Minimum Wages To Rise On Both Coasts

Over the past few years, numerous states and municipalities have increased the statutory minimum wage.  Further, through Executive Order, President Obama increased the federal minimum wage applicable to federal contractors.  Consistent with this trend, the governors of both California and New York have now reached new legislative deals with their respective legislative branches which provide for significant increases to the minimum wage in each state.

In California, Governor Brown is expected to sign legislation this week which will eventually raise the state minimum wage to $15 per hour.   This will be a 50 percent increase from the current state minimum wage, already the highest current state minimum wage (though the District of Columbia’s minimum wage is slightly higher, at $10.50).  The measure will raise  California minimum wage to $10.50 in January and to $11 in January 2018. It will then increase by an additional $1 per hour every year until it reaches $15 in 2022. If, however, the state goes through an economic downturn or budget crisis, the governor can choose to slow the implementation. The final bill gives small businesses, with 25 or fewer employees, an extra year to implement the increases.  Note that many municipalities have higher minimum wage obligations, so state employers also must consider local law.  The tip credit remains unavailable for California employers.

The New York legislation divides the State into three regions:  New York City; Downstate (Long Island and Westchester County); and the balance of New York State (meaning, all counties “upstate” from the greater New York City area).  The law provides for gradual increases to the minimum wage over the next five years, but with more accelerated increases for NYC, Long Island, and Westchester.  NYC is further divided between large employers (those with 11 or more employees) and small employers (those with 10 or less).  For large NYC employers, the minimum wage will rise to $15.00 by the end of 2018.  Small NYC employers will have another year, until December 31, 2019, before the $15.00 per hour rate applies.  In Long Island and Westchester County, the wage would rise to $15 by the end of 2022.   In the rest of the State, the wage would hit $12.50 in 2021, then increase to $15 on an as-yet undetermined schedule based on the economic impact of further increases.  The New York legislation also retains the tip credit for tipped employees, setting the cash wage at two thirds the applicable minimum wage or $7.50, whichever is higher.

Final regulations will presumably help clarify the minimum wage obligations under these new wage rates for employers operating in multiple jurisdictions (within or outside these states).  Now more than ever, employers must regularly review state and local minimum wages to ensure compliance.

Wynn Marketing Executive Host Is Exempt Administrative Employee Due To Exercise of Discretion

Earlier this week, the U.S. Court of Appeals for the Ninth Circuit issued an unpublished decision affirming summary judgment in favor of Wynn Las Vegas with respect to overtime claims asserted by a Slot Marketing Executive Host.  Dannenbring v. Wynn Las Vegas, LLC, 2016 U.S. App. LEXIS 5715 (9th Cir. Nev. Mar. 28, 2016).

Concluding that Plaintiff Dannenbring was exempt pursuant to the administrative exemption, the Court agreed with the district court’s conclusion that the undisputed facts regarding the employee’s actual job duties demonstrated her primary duties were administrative in nature and included the exercise of discretion and independent judgment.  She promoted the Wynn’s gambling business by cultivating relationships with individual gamblers, promoting specific activities, persuading customers to spend money on gaming products, extending lines of credit and offering complimentary benefits (“comps”).  The Court found the employee’s foregoing “marketing” activities were directly related to general business operations of the Wynn’s gambling business consistent with 29 C.F.R. § 541.201(b).  Moreover, it also was undisputable that the employee was accountable for the results of her marketing efforts, was able to extend lines of credit up to $25,000, had some managerial responsibilities, and  authorized subordinates’ issuance of comps as well, all demonstrating her discretion and judgment with respect to matters of significance.  The Court further ruled that the fact that the Wynn had guidelines on the employee’s decision-making did not undercut the satisfaction of this requirement, noting that discretion and independent judgment does not require “unlimited authority and complete absence of review.”

Employers analyzing their work forces ahead of the upcoming revisions to the FLSA’s white collar regulations should continue to take instruction from appellate analyses of exemption questions such as Dannenbring, pending the new proposed final regulations and clarity regarding whether they will modify current duties requirements.

