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Wage & Hour Law Update

Complying with DC Wage Theft Act

The District of Columbia, like California, has followed New York’s lead in enacting a new Wage Theft Prevention Act requiring issuance of individual wage notices.  Analysis of the Act and its requirements is available at the Jackson Lewis Workplace Resource Center here.

Ninth Circuit Upholds Trial Court’s Finding Rejecting Allegation of Unpaid Sixth Day of Work Despite Absence of Employer Records

Counsel for wage-and-hour plaintiffs often argue – in settlement negotiations and in court – that the plaintiff’s burden under Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692 (1946), applicable if there are no records of hours worked, renders the employee’s recitation of events unassailable. This position misstates the law, as reflected in the Ninth Circuit’s recent decision in Garcia v. Bana, 2015 U.S. App. LEXIS 3896 (9th Cir. Mar. 12, 2015).

In Bana, the court reviewed a trial court’s finding that the plaintiff failed to establish uncompensated overtime work, despite his testimony that at times he worked an uncompensated sixth shift on a Saturday. Based on this testimony, plaintiff’s counsel urged that the Court should have “credit[ed] this testimony and “analyze[d] whether the hours claimed by Plaintiff [were] reasonable in light of the evidence on [sic] the records [sic].” The trial court had not credited the testimony, instead crediting the employer’s rebuttal testimony that “when [Plaintiff] did [work on Saturday] he had taken off a day during the week.”   Because the record permitted the Court to weigh this competing evidence and make a credibility determination, the Ninth Circuit held that the lower court’s finding did not violate the Mt. Clemens standard and was not “legal error.”

Records of hours worked remain the best (and most streamlined) defense to a claim of uncompensated overtime work. In the absence of such records, however, this case reiterates that employers are not completely defenseless.

Tenth Circuit: Isolated Deduction Does Not Defeat Salary Basis For Exempt Salaried Employees

Compliance with salary basis requirements is one pre-requisite for exempt status under the FLSA’s “white collar” exemptions.   A recent decision issued by the Court of Appeals for the Tenth Circuit analyzed this requirement and upheld the employer’s salary basis of payment, rejecting the Plaintiff’s claim that an isolated deduction from an exempt employee’s salary destroys exempt status.  Ellis v. J.R.’s Country Stores, Inc., 2015 U.S. App. LEXIS 3667 (10th Cir. Mar. 9, 2015)

The plaintiff, Sandra Ellis, worked as a manager at one of defendant’s stores.  As a manager plaintiff was expected to work a minimum of 50 hours per week and a minimum of five days per week.  Defendant paid plaintiff a weekly salary of $600, which was increased to $625 during her employment, and classified her as exempt under the Fair Labor Standards Act.  Following a week in which she reported working only 40.91 hours, Plaintiff received a paycheck in the amount of $593.80, from which defendant deducted $31.20 due to her partial-day absence. The parties asserted “different, though overlapping, explanations as to why” Plaintiff’s pay was reduced. The Court found the differences in those positions immaterial to the question of whether Plaintiff had been paid on a salary basis.   In affirming the district court’s grant of summary judgment in favor of defendant, the Tenth Circuit concluded that defendant did not have an “actual practice of making improper deductions” such that it forfeited its ability to treat plaintiff as exempt.  The Court observed that plaintiff worked less than 50 hours per week on “13 separate occasions,” but defendant reduced her pay “on only one occasion.”  Further, defendant’s employee handbook “clearly communicate[d] that improper deductions [were] prohibited,” and provided a mechanism for reimbursement of improper deductions made in good faith.

Finally, the Court concluded that defendant could take advantage of the “window-of-correction defense” which permits employers to maintain their exemptions by reimbursing employees for improper deductions that “are either isolated or inadvertent.”  In so holding, the Court rejected plaintiff’s argument that the “window-of-correction defense” should apply only where the employer’s decision to deduct money was both isolated and unintentional.  Rather the court held that the defense applies when the deduction is isolated or inadvertent.

Ellis illustrates the importance of maintaining a clear policy prohibiting improper deductions from wages of exempt salaried employees. Such a policy enhances the likelihood of avoiding liability by reimbursing employees for deductions that are inadvertently or improperly made. State law rules governing deductions also must be taken into consideration.

Supreme Court Upholds DOL’s 2010 Interpretive Guidance Reversing Prior Position Regarding FLSA Classification of Loan Officers

Reversing the D.C. Circuit’s 2013 opinion, the Supreme Court today held that the U.S. Department of Labor did not violate the Administrative Procedure Act (APA) when, in 2010, it issued its Administrator’s Interpretation stating that mortgage loan officers generally do not qualify for the administrative exemption without first affording the public the opportunity for notice and comment. Perez v. Mortgage Bankers Ass’n, 2015 U.S. LEXIS 1740 (U.S. 2015).

