Maryland appears poised to increase its minimum wage to $15 per hour over the next few years, joining California, Illinois, Massachusetts, New Jersey, New York, and various local jurisdictions, including its own Montgomery County and neighboring District of Columbia.

On March 14, 2019, the Maryland Senate approved a bill (SB 280) that would increase the state-wide minimum wage for companies with at least 14 employees from $10.10 to $15 by January 1, 2025, starting with an increase to $11 on January 1, 2020. Smaller business would have until January 1, 2028 to reach $15. Although this differs slightly from the version (HB 166) that the Maryland House approved on March 1, 2019, which would require all business to reach $15 by 2025, it seems likely that the two chambers will work out their differences.

Both bills contain a provision allowing the Board of Public Works to temporarily suspend an increase on a one-time basis if it determines as of October 1 2020, and each year thereafter until October 1, 2024, that the seasonally adjusted total employment for the most recent six months is negative as compared with the immediately preceding six month period. If it does so, the remaining increases will be delayed by one year.

Both bills also require future annual increases of 4% in state funding of reimbursements to providers of nursing home, medical day care, private duty nursing, personal care and Home-and-Community-Based services provided through the Community First Choice Program to help them pay the higher minimum wage, although these do not necessarily make up the full cost of the required minimum wage increases. However, the Senate bill provides slightly higher annual increases than the House bill for reimbursements of health and human services organizations such as those that that serve people with disabilities or offer addiction treatment.

Although neither version changes the existing tip credit of $3.13, the Senate bill would require the Commissioner of Labor and Industry to adopt regulations requiring restaurant employers using the tip credit to provide a written or electronic wage statement for each pay period that shows the effective hourly tip rate as derived from cash wages plus all reported tips.

Finally, both bills lower the age at which employer can pay a so-called “training” wage of 85% of the state minimum wage from under age 20 to under age 18.

The House and Senate still have to work out their differences before sending the bill to Governor Hogan. However, even if he vetoes the bill, he would face a likely override because both the House and Senate passed their bills by veto-proof margins.

In the meantime, the minimum wage in Montgomery County is already set to increase to $13 on July 1, 2019, and to $15 by July 1, 2021. And the minimum wage is already at $11.50 in Prince George’s County.

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

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

Read the full Advisory online.

On May 3, New Jersey Governor Phil Murphy signed an executive order (“Order”) establishing a Task Force on Employee Misclassification (“Task Force”) to address concerns surrounding the misclassification of employees as independent contractors. The Order estimates that misclassification may deprive New Jersey of over $500 million yearly in tax revenue and deprive workers of employment-related benefits and protections to which they are entitled.

The Task Force’s mandate is to provide advice and recommendations to the Governor’s Office and Executive Branch Departments and agencies on both strategies and actions to fight misclassification, including:

  1. Examining and evaluating existing misclassification enforcement by executive departments and agencies;
  2. Developing best practices by departments and agencies to increase coordination of information and efficient enforcement;
  3. Developing recommendations to foster compliance with the law, including by educating employers, workers, and the public about misclassification; and
  4. Conducting a review of existing law and applicable procedures related to misclassification.

The Task Force will be comprised of at least 12 members, including three representatives from the Department of Labor and Workforce Development; three representatives from the Department of the Treasury; and one representative each from the Department of Law and Public Safety, the Department of Agriculture, the Department of Banking and Insurance, the Department of Human Services, the Department of Transportation, and the Economic Development Authority.

The Order calls for the Task Force to organize and meet as soon as possible to begin its work and is a likely harbinger of increased governmental audits and enforcement actions. Accordingly, the time is ripe for employers to review their policies and practices with respect to consultants and other independent contractors to ensure they meet New Jersey’s stringent ABC Test for classification of independent contractors, which we have previously discussed.

Our colleagues , at Epstein Becker Green, have a post on the Retail Labor and Employment Law blog that will be of interest to many of our readers: “New Jersey’s Appellate Division Finds Part C of the “ABC” Independent Contractor Test Does Not Require an Independent Business

Following is an excerpt:

In a potentially significant decision following the New Jersey Supreme Court’s ruling in Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015), a New Jersey appellate panel held, in Garden State Fireworks, Inc. v. New Jersey Department of Labor and Workforce Development (“Sleepy’s”), Docket No. A-1581-15T2, 2017 N.J. Super. Unpub. LEXIS 2468 (App. Div. Sept. 29, 2017), that part C of the “ABC” test does not require an individual to operate an independent business engaged in the same services as that provided to the putative employer to be considered an independent contractor. Rather, the key inquiry for part C of the “ABC” test is whether the worker will “join the ranks of the unemployed” when the business relationship ends. …

Read the full post here.

In Moon et al v. Breathless, Inc., the Third Circuit reviewed the dismissal of a class and collective action under the Fair Labor Standards Act, the New Jersey Wage and Hour Law and the New Jersey Wage Payment Law.  The District Court for the District of New Jersey had dismissed the named plaintiff’s claims based on an arbitration clause in the written agreement between the her and Breathless, the club where she worked as a dancer.

In her lawsuit, the plaintiff alleged that she and other dancers were misclassified as independent contractors, and that Breathless unlawfully failed to pay them minimum wages and overtime pay.

