On April 12, 2018, the Wage and Hour Division of the U.S. Department of Labor (“DOL”) issued the first Opinion Letters since the Bush administration, as well as a new Fact Sheet.  The Obama administration formally abandoned Opinion Letters in 2010, but Secretary of Labor Alexander Acosta has restored the practice of issuing these guidance documents.  Opinion Letters, as Secretary Acosta states in the DOL’s April 12 press release, are meant to explain “how an agency will apply the law to a particular set of facts,” with the goal of increasing employer compliance with the Fair Labor Standards Act (“FLSA”) and other laws.  Not only do Opinion Letters clarify the law, but pursuant to Section 10 of the Portal-to-Portal Act, they provide a complete affirmative defense to all monetary liability if an employer can plead and prove it acted “in good faith in conformity with and in reliance on” an Opinion Letter.  29 U.S.C. § 259; see also 29 C.F.R. Part 790.  For these reasons, employers should study these and all forthcoming Opinion Letters closely.

Opinion Letter FLSA2018-18 addresses the compensability of travel time under the FLSA, considering the case of hourly-paid employees with irregular work hours who travel in company-provided vehicles to different locations each day and are occasionally required to travel on Sundays to the corporate office for Monday trainings.  The Opinion Letter reaffirms the following guiding principles: First, as a general matter, time is compensable if it constitutes “work” (a term not defined by the FLSA).  Second, “compensable worktime generally does not include time spent commuting to or from work.”  Third, travel away from the employee’s home community is worktime if it cuts across the employee’s regular workday.  Fourth, “time spent in travel away from home outside of regular working hours as a passenger on an airplane, train, boat, bus, or automobile” is not worktime.

With these principles in mind, this letter provides two non-exclusive methods to reasonably determine normal work hours for employees with irregular schedules in order to make an ultimate judgment call on the compensability of travel time.  Under the first method, if a review of an employee’s hours during the most recent month of regular employment reveals typical work hours, the employer can consider those the normal hours going forward.  Under the second method, if an employee’s records do not show typical work hours, the employer can select the average start and end times for the employee’s work days.  Alternatively, where “employees truly have no normal work hours, the employer and employee … may negotiate … a reasonable amount of time or timeframe in which travel outside the employees’ home communities is compensable.”  Crucially, an employer that uses any of these methods to determine compensable travel time is entitled to limit such time to that accrued during normal work hours.

Opinion Letter FLSA2018-19 addresses the compensability of 15-minute rest breaks required every hour by an employee’s serious health condition (i.e., protected leave under the FMLA).  Adopting the test articulated by the Supreme Court in the Armourdecision—whether the break primarily benefits the employer (compensable) or the employee (non-compensable)—the letter advises that short breaks required solely to accommodate the employee’s serious health condition, unlike short, ordinary rest breaks, are not compensable because they predominantly benefit the employee.  The letter cautions, however, that employers must provide employees who take FMLA-protected breaks with as many compensable rest breakers as their coworkers, if any.

Opinion Letter CCPA2018-1NA addresses whether certain lump-sum payments from employers to employees are considered “earnings” for garnishment purposes under Title III of the Consumer Credit Protection Act (the “CCPA”).  The letter articulates the central inquiry as whether the lump-sum payment is compensation “for the employee’s services.” The letter then analyzes 18 types of lump-sum payments, concluding that commissions, bonuses, incentive payments, retroactive merit increases, termination pay, and severance pay, inter alia, are earnings under the CPA, butlump-sum payments for workers’ compensation, insurance settlements for wrongful termination, and buybacks of company shares are not.

Finally, Fact Sheet #17S addresses the FLSA’s minimum wage and overtime requirement exemptions for employees who perform bona fide executive, administrative, professional, and outside sales duties (known as the “white collar exemptions”) in the context of higher education institutions.  Specifically, the letter provides guidance as to the exempt status of faculty members, including coaches, non-teacher learned professionals (e.g., CPAs, psychologists, certified athletic trainers, librarians, and postdoctoral fellows), administrative employees (e.g., admissions counselors and student financial aid officers), executive employees (e.g., department heads, deans, and directors), and student-employees (i.e., graduate teaching assistants, research assistants, and student residential assistants).  Of note, the letter confirms that the DOL is undertaking rulemaking to revise the regulations that govern the white collar exemptions.

