Legislation Introduced To Delay Overtime Rule

Following a pair of lawsuits aimed at blocking the Labor Department’s “white collar” overtime rule, House Subcommittee on Workforce Protections Chair Tim Walberg (R-Michigan) introduced legislation which would delay the rule’s effective date by six months, from December 1, 2016, to June 1, 2017.  The proposed legislation, entitled The Regulatory Relief for Small Businesses, Schools, and Nonprofits Act (H.R. 6094), currently has 48 cosponsors – 47 Republicans and 1 Democrat.  According to the bill’s sponsors, absent congressional action, on December 1, 2016, “drastic changes to federal overtime policies will take effect, resulting in harmful consequences for workers, small businesses, nonprofit organizations, and colleges and universities.”

The legislation does not make any substantive changes to the Final Rule; it only delays its effective date for six months, likely with the hope that a new Congress might pass legislation that would permanently block the rule.  But even if this legislation passed, President Obama likely would veto it.  Given the short time before the effective date and its unlikely passage during President Obama’s term, employers should prepare for the changes to the exemptions to ensure they are compliant by December 1, 2016.

States and Business Groups File Separate Challenges To OT Rule

The anticipated legal challenges to the Department of Labor’s Final Rule regarding the salary level for white collar exempt employees were lodged yesterday through two separate lawsuits filed in the Eastern District of Texas.  State of Nevada et al v. United States Department of Labor et al, E.D. Texas 16-CV-731; Plano Chamber of Commerce et al v. Perez et al, E.D. Texas 16-CV-732.  In the first, twenty-one states challenge most aspects of the Final Rule, including its application to the states themselves.  In the latter, the U.S. Chamber of Commerce and other business groups attack the new salary level as “arbitrary,” and also challenge the Rule’s 10% cap on the use of non-discretionary incentive compensation to satisfy the salary level requirement.  Full coverage is available here.

Federal Court In Florida Is Latest To Reject DOL Regulation, Finds FLSA Does Not Require That Employees Receiving Full Minimum Wage Retain All Tips

While Department of Labor regulations interpreting the FLSA remain the primary source of employer guidance regarding the Act’s requirements, they are not necessarily the final word on what federal wage law requires. This is so even where they have been subject to “notice and comment,” triggering a higher level of judicial deference.  A federal court in Florida is the latest to highlight this at-times confusing reality, joining a growing line of authority holding that an employer does not have to ensure tipped employees retain all of their tips if the company is not using the employee’s tips to satisfy part of the minimum wage pursuant to the FLSA’s “tip credit” provision, 29 U.S.C. § 203(m). See Aguila v. Corporate Caterers II, Inc., 2016 U.S. Dist. LEXIS 104962 (S.D. Fla. Aug. 9, 2016).  In Aguila, the plaintiff delivery drivers sued defendant catering company under the FLSA, claiming that the company “retained some or all of these tips.”  The court granted the defendant’s motion to dismiss the plaintiffs’ claims, holding that the provisions of Section 3(m) of the FLSA (which require, among other things, that tipped employees paid a tip credit rate retain all of their tips) did not apply to plaintiffs because the plaintiffs did not allege that the defendant paid them below the full minimum wage (i.e., that the employer used some or all of their tips to satisfy the minimum wage).

Citing, among other authority, the recent decision of another judge within the Eleventh Circuit, the Court in Aguila noted that “under a consistent body of case law, courts have interpreted § 203(m) to prohibit an employer from retaining an employee’s tips only if the employer pays the tipped employee less than the federal minimum wage.”  The Aguila court joined a number of federal courts in rejecting the recent position taken by the United Stated Department of Labor (“DOL”) on this issue – a position set forth in recently-implemented regulations – and the Ninth Circuit’s decision in Oregon Rest. and Lodging Ass’n v. Perez, 816 F.3d 1080 (9th Cir. 2016) which adopted the DOL’s position.  Specifically, the Aguila court noted that it “disagrees with the flawed reasoning in Perez and finds that the DOL was without authority to address this issue” because the FLSA’s “plain and unambiguous language” expressly ties the requirement that employees retain all tips to the taking of a tip credit.

The law governing tip practices under the FLSA (as well as numerous state laws regulating gratuities) continues to develop, and employers of tipped workers in any industry permitting tipping must inform their business and employment practices by reference to current law in their jurisdictions.

U.S. Department of Labor Issues Revised FLSA Poster

The U.S. Department of Labor has issued a new FLSA poster, available for download here.  Covered employers should replace old posters with the Department’s new versions.  Employers should periodically review their compliance with FLSA and state law posting and notice requirements, particularly as related to tipped workers.

New Arizona Law Permits Parties To Establish Presumption Of Contractor Status Through Writing

As covered at length here, Arizona has enacted a new law effective August 6, 2016 allowing businesses and service providers seeking to enter into an independent contractor relationship to execute a “declaration of independent business status.”  A declaration complying with the statute creates a presumption of proper classification of the relationship between the parties as an independent contractor relationship.

Federal Court In Georgia Rejects DOL Regulation, Rules FLSA Does Not Require That Employees Receiving Full Minimum Wage Retain All Tips

On July 26, 2016, Judge William S. Duffey of the United States District Court for the Northern District of Georgia issued a decision holding that an employer does not have to ensure tipped employees retain all of their tips if the company is not using the employee’s tips to satisfy part of the minimum wage pursuant to the FLSA’s “tip credit” provision, 29 U.S.C. § 203(m). In Malivuk v. AmeriPark, LLC, the plaintiff sued defendant AmeriPark, LLC (a provider of valet parking services) under the FLSA claiming that Ameripark illegally withheld tips paid to her and other valets. Malivuk v. AmeriPark, LLC, 2016 U.S. Dist. LEXIS 97093 (N.D. Ga. July 26, 2016).