In Mortgage Bankers, the Court considered whether the Administrator’s Interpretation, by departing from the Department’s prior opinion contained in a 2006 opinion letter, had violated the APA by giving the administrative exemption “regulation a definitive interpretation, and later significantly revis[ing] that interpretation.” Paralyzed Veterans of Am. v. D. C. Arena L. P., 117 F. 3d 579 (D.C. Cir. 1997). The D.C. Circuit, the same court that had decided Paralyzed Veterans, concluded that the Administrator’s Interpretation was a violation of the APA and struck it down. The Supreme Court, in a decision authored by Justice Sotomayor, concluded it did not, rejecting Paralyzed Veterans and calling that case’s holding “contrary to the clear text of the APA’s rulemaking provisions.” Because those APA provisions required public notice and comment only where required by statute, the Paralyzed Veterans analysis imposed procedural obligations on the DOL beyond those required by law, and the Interpretation was a valid exercise of the agency’s authority to interpret the FLSA.

More information regarding the decision will be available in the coming days on the Jackson Lewis Workplace Resource Center.

New York Federal Court Holds Persons Performing Community Service To Avoid Criminal Prosecution Not “Employees” Entitled to Minimum Wage Under The FLSA

The Court of Appeals for the Second Circuit recently revisited the Department of Labor’s four-part test for purposes of determining whether a person qualifies as a “public service volunteer.”  In a new decision applying the Second Circuit’s fact-intensive standard, Southern District of New York Judge Jesse M. Furman ruled in favor of the City of New York holding that individuals who performed community service in exchange for eventual dismissal of criminal charges as part of a diversionary program are not entitled to minimum wage as “employees” under the Fair Labor Standards Act.  Doyle v. City of New York, 2015 U.S. Dist. LEXIS 26440 (S.D.N.Y. Mar. 4, 2015).

In Doyle, the three plaintiffs collected garbage and cleaned up parks and bridges for the City of New York in exchange for the dismissal of minor criminal charges pending in state court, and were not paid for doing so.  In their complaint, plaintiffs alleged that they had no “civic, humanitarian, or charitable reasons” for performing the work and thus their service did not qualify them for the public service volunteer exclusion from FLSA coverage.  Because the Court, at the motion to dismiss stage, assumed this allegation to be true, the Court found that plaintiffs were not “volunteers” for purposes of the FLSA.

Judge Furman noted, however, that plaintiffs were not necessarily covered employees, simply because they did not fall within a specific exemption.  Plaintiffs argued that they qualified as employees because City agencies referred to people in their position as “employees,” and because their situation was similar to that of participants in New York’s “workfare” program, even though the latter perform their work in order to receive wages and other benefits.  Ultimately, the Court gave deference to the DOL’s interpretation that individuals who are required by a court to perform community service for no compensation are not considered employees under the FLSA, and found that, as a matter of economic reality, plaintiffs were not covered employees.  Applying the economic reality test at “a higher level of generality” and relying on “our common linguistic intuitions,” the Court found that plaintiffs did not perform community service to earn a living or to receive financial compensation, but to avoid further criminal prosecution.  The Court observed that extending the FLSA to cover the plaintiffs would do little to advance the law’s purpose and would possibly undermine the efficacy of New York’s program.

An active Plaintiffs’ bar continues to push for expansive FLSA coverage. Employers, whether private or public sector, for profit or non profit, should analyze their relationship with all vendors and service providers in consultation with counsel to minimize potential liability.

Origins of Wage-and-Hour Jurisprudence: Portland Terminal

Many current FLSA compensation issues which are the subject of widespread litigation – such as the current wave of intern cases – have their legal underpinnings in Supreme Court authority decided during the 1940s in the years following the enactment of the FLSA (1938) and the Portal-to-Portal Act (1947).  For example, courts seeking to interpret the FLSA’s applicability to interns—given the statute’s lack of a definition of intern, volunteer, etc.— have continued to refer to the Supreme Court’s 1947 decision in Walling v. Portland Terminal Co., 330 U.S. 148 (U.S. 1947).

Portland Terminal concerned training provided to prospective yard brakemen by the Portland Terminal Company, which controlled railroad switching activity in Maine. The mandatory training took seven or eight days, during which the prospect learned the routine activities of a brakeman by observation, and then was “gradually permitted to do actual work under close scrutiny.”  This supervised work did “not expedite the company business, but . . . sometimes d[id] actually impede and retard it.”   The Court’s opinion, written by Justice Hugo Black, held that because the railroad derived no “immediate advantage” from this closely-supervised activity, it did not constitute employment for compensation under the FLSA.