Depending on the jurisdictions within which they operate, certain employers and their counsel will soon see a significant change in early mandatory discovery requirements in individual wage-hour cases brought under the Fair Labor Standards Act (“FLSA”).

A new set of initial discovery protocols recently published by the Federal Judicial Center (“FJC”), entitled Initial Discovery Protocols For Fair Labor Standards Act Cases Not Pleaded As Collective Actions (“FLSA Protocols”), available here, expands a party’s initial disclosure requirements to include additional documents and information relevant to FLSA cases. These Protocols apply, however, only to FLSA lawsuits that have been filed in participating courts that have implemented the Protocols by local rule or by standing, general, or individual case order. (At least one court has already adopted the Initial FLSA Protocols — the Southern District of Texas, Houston Division.) Also, as the title of this initiative makes clear, these protocols do not apply to FLSA actions styled as collective actions.

The goal of the FLSA Protocols in requiring an up-front exchange of information is to help frame issues to be resolved in the case, minimize potential opportunities for gamesmanship, and enable the court and parties to plan for more efficient and targeted discovery.  To that end, the Protocols focus on the type of information that is most likely to be useful in narrowing the issues in such cases.

Specifically, both parties must produce materials such as employment agreements, compensation agreements, and offer letters; documents recording the plaintiff’s wages and/or hours worked; written complaints from the plaintiff regarding the wages or overtime and any response; and documents showing the defendant’s good faith or willfulness.  The employer must also produce its wage and hour-related policies, procedures, or guidelines, as well as relevant portions of any employee handbook.  Additionally, both parties must identify the plaintiff’s start and end dates of employment, job title and duties, supervisors and managers, and any individuals having knowledge of the relevant facts.  The relevant time period for the FLSA Protocols mirrors the FLSA’s statute of limitations, which is two years before the date the Complaint was filed, or three years if the plaintiff’s complaint alleges a willful violation.

If adopted by a court, the FLSA Protocols will supersede the initial disclosure requirements set forth in Rule 26(a)(1) of the Federal Rules of Civil Procedure (“FRCP”); however, they will not supplant parties’ subsequent discovery obligations under the FRCP.   To address potential concerns by either party regarding the confidentiality of any documents or information to be exchanged, the FLSA Protocols include a model interim protective order allowing a party to designate documents or information as “confidential,” limiting their use to the particular case.

The FLSA Protocols are the second set of case-specific discovery protocols to be developed and implemented in the federal courts.  The FJC published the first set of protocols, the Initial Discovery Protocols for Employment Cases Alleging Adverse Action (“Employment Protocols”), in November 2011, and they have since been adopted by over 50 judges and on a district-wide basis in multiple jurisdictions around the country.

According to a FJC report issued in October 2015, cases filed in courts that adopted the Employment Protocols had less motion practice (both discovery-related and dispositive motions) than comparison cases, and they were more likely to settle. In a follow-up memorandum published a year later, the FJC found that the Employment Protocols had been more widely accepted by the federal judiciary than expected, despite the fact they specifically carve out from their application specific employment-related cases such as those arising under the FLSA and Family Medical Leave Act.

Like the Employment Protocols, the FLSA Protocols may very well become a helpful tool for employers being sued in FLSA litigations because they require early disclosure of relevant information that will help the parties to a litigation assess the strength of the plaintiff’s claims and employer’s defenses quickly and allow them to make informed decisions as to best strategies, including whether potential early resolution is appropriate.  Query, however, whether such potential early disclosure could alternatively be achieved by requiring federal district courts to maintain more rigorous case management plan deadlines.

Whether the FLSA Protocols will ultimately result in greater efficiency in the discovery process or an increase in early case resolution remains to be seen.  The FJC has announced that it will monitor their use, including by evaluating cases conducted in accordance with the Protocols’ early discovery requirements. Because many plaintiff-employees and their counsel file lawsuits as a collective action, rather than on an individual basis, as a matter of course, it is unclear how big of an impact the FLSA Protocols will actually have on non-collective FLSA litigation.  In fact, it is possible the FLSA Protocols could actually incentivize plaintiff’s counsel to file actions on a collective basis, rather than as individual plaintiff lawsuits, in order to avoid the additional work at the outset of a case.  If so, then expanding the Protocols to include collective actions would likely have a more resounding impact.  Should the Protocols find success with the participating federal judiciary, then perhaps they will be expanded, in both jurisdiction and scope, to include collective actions.  Only time will tell, and we will be sure to keep you apprised of all developments with this new initiative.