In granting AmeriPark’s motion to dismiss plaintiff’s claims, the court held that the provisions of Section 203(m) of the FLSA (which require, among other things, that tipped employees paid a tip credit rate retain all of their tips) did not apply to plaintiff and the other valets because AmeriPark was not taking the tip credit (i.e., using some or all of the tips to satisfy the minimum wage). In other words, the court held that the requirement that tipped employees retain all of their tips only applies to those tipped employees who are paid a direct wage less than $7.25 per hour.

In so holding, the court expressly addressed and rejected the recent position taken by the United Stated Department of Labor (“DOL”) on this issue. In 2011, the DOL issued a regulation stating that, even if employers are not taking the “tip credit” with respect to tipped employees, those employers nevertheless must ensure that the tipped employees retain all of their tips. A panel of the Ninth Circuit Court of Appeals upheld the DOL’s new regulation as consistent with Section 3(m) in Oregon Rest. and Lodging Ass’n v. Perez, 816 F.3d 1080 (9th Cir. 2016) en banc petition filed April 6, 2016. In AmeriPark, Judge Duffey rejected the Ninth Circuit panel’s “flawed reasoning” in Oregon Rest. and refused to give deference to the DOL regulation, noting that “nearly every other court that has considered the DOL Regulation has invalidated it under [the Supreme Court’s decision in] Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc.

While this decision supports the position that the specific requirements of 29 U.S.C. § 203(m) apply only when a tip credit is taken, and that the Department of Labor has overreached in attempting to interpret the statutory language differently, the law is still developing on this issue. Employers should continue to monitor developments in this and similar cases. It also remains important, as always, to confirm compliance with state law before implementing any wage-and-hour practice, whether relating to tipped workers or otherwise.

Jackson Lewis Principal Eric Magnus contributed to this post.

Congress Approves Puerto Rico’s Reprieve From Salary Basis Increase

As discussed in detail here, the Senate has approved the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”).  Among other provisions, PROMESA stays applicability of the new salary basis rule to Puerto Rico until the Comptroller General of the United States further analyzes the economic impact of such application, and the Secretary of Labor (taking the Comptroller’s analysis into account) makes a written determination that the application “would not have a negative impact on the economy of Puerto Rico.”  The Comptroller has two years to submit a written report to Congress.

Latest Municipal Wage Law: Philadelphia’s Wage Theft Law

Full coverage of Philadelphia’s new Wage Theft Law – providing a separate new private right of action for violations of the Pennsylvania Wage Payment and Collection Law or the Pennsylvania Minimum Wage Act occurring in, or based on an “employment contract” made within, the city – is available here.  The Law also creates the position of Wage Theft Coordinator to adjudicate complaints, and provides for additional remedies beyond the wages owed, including monetary penalties and the denial, revocation or suspension of licenses or permits issued by the City.

Multi-jurisdictional employers continue to cope with waves of new wage regulations at the city and state level.

ESL Teachers At Private Learning Center FLSA “Teachers” Exempt from Overtime

Earlier this week, in a matter of first impression within the Second Circuit, Judge P. Kevin Castel of the Southern District of New York held that employees who teach English as a second language (“ESL”) at a privately-owned ESL learning center qualify for the professional exemption under the FLSA as “teachers.”  Fernandez v. Zoni Language Ctrs., 2016 U.S. Dist. LEXIS 65310 (S.D.N.Y. 2016).

Plaintiffs taught English to students at language learning centers operated by Defendants.  They alleged that they performed work outside of their time in the classroom for which they were not compensated and therefore sought damages for unpaid minimum wage and overtime.  Plaintiffs conceded that they were employed as “teachers” in that they had the “primary duty of teaching, tutoring, instructing or lecturing in the activity of imparting knowledge,” but disputed whether they did so while “employed and engaged in this activity as a teacher in an educational establishment,” as also required under the applicable exemption regulation.  29 C.F.R. § 541.303(a).  The Court found that the ESL centers constituted “other educational institutions” – one of the three types of qualifying educational establishments recognized in DOL regulations (along with an “elementary or secondary school system [and] an institution of higher education”).  29 C.F.R. § 541.204(b).

While Plaintiffs maintained that the identification of “special schools for mentally or physically disabled or gifted children” and “post-secondary career programs” within the text of § 541.204(b) meant that these were the only types of “other educational institutions” intended to be covered, the Court rejected Plaintiffs’ narrow reading of the regulation, finding the examples listed in the regulation as merely illustrative, not exhaustive.  That threshold question considered, the Court analyzed whether the the Defendants’ ESL centers actually were such an “other educational institution” using eight separate, non-dispositive factors: (1) the title of employees; (2) the certifications required of teachers; (3) the formality of courses; (4) the granting of certificates or degrees; (5) the organization’s charter; (6) the teacher’s involvement in organizing, communicating and delivering curriculum; (7) whether the organization is licensed by a state agency responsible for the state’s educational system; and (8) whether the organization is accredited by a nationally recognized accrediting organization.  Although the Court analyzed all eight factors, it was particularly swayed by the evidence that the teachers at Defendants’ language learning centers must possess a “baccalaureate or equivalent degree,” the similarity between the ESL courses offered at Defendants’ learning centers to courses offered at traditional schools and the fact that Defendants’ ESL centers are licensed and certified by the New York State Department of Education and accredited by the Accrediting Council for Continuing Education and Training.

Employers that operate in the education field must analyze whether learning centers constitute “educational institutions” under the regulations to the FLSA, and in turn, therefore, whether the teachers employed by the learning centers are exempt professionals.  State law, of course, must be separately analyzed.

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