Reporting Indicates Accelerated Timetable for Proposed Overtime Rule

Multiple sources have reported that yesterday the USDOL sent the proposed final overtime rule to the Office of Management and Budget (OMB) for its mandatory review.  If OMB’s review is completed on an expedited basis, DOL could disseminate the proposed final rule to the public by mid-April, with an effective date potentially as early as the beginning of June, subject to delay from that date based on Congressional review under the Congressional Review Act.

This announcement moves the anticipated effective date up in time from most prior projections, which placed the date in the third quarter of 2016.  An accelerated timetable may be motivated by political pressures related to the upcoming election and potential changes in the White House and Congress.  Watch this space for further developments.

Oregon Governor Signs Bill Increasing Oregon’s Minimum Wage

Last week, Oregon joined New York, Los Angeles, Birmingham, Seattle and others on the list of states and municipalities continuing to push for a higher minimum wage in the face of stalled federal rulemaking.  In Alabama, the state quickly blocked Birmingham’s efforts.  Full coverage of the Oregon law is available here.

Ninth Circuit Affirms: Not All Complaints About Work Policies Relating to Hours “Protected Activity” Under the FLSA

The substantive provisions of the FLSA protect covered non-exempt employees’ right to receive minimum wage and, as applicable, overtime pay.  The statute’s anti-retaliation provision is co-extensive: it protects employees from termination or other adverse employment action in response to complaints that those provisions were violated.  The FLSA however does not extend anti-retaliation protections to employees making generalized complaints about working conditions.  This principle is set forth in a new order from the Court of Appeals for the Ninth Circuit’ affirming a Nevada federal court’s prior ruling.  Richard v. Carson Tahoe Regional Healthcare, 2016 U.S. App. LEXIS 3932 (9th Cir. 2016).

Plaintiff Richard alleged she was terminated for complaining about the receipt of appropriate breaks.  However, she conceded “that the FLSA did not require [Defendant] to provide her with breaks” and there was no evidence in the record that her complaints related to the payment of wages, as opposed to the receipt of breaks.  On these facts, the appeals court confirmed that because Plaintiff “did not assert that any rights protected by the FLSA were being violated, she did not engage in protected activity under the FLSA,” and affirmed summary judgment to the employer.

Analyzing whether an employment action poses a concern under the FLSA’s anti-retaliation provision requires similar analysis as under other employment statutes: 1) whether the employee engaged in protected activity; 2) whether the employee suffered an adverse employment action; and (3) whether facts exist that  support an inference that the adverse action was in response to bona fide protected activity, rather than based on an appropriate business justification.

Santa Monica Latest Municipality To Dive Into Wage Rulemaking

As covered on the Jackson Lewis web site here, Santa Monica (CA) has joined the City of Los Angeles and other municipalities in enacting a minimum wage and paid sick leave statute.  Absent a change or legal challenge, the minimum wage schedule set forth in the new ordinance takes effect on July 1, 2016.

New Jersey Court: Meal Preparation, Other Tasks Properly Part of “Companion” Duties Under Old Test

In 2013 the Department of Labor announced new regulatory language that substantially limited the scope of the Fair Labor Standards Act’s companionship exemption. Those regulations, of course, were challenged through litigation which remains ongoing, and their implementation by the USDOL was delayed until many months after the original effective date of January 1, 2015. Though the new companionship services regulations have taken effect, pending review by the U.S. Supreme Court, claims brought under the prior regulations continue to work their way through the court system. A federal district court in New Jersey decided one such case last week, finding an FLSA claimant had failed to properly plead that she was not exempt from minimum wage and overtime under the prior version of the exemption.  Simoliuniene v. Estate of Maszer, 2016 U.S. Dist. LEXIS 25953 (D.N.J. Mar. 1, 2016).