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

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

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

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

Federal regulations have long provided that employees whose wages are subject to a tip credit must retain all tips they receive, with the exception that customarily tipped employees — i.e. front-of the-house service employees — are permitted to share in tips received.

In 2011, the U.S. Department of Labor (“DOL”) amended its tip regulations to limit tip pool participation to front-of-the-house employees regardless of whether a tip credit was applied to their wages.

Employers and hospitality industry advocacy groups reacted by filing lawsuits throughout the country challenging the DOL’s rulemaking authority to extend the scope of tip pooling restrictions to employees whose wages were not subject to a tip credit.

There is currently a circuit split over the validity of the DOL’s 2011 regulation.

In Oregon Restaurant and Lodging Association v. Perez, the Court of Appeals for the Ninth Circuit found that the Fair Labor Standards Act (“FLSA”) does not expressly set forth requirements for employers that do not apply a tip credit against employees’ wages, therefore the DOL is authorized to interpret this absence in the statute through rulemaking.

In contrast, in Marlow v. The New Food Guy, Inc., the Tenth Circuit rejected the 2011 regulation, finding that the DOL is not vested with such rulemaking authority, thus employers may distribute tips to both tip-earning and non-tip-earning employees, e.g. cooks and dishwashers, to the extent a tip credit is not applied to employees’ wages.

The National Restaurant Association has requested the Supreme Court of the United States to hear an appeal of the Ninth Circuit case.  The request is currently pending.

Acknowledging that it may have exceeded its rulemaking authority and in light of the pending petition to the Supreme Court, on December 4, 2017, the DOL issued a Notice of Proposed Rulemaking (“NPRM”) to rescind the portion of the 2011 regulation requiring tip pool compliance with respect to employees whose wages are not subject to a tip credit.  If finalized, this rule would permit employers to regulate tip pooling without restriction as long as employers do not apply a tip credit against its employees’ wages (or if employees are paid at least the current $7.25 federal minimum wage in states that maintain higher minimum wage thresholds and permit the taking of a tip credit).

In its NPRM Fact Sheet, the DOL explained that the proposed rule would allow employers to distribute customer tips to larger tip pools that include non-tipped workers, such as cooks and dishwashers, which would likely increase the earnings of those employees who are newly added to the tip pool and further incentivize them to provide good customer service.

The DOL additionally cited as a benefit greater flexibility to employers in determining pay practices for tipped and non-tipped workers, as well as a reduction in wage disparities among employees who all contribute to the customers’ experience.  Some early critics of the NPRM have voiced concern that it gives employers the unrestricted ability to retain employees’ tips, which would be antithetical to the DOL’s stated purpose for the Rule.

It is important to keep in mind, however, that even if finalized, the NPRM would not preempt state or local laws or regulations that provide for more expansive employee rights regarding tip pooling.  For example, the NPRM would not result in any change in New York under its current regulations, which prohibit tip sharing with back-of-the-house employees.

The NPRM is currently subject to a 30-day comment period with a January 4, 2018 deadline, pursuant to which the DOL will review and consider all comments received before publishing the rule in its final form in the federal register.

In the interim, employers should review and determine whether it is feasible — and, if so, advantageous — to adjust its employees’ wage rates (including increasing front-of-the-house employees’ wage rates to the $7.25 minimum wage threshold or decreasing back-of-the-house employees’ wage rates to the federal minimum wage) and abandon the tip credit to allow for unrestricted tip pooling among all employees.  In addition to considering the potential economic benefits, employers should also consider the potential employee relations concerns in making any such adjustments, including the possibility that employees’ total compensation may decrease on account of any such potential changes.

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:

  1. The Status of the Department of Labor’s 2016 Overtime Rule
  2. Recent Developments Regarding Tip Pooling
  3. Mandatory Class Action Waivers in Employment Agreements: Is a Final Answer Forthcoming?
  4. “Time Rounding”: The Next Wave of Class and Collective Actions
  5. The Department of Labor, Congress, and the Courts Wrestle with the Definition of “Employee”

Read the full Take 5 online or download the PDF.

