions
- The Department of Labor, Congress, and the Courts Wrestle with the Definition of “Employee”
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.
Our colleagues Denise Merna Dadika and Brian W. Steinbach, attorneys in the Employment, Labor & Workforce Management practice at Epstein Becker Green, have a post on the Health Employment and Labor blog that will be of interest to many of our readers: “U.S. Supreme Court Declines to Review DOL Home Care Rule”
Following is an excerpt:
On Monday, June 27, 2016, the U.S. Supreme Court declined to review a D.C. Circuit Court of Appeals decision upholding the new U.S. Department of Labor’s (DOL) requirement that home care providers pay the federal minimum wage and overtime to home care workers. …
The U.S. Supreme Court’s decision not to grant review ends any hope that home care providers had that the implementation of the new regulation might be reversed
Brian W. Steinbach, attorney at Epstein Becker Green, has a post on the Hospitality Labor and Employment Law Blog that will be of interest to many of our readers: “Southern District of New York’s Rejection of FLSA Settlement Highlights Need to Settle on Terms That Will Pass Judicial Muster.”
Following is an excerpt:
In rejecting the terms of a collective action settlement in Yun v. Ippudo USA Holdings, No. 14-CV-8706 (S.D.N.Y. March 24, 2016) the United States District Court for the Southern District of New York has confirmed the significance of last year’s Second Circuit Court of Appeals decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2015). Cheeks held that parties cannot enter into an enforceable private settlement of Fair Labor Standards Act (“FLSA”) claims without the approval of either the district court or the Department of Labor. Yun shows what this means in practice by highlighting the issues that may arise in seeking to obtain approval.
Although not widely reported, effective January 1, 2016, the District of Columbia joins New York City and San Francisco in requiring employers of 20 or more employees to offer qualified transportation benefits. By that date, covered D.C. employers who do not already do so must offer one of three transit benefit options.
Under the Sustainable DC Omnibus Amendment Act of 2014, Title III, Subtitle A, “Reducing Single Occupancy Vehicle Use by Encouraging Transit Benefits,” at D.C. Code §32-151, et seq., covered employers must “provide at least one of the following transportation benefit programs to its employees:”
- A benefit program that allows employees to elect to set aside pre-tax funds each month to pay for their “commuter highway vehicle [van pool], transit or bicycling” commuting costs, consistent with Section 132(f)(a)(A), (B), and (C) of the Internal Revenue Code;
- An employer-paid benefit program in which the employer supplies, at the employee’s election, a transit pass or reimbursement of vanpool or bicycling costs in an amount at least equal to the purchase price of a transit pass for an equivalent trip; or
- Employer-provided transportation at no cost to the covered employee in a vanpool or bus operated by or for the employer.
The penalty for failing to offer at least one of these benefit programs is a civil fine pursuant to the Civil Infractions Act, which depending upon the class of infraction ranges from $50 to $2,000 for the first offense.
The D.C. Department of Transportation, in conjunction with other organizations, has engaged in considerable promotion of these requirements. The Employer Services section of its www.goDCgo.com website “offers complimentary assistance every step of the way to make offering commuter benefits easier than ever.” This includes an “Employer Transit Benefits Toolkit” that provides guidance on the steps to implement a compliant program. The Employer Transit Benefits Toolkit has a specific checklist to assist in implementing any of the three options provided under the law. Other useful information available at the Employer Services site includes newsletters with information on compliance assistance and periodic free seminars. The Washington Metropolitan Transit Authority (WMATA) also offers information and seminars on using its “SmartBenefits” program to comply with the Act’s requirements here.
The key takeaway is that covered D.C. employers should move quickly to have a program in place by January 1, 2016.
Reversing a decision by the United States District Court for the District of Columbia, an August 21, 2015 decision by the Court of Appeals for the District of Columbia Circuit in Home Care Association of America v. Weil (pdf) has approved a regulation by the United States Department of Labor (“DOL”) extending federal minimum wage and overtime protections to home care workers and live-in domestic service employees employed by third parties.
We previously wrote about the decision by the District Court for the District of Columbia that vacated a DOL regulation that had been scheduled to go into effect January 1, 2015. The regulation would have eliminated a long-existing prior regulation and would have barred third-party employers from claiming minimum wage and overtime exemptions for “companionship” domestic service workers and live-in domestic service employees. The same court later also vacated a new, narrower definition of “companionship services.”
The D.C. Circuit thoroughly rejected the district court’s analysis and held that under the Supreme Court’s decision in Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007), the question of whether to include workers paid by third parties within the scope of the statutory exemptions for companionship series and live-in domestic service employees was within the discretion of the DOL under its general grant of authority to promulgate implementation regulations.
The D.C. Circuit further found that the new, narrower construction of the statutory exemption was appropriate and consistent with a Congressional intention to include within FLSA coverage employees whose vocation is domestic service, rather than the type of assistance provided by a neighbor or an “elder sitter,” and that this construction was not arbitrary and capricious because DOL justified its shift in policy based on the changes in the industry since the prior regulation issued in 1975.
Finally, the D.C. Circuit rejected arguments that the new regulation would make home care less affordable and create an incentive to re-institutionalize the elderly and disabled, in particular relying on a lack of evidence that this had occurred in states that already had minimum wage and overtime projections for third party-employed home care workers.
Home health care providers already work on narrow margins and typically cannot recover overtime costs from the Medicare, Medicaid or other government program that pay for most of their services only at a flat hourly rate (which sometimes does not reflect recent increases in state and local minimum wages). Providers in states where the exemption was previously available will now have to absorb the costs of any overtime pay. In many cases, this will mean changing schedules to limit to the number of hours a home health care provider works (thereby causing a reduction in the provider’s income rather than an increase) and hiring additional staff (with attendant additional administrative costs) to cover the hours that a single provider previously worked. This may also be be disruptive to the persons receiving the services, who may prefer having the same persons come every day, rather than multiple providers.
If no further review is sought, the previously vacated regulations could go into effect as early as September 21, 2015. Accordingly, home health providers should begin planning for this transition now. Note, however, that a petition for rehearing or for hearing en banc would delay effectiveness until two weeks after the petition is ruled upon. Also, if review is then sought before the Supreme Court, a stay may be sought. It is also possible that DOL will announce some type of transitional limited enforcement policy, similar to the policy it previously announced (pdf) of not bringing enforcement actions for the first six months of 2015 and exercising “prosecutorial discretion” in the next six months based on the extent to which there had been good faith efforts to bring home care programs into compliance. Home health providers should watch for DOL pronouncements in this regard.