In Simoliuniene, the plaintiff was a home care worker employed to care for an elderly woman by the woman’s guardian. She argued that the companionship exemption did not apply to her in part because she performed “meal preparation, bed making, washing of clothes, and other similar services” and that these tasks took up more than 20 percent of her total weekly hours worked in violation of the “20 percent rule” limitation on general household work. The court rejected the plaintiff’s argument and noted that these tasks are “precisely those duties that are covered by the FLSA’s definition of ‘companionship services’ because they consisted of ‘household work related to the care of the aged or infirm person.’” The court distinguished these tasks from “general household work,” and noted that only “general household work” was subject to the then-applicable 20 percent limitation.

Third party employers of home care workers that continue to face claims based on the prior regulations may be able to use the Simoliuniene decision when defending challenges based on performance of meal preparation, bed making, and similar duties for their clients. Under the new regulations, such third party employers no longer can avail themselves of the companionship exemption. Individuals or guardians who employ home care workers classified as companions under the current version of the exemption must take care to determine whether they are performing work that falls within the definition of “companionship services” under the new regulations.

First Circuit: FAAAA Preempts Massachusetts’ Contractor Law

On February 22, 2016, the First Circuit issued its decision in Schwann v. Fedex Ground Package System, Inc. This decision clarified the extent to which the Massachusetts Independent Contractor statute, G.L. c. 149 § 148B (“§ 148B”), as applied to motor carriers, is preempted by the Federal Aviation Administration Authorization Act of 1994, 49 U.S.C. § 14501(c)(1) (“FAAAA”). Schwann v. FedEx Ground Package Sys., 2016 U.S. App. LEXIS 3050 (1st Cir. Mass. Feb. 22, 2016).

In Schwann, the plaintiff delivery drivers alleged that FedEx had misclassified them as independent contractors under § 148B. That statute presumes that an individual “performing any service” is an employee unless the defendant can establish all of the following: (1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; (2) the service is performed outside the usual course of the business of the employer; and (3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

Prong 2 of this test for contractor status is not applicable under most state wage laws. Under federal law and the law of most states, the relationship between the service performed and the usual course of the enterprise’s business is simply one factor among many to be considered, and oftentimes secondary to the level of control exerted over the service provider. As applied to motor carriers, Prong 2 essentially prohibits them from utilizing independent contractors to perform delivery services, regardless of how little control they assert over the individual, and regardless of whether that individual maintains his or her own independent business, unless delivery services are found not to be within the motor carrier’s “usual course of business”.

In Schwann, the First Circuit affirmed the District Court’s finding that Prong 2 was preempted by the FAAAA. The FAAAA preempts all state laws that “expressly reference”, or have a “significant impact on,” motor carriers’ prices, routes, or services.

The First Circuit found that Prong 2’s effective ban on the use of independent contractors in Massachusetts by motor carriers ran counter to the Congressional goal of avoiding “a patchwork of state service-determining laws, rules, and regulations” that were better left to the competitive marketplace.

Although the First Circuit found Prong 2 preempted, it reversed the District Court’s decision to preempt Prongs 1 and 3 of § 148B. The District Court reached that conclusion not based on a separate analysis of those Prongs, but because it found that Prong 2 was severable from the statute as a whole. Since FedEx had not argued separately for preemption of Prongs 1 and 3, the Court remanded the matter to the District Court for a determination of whether Plaintiffs could show that they were misclassified under either Prongs 1 or 3. The Court did not, however, express any opinion as to whether Prongs 1 or 3 would be found preempted if a defendant were to raise that argument.

Under this decision, delivery drivers in Massachusetts will no longer be able to rely on Prong 2’s “usual course of business” test to argue that they were misclassified by motor carriers utilizing them to make deliveries. This is a substantial victory for motor carriers, as Prong 2 was the most difficult for most defendants to satisfy (hence the First Circuit’s holding). Moreover, because Prong 2 focuses on the nature of the defendant’s business as a whole, a violation of Prong 2 was often found to be systemic, making certification of a class action in such cases more likely.