As many will recall, the Department of Labor’s (“DOL”) overtime rule, increasing the salary threshold for overtime exemptions at the behest of the Obama administration, was scheduled to take effect on December 1, 2016. Months later, it remains in limbo before the Fifth Circuit Court of Appeal. And it apparently will remain in limbo for at least several more months.

After publication of the final overtime rule on May 23, 2016, two lawsuits were filed by a coalition of 21 states and a number of business advocacy groups, claiming that the DOL exceeded its rulemaking authority in finalizing the overtime rule. The lawsuits, which were consolidated, sought a variety of relief, including a preliminary injunction blocking the overtime rule from taking effect.

Days before the final rule went into effect, the United States District Court for the Eastern District of Texas granted Plaintiffs’ motion and issued a nationwide preliminary injunction. Prior to President Trump’s inauguration, the Department of Labor appealed the order to the Fifth Circuit. Thereafter, the DOL was granted two extensions of time to consider whether it wished to proceed with the appeal.

The most recent extension was set to expire on May 1, 2017 . Now, the DOL has requested – and the Fifth Circuit has granted – yet another 60-day extension because Secretary of Labor nominee Alexander Acosta has not yet been confirmed. In granting the extension, the Fifth Circuit continued the DOL’s deadline to file its reply brief to June 30, 2017.

This most recent extension will give additional time to the DOL to evaluate its options, which includes abandoning the appeal and any further efforts to implement and enforce the overtime rule. It is important to keep in mind, however, that even though Secretary of Labor Nominee Acosta does not appear to support the Obama administration’s plan to more than double the salary threshold, he has expressed opinions that suggest he would support updating the overtime rule to some degree, possibly increasing the salary threshold to mirror inflation. It is also important to be mindful that certain states, including New York and California, have a higher minimum salary threshold than the current federal requirement of $455 per week. We will continue to monitor and report on this important matter as it develops.

On January 20, 2016, the DOL issued Wage and Hour Division Administrator’s Interpretation 2016-1 (“AI”) providing that businesses that use employees of third parties may be considered “joint employers” of those workers for purposes of compliance with the FLSA. The genesis of the joint-employment AI is the DOL’s expectation that businesses may seek to avoid the high costs and potential liabilities of maintaining their own employee workforce.

Although this AI is less than a year old, there are longstanding federal regulations on joint employment stating that when the employee performs work that simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint-employment relationship generally will be considered to exist in situations where: (1) employers share an employee’s services, (2) one employer acts in the interest of the other employer in relation to the employee, or (3) one employer controls the other employer and therefore shares control of the other employer.

The DOL’s AI on joint employment goes far beyond the streamlined regulations in explaining the complex and comprehensive analysis to determine whether joint employment exists. To that end, the AI focuses on the DOL’s newly envisioned concepts of “horizontal” and “vertical” joint employment.

“Horizontal” Joint Employment

The DOL has explained that “horizontal” joint employment exists where an employee has employment relationships with two or more related or commonly owned businesses. In assessing horizontal joint employment, the DOL focuses on the relationship between the businesses, i.e., putative joint employers, but not the putative employee’s relationship between and among the putative joint employers. The DOL provides, as an example, a server who works for two different restaurants that are commonly owned.

To determine whether horizontal joint employment exists, the DOL considers the following eight criteria:

  1. Is there common ownership or management with respect to the putative joint employers?
  2. Do the putative joint employers have common officers, directors, executives, or directors?
  3. Do the putative joint employers share control over operations of both businesses?
  4. Are the operations of the putative joint employers’ businesses interrelated?
  5. Do the putative joint employers supervise the same employees?
  6. Do the putative joint employers treat employees as part of a pool available to both businesses?
  7. Do the putative joint employers share clients or customers?
  8. Do the putative joint employers maintain any agreements?

“Vertical” Joint Employment

The DOL has explained that “vertical” joint employment occurs when a worker employed by a third party enters into a work relationship with the putative joint employer. This arrangement commonly involves staffing agencies.

The AI states that in a vertical employment arrangement, the DOL considers the relationship between the putative joint employers and the worker. The DOL will first examine whether the worker’s direct employer, e.g., the staffing agency, is actually an employee of the putative joint employer. If such a relationship exists, then the DOL automatically finds joint employment.