In response, Breathless pointed to an agreement signed by the plaintiff stating that she was an independent contractor and not an employee. Breathless moved for summary judgment based on language in the agreement stating: “In a dispute between [the plaintiff and Breathless] under this Agreement, either may request to resolve the dispute by binding arbitration.”

The Third Circuit noted that, under New Jersey law, there is a presumption that a court will decide any issues concerning arbitrability. Finding no evidence to overcome that presumption, the Circuit Court proceeded to decide whether the plaintiff was required to submit her class and collective action claims to arbitration.

The New Jersey Supreme Court’s decisions in Garfinkel v. Morristown Obstetrics & Gynecology Assocs. and Atalese v. U.S. Legal Servs. Grp. were determinative of the scope of the arbitration agreement in this case, concluded the Third Circuit.

In Garfinkel, the arbitration provision in a contract stated it applied to “any controversy or claim arising out of, or relating to, this Agreement or the breach thereof.”  That language that suggested that the parties intended to arbitrate only those disputes “involving a contract term, a condition of employment, or some other element of the contract itself.”  Accordingly, the plaintiff in Garfinkel was not compelled to arbitrate his statutory claims.

In Atalese, the arbitration provision in a service agreement covered “any claim or dispute … related to this Agreement or related to any performance of any services related to this Agreement.”  That language “did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court,” and therefore the plaintiff was not required to arbitrate those claims.

By contrast, the New Jersey Supreme Court required the arbitration of statutory claims in Martindale v. Sandvik, Inc., where the arbitration clause in an employment agreement stated that plaintiff agreed to waive her “right to a jury trial in any action or proceeding related to [her] employment…”

Because the arbitration agreement in the plaintiff’s agreement with Breathless applied to disputes “under this Agreement,” without reference to statutory wage claims, the Third Circuit applied Garfinkel and Atalese to conclude that Moon was not required to arbitrate her statutory claims under the FLSA and New Jersey law.

The award of summary judgment in favor of Breathless was therefore reversed, and the case was remanded to the District Court.

While the laws of other states may vary, the Third Circuit’s decision suggests that, at the very least, employers in New Jersey should expressly reference statutory wage claims in arbitration provisions if they intend to have statutory wage claims arbitrated.

By: Michael D. Thompson

ESPN broadcaster Keith Olbermann recently held a mock press conference in which he pretended to be the new Commissioner of Baseball, and explained how he would improve the game in that role.  For example, World Series games would start early enough for kids to watch them, the designated hitter would be eliminated, and Vin Scully would call all World Series games.

I’d like to do something similar.  I am pleased to inform you that, for the rest of this blog entry, let’s assume that I am the new Secretary of Labor.

Effective immediately:

  1. An employer’s liability to inadvertently misclassified employees will be limited to half-time (rather than time-and-a-half) if the employer has a published policy, and receives a signed acknowledgment, stating: “I understand that my salary is intended to compensate me for all hours worked in any given workweek.”
  2. If an individual has an independently-established business, he or she is an independent contractor. Case closed. Anyone who has the wherewithal to set up his or her own business is capable of making a decision about whether the terms of a business relationship are acceptable.
  3. New Jersey’s child labor law exception allowing minors under the age of 16 to work as beekeepers is preempted by a new federal regulation to the contrary. Okay, this one does not come up much.  But do we really want a law that says a 15-year old can be left in charge of a charge of a swarm of bees?  That sounds like a Hitchcock movie.
  4. The “professional” exemption’s focus on jobs held by employees who get their advanced knowledge in school is expanded.  The exemption now extends explicitly to jobs requiring “knowledge of an advanced type customarily acquired through five or more years of on-the-job experience.”
  5. Employers do NOT have to pay employees who only worked overtime because they played fantasy football or shopped online during regular hours.
  6. The “administrative” exemption will now be called the “independent judgment” exemption, and will apply to any employee with a salary of at least $800 per week who normally exercises discretion and independent judgment. The part of the “administrative” exemption requiring that the employee’s primary duty must be administrative in nature is eliminated because the Courts never seemed clear on how to apply it.

Let’s get to work.

 

 

 

 

by Michael D. Thompson

New Jersey voters have approved a ballot question that will raise the state’s minimum wage from $7.25 to $8.25 an hour, and to provide for future increases based on changes in the consumer price index.

After Gov. Chris Christie vetoed the minimum wage increase earlier this year, both houses of the New Jersey Legislature approved a referendum on the issue.  Accordingly, voters were asked: 

Do you approve amending the State Constitution to set a State minimum wage rate of at least $8.25 per hour? The amendment also requires annual increases in that rate if there are annual increases in the cost of living.

Sixty-one percent of voters answered “yes.”

Based on the referendum, the New Jersey Constitution will be amended to require employers to pay employees $8.25 per hour as of January 1, 2014.  Furthermore, “on September 30 of each subsequent year, the State minimum wage rate shall be increased effective the following January 1 by any increase … in the consumer price index for all urban wage earners and clerical workers…”

In the event of an increase in the federal minimum wage, the New Jersey minimum wage “shall be immediately increased to the level of the federal minimum wage,” and that rate will subsequently adjusted upwards based on changes in the consumer price index.