The First Circuit, however, did not hold that motor carriers are free to classify their drivers as independent contractors with impunity. Unless and until there is a separate finding that Prongs 1 and 3 are preempted by the FAAAA, motor carriers must still prove both that: (1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and (2) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed. Motor carriers in the state must be mindful of these requirements and enter into agreements for services with delivery drivers based on the applicability of this modified test.

Birmingham Implements Wage Ordinance Effective Immediately, Subject To Possible Overturning at State Level

As discussed in detail on the Jackson Lewis web site, the Birmingham City Council – attempting to push through a wage increase within the municipality ahead of rule-making at the state level designed to preempt such city laws – has passed an ordinance increasing the minimum wage within city limits to $10.10 effective immediately.  Full coverage is available here.

Louisiana Federal Court Rules Half-Time Method Applies to Calculation of Any Alleged Unpaid Overtime and Bonuses Paid Offset Any Potential Liability

Courts addressing FLSA misclassification claims brought by employees classified as salaried exempt workers must determine damages. In a new decision from the United States District Court for the Eastern District of Louisiana, Judge Jane Triche Milazzo ruled that successful Plaintiffs in one such misclassification case are only entitled to “half-time” damages. Further, the Court ruled that any such liability would be offset by discretionary bonuses previously paid to such employees based on their classification of salaried exempt by the employer.  Allen, et al. v. Entergy Operations, Inc., Civil Action No. 11-1571, 2016 U.S. Dist. LEXIS 18958 (E.D. La. Feb. 17, 2016).

Plaintiffs, current and former “Security Shift Supervisors” employed by Defendant Entergy Operations, Inc. at the Waterford 3 nuclear plant in Killona, Louisiana, filed suit claiming Entergy misclassified them as exempt under the FLSA. Entergy contended that it properly classified the Plaintiffs under the administrative exemption. The court denied both parties’ cross-motions for summary judgment on the question of whether the Plaintiffs were properly classified as exempt from the FLSA’s overtime requirements, holding that material issues of fact remained regarding the primary duties of the SSS position and the level of discretion Plaintiffs utilized in performing those duties. The court did, however, grant summary judgment in Entergy’s favor on two other significant issues related to the calculation of potential overtime damages.

The court first held that, if the Plaintiffs were able to prove their FLSA misclassification claims, overtime damages should be calculated on a half-time basis rather than a time and one-half basis for sixteen of the nineteen Plaintiffs. The court found the undisputed evidence showed that these Plaintiffs understood they would be paid a fixed weekly salary to work a fluctuating number of hours each week. Under those circumstances, the court held, the Plaintiffs’ weekly salary paid them for all straight time hours worked, including those hours over 40. As to the remaining three Plaintiffs, the court denied summary judgment on the fluctuating workweek, but questioned whether the three Plaintiffs would be able to meet their burden at trial.

The court also granted summary judgment in Entergy’s favor on the question of whether discretionary bonuses received by Plaintiffs while classified as exempt could be used to offset any overtime damages owed, should Plaintiffs’ succeed on their overtime claims. The court determined that the Plaintiffs would not have received the bonuses in question if they had been classified as non-exempt, as only certain exempt managers were entitled to receive the bonuses, and, further, that Louisiana state law would require Plaintiffs to return any bonus payments to which they were not entitled. Under those circumstances, the court held, permitting Plaintiffs to recover overtime damages and to retain the bonuses “would be inequitable at best” and would result in a “windfall” to the Plaintiffs.

Misclassification litigation continues to be a source of exposure for employers of all sizes, a reality unlikely to change as the Department of Labor gears up to issue its new rules regarding exempt status. Employers must analyze this source of risk, including not only their designation of employees as exempt but the facts applicable to potential remedies as discussed in Allen. Further, employers should take all practical measures to communicate to all employees classified as salaried exempt that their salary is intended to cover all hours worked.

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