If no such relationship exists, the DOL will then conduct an “economic realities” analysis to determine whether an employee of one business, e.g., the staffing agency, is economically dependent on another business that is the beneficiary of the services performed by the staffing agency’s employee. The AI provides the following economic realities criteria:

  • Directing, Controlling, or Supervising the Work Performed. To the extent that the work performed by the employee is controlled or supervised by the putative joint employer beyond a reasonable degree of contract performance oversight, such control suggests that the employee is economically dependent on the putative joint employer. The potential joint employer’s control can be indirect and still be sufficient to indicate economic dependence by the employee.
  • Controlling Employment Conditions. To the extent that the putative joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay, such control indicates that the employee is economically dependent on the putative joint employer.
  • Permanency and Duration of Relationship. An indefinite, permanent, full-time, or long-term relationship by the employee with the putative joint employer suggests economic dependence.
  • Repetitive Nature of Work. To the extent that the employee’s work for the putative joint employer is repetitive, relatively unskilled, or requires little or no training, such facts indicate that the employee is economically dependent on the putative joint employer.
  • Integral to Business. If the employee’s work is an integral part of the putative joint employer’s business, that fact indicates that the employee is economically dependent on the putative joint employer.
  • Work Performed on Premises. The employee’s performance of the work on premises owned or controlled by the putative joint employer indicates that the employee is economically dependent on the putative joint employer.
  • Performing Administrative Functions Commonly Performed by Employers. To the extent that the putative joint employer performs administrative functions for the employee—such as handling payroll; providing workers’ compensation insurance; providing necessary facilities and safety equipment, housing, or transportation; or supplying tools and materials required for the work—such facts indicate economic dependence by the employee on the putative joint employer.

A version of this article originally appeared in the Take 5 newsletter Five Critical Wage and Hour Issues Impacting Employers.”

Overtime Clock Faces - Abstract PhotoNearly a year after the Department of Labor (“DOL”) issued its Notice of Proposed Rulemaking to address an increase in the minimum salary for white collar exemptions, the DOL has announced its final rule, to take effect on December 1, 2016.

While the earlier notice had indicated that the salary threshold for the executive, administrative, and professional exemption would be increased from $23,660 ($455 per week) to $50,440 ($970 per week), the final rule will not raise the threshold that far.  Instead, it will raise it to $47,476 ($913 per week).

According to the DOL’s Fact Sheet, the final rule will also do the following:

  • The total annual compensation requirement for “highly compensated employees” subject to a minimal duties test will increase from the current level of $100,000 to $134,004, which represents the 90th percentile of full-time salaried workers nationally.
  • The salary threshold for the executive, administrative, professional, and highly compensated employee exemptions will automatically update every three years to “ensure that they continue to provide useful and effective tests for exemption.”
  • The salary basis test will be amended to allow employers to use non-discretionary bonuses and incentive payments, such as commissions, to satisfy up to 10 percent of the salary threshold.
  • The final rule does not in any way change the current duties tests.

While it is certainly good news for employers that the duties tests will not be augmented and that non-discretionary bonuses and other incentive payments can be used to partially contribute to the salary threshold, the increase to the salary threshold is expected to extend the right to overtime pay to an estimated 4.2 million workers who are currently exempt.

With the benefit of more than six months until the final rule takes effect, employers should not delay in auditing their workforces to identify any employees currently treated as exempt who will not meet the new salary threshold. For such persons, employers will need to determine whether to increase workers’ salaries or convert them to non-exempt.

As we mentioned earlier this week, I was recently interviewed on our firm’s new video program, Employment Law This Week.  The show has now released “bonus footage” from that episode – see below.

I elaborate on some of the reasons behind this year’s sharp increase in federal wage-and-hour suits: worker-friendly rules, increased publicity around minimum wage and overtime issues, and the difficulties of applying an outdated law to today’s “gig” economy.

The top story on Employment Law This Week – Epstein Becker Green’s new video program – is the record high for Fair Labor Standards Act lawsuits in 2015.

The number of federal wage-and-hour suits rose almost 8% this year. There are many reasons for the increase, including more worker-friendly rules and increased publicity around minimum wage and overtime issues. Some point to the difficulties of applying an outdated law to our modern day economy.

Jeff Ruzal, co-editor of this blog, is interviewed. Click below to view the episode.