In a strongly-worded concurrence, Justice Frankfurter lamented that the Court’s other early decisions, by declining to defer to industry custom as reflected in the bargaining of authorized representatives under the National Labor Relations Act, or even to the Wage and Hour Administrator, had already rejected the “two ways of giving real force and meaning to this Act without throwing all industry and labor into strife and litigation.”  Calling for the Court to “reconsider its approach to cases under this Act,” he agreed only with the judgment, claiming that the agreement of the parties was sufficient to take the dispute outside the purview of the nascent FLSA.

Still “guiding law,” courts continue to look to cases such at Portland Terminal for direction, despite the constant and rapid evolution of the workplace, as Supreme Court decisions addressing the FLSA are limited.

NY Acting Commissioner of Labor Issues Wage Board Order Reducing New York Tip Credit to $1.50

In New York, the cash wage due to tipped workers will increase to $7.50 at the end of the year, following an Order from acting Commissioner of Labor Mario Musolino. Commissioner Musolino accepted this recommendation from the Wage Board convened by his predecessor. This order will reduce the tip credit to $1.50/hour off the minimum wage of $9.00/hour effective December 31, 2015.

The Commissioner also accepted the Board’s recommendations that a single tip credit apply to all service employees in hospitality, and that an additional $1/hour be added to the tip credit in New York City if New York City passes minimum wage legislation requiring a higher minimum wage than under state law. The Commissioner rejected the Board’s proposal that the tip credit increase a dollar (from $1.50 to $2.50) for all NYS employers where certain conditions were met.  This latter compromise would have made a larger tip credit available where total compensation reached certain levels, but also had the potential for ambiguity in implementation, a breeding ground for litigation.

The Order is available here.  New York hospitality industry employers must begin to plan for the economic impact of these changes.

Utah’s Highest Court Finds LLC Managers Were Not Employers Under State Wage Law

When small entrepreneurial ventures collapse, disputes sometimes arise regarding who constituted an “employee” of the business and whether they were paid proper wages.  As the venture has failed, the issue of individual liability often is raised.  In a new decision, Utah’s highest court clarifies that Managers of a limited liability company are not liable for allegedly unpaid wages on the basis of that role.  Heaps v. Nuriche, LLC, 2015 UT 26 (Utah 2015).

The court agreed with the individual managers of the failed LLC that they did not “qualify as employers under the plain language of the [Utah Payment of Wages Act] . . . [because plaintiffs’] proposed construction of the statute conflicts with other provisions of Utah law that limit the liability of LLC and corporate officers.”  Because “any supervisory power” the managers may have exercised “arose from their positions as officers and agents of [the LLC] – not as direct employers . . . [and] the managers did not personally employ [plaintiffs],” they were not liable.  The court further observed that its conclusion was “buttressed by long-accepted principles of Utah corporate law.”

Those starting or unwinding business ventures must pay attention to applicable law assessing potential liability.

New York AG Schneiderman Introduces Pay Card Legislation

Following his investigation of the issue, New York Attorney General Eric Schneiderman last week proposed the Payroll Card Act, which would require employers:

  • To permit employees to elect whether to be paid through a payroll card, direct deposit, or to receive a paper check;
  • To provide notice of payroll card program terms and conditions, including potential fees; and,
  • Not to use payroll card programs that charge certain types of fees, and require any program to have at least one network of ATMs where employees can obtain access to their wages without paying a fee.

New York’s current statute, N.Y. Labor Law § 192, expressly addresses only direct deposit, though New York agencies have interpreted the existing Labor Law to cover payroll cards. The statute will hopefully provide greater clarity to employers in this area.

State law regulation in the wage arena continues to expand, requiring continued attention from Legal, Human Resources and Compliance departments.

Philadelphia Joins New York City, Newark and Many Other Jurisdictions In Requiring Paid Sick Leave

On February 12, Mayor Michael Nutter signed a bill requiring Philadelphia employers with 10 or more employees to offer paid sick leave, joining neighbors New York City and Newark, New Jersey, as well as other states and localities, in enacting such a requirement.  The Philadelphia bill takes effect in mid-May, and requires that eligible employees accrue paid leave at a rate of one hour for every 40 hours worked, to a maximum of 40 hours of leave in a calendar year, unless the employer offers a more generous policy.

The continued proliferation of wage and benefits legislation at the state and municipal levels poses serious challenges for employers operating in multiple jurisdictions, who must seek to provide fair, equal benefits to workers while complying with applicable law.