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Wage & Hour Law Update

USDOL Blog Post Signals Proposed Overtime Rules Will Narrow Exemptions

Despite the enumerated twin goals to “update” and “simplify” the overtime regulations governing exempt status identified in the President’s original 2014 directive to the Department of Labor, a new blog post from Secretary of Labor Thomas Perez indicates that the proposed rule now submitted to the Office of Management and Budget will focus on narrowing the exemptions. The post states the Department’s view that the “rules governing who is eligible for overtime have eroded over the years . . . [resulting in] millions of salaried workers hav[ing] been left without the guarantee of time and a half pay,” and makes no mention of the bilateral benefits to employer and employee provided by guaranteed salary arrangements. Further, despite being outside the purview of the review undertaken in response to the President’s Executive Order, Secretary Perez’s post goes on to urge that it is “time to raise the national minimum wage” and establish “a national wage floor that that [sic] rises each year, so that its purchasing power doesn’t erode with time.” The post does not provide a specific timetable for issuance of the proposed rule to the public.

Watch this space for further coverage of the proposed rules and the continued debate regarding wage policy and its impact on economic growth.

Indiana Appeals Court Declines to Adjudicate Pastor’s Claim For Unpaid Vacation, Citing Ministerial Exception

Courts adjudicating employment disputes under employment statutes will decline to do so where inquiry into the employment relationship will interfere with First Amendment religious protections. Often, this concerns a claim challenging the legality of termination of a member of the clergy, but the concept can also extend to such employees’ claims under wage-and-hour laws, as exemplified in a new decision. Matthies v. First Presbyterian Church of Greensburg Ind., Inc., 2015 Ind. App. LEXIS 293 (Ind. Ct. App. Apr. 8, 2015).

In Matthies, the Plaintiff was a reverend whose relationship with his parish deteriorated, until ultimately the church concluded that the employment relationship “need[ed] to be ended in order to prevent further deterioration of the spiritual health of the church.” After his separation the reverend brought claims under, inter alia, the Indiana Wage Claims Statute seeking to recover unpaid vacation wages. Because to “address . . . competing positions regarding the facts” would “require a court to inquire into the religious doctrine of the Presbyterian Church and its polity,” the Court of Appeals upheld the trial court’s decision declining to do so in order to preserve the church’s freedom of religion and avoid a scenario where it would be called upon to “apply religious doctrine or ecclesiastical law.”

Religious organizations must assess the scope of the applicability of the ministerial exception to their employees, as well as their compliance with employment statutes generally.

Wisconsin Supreme Court Rejects Claim That Union Could Not Waive Paid Meal Period Rights On Behalf of Members

Unionized employers often enter into agreements with employees regarding compensation for particular hours or break periods. These agreements are reached through bargaining for the mutual benefit of the employer and union members. At times, such agreements can potentially be in tension with Department of Labor regulations regarding hours of work and break periods. The Wisconsin Supreme Court has resolved one such dispute, finding that an employer did not run afoul of Wisconsin wage-and-hour law by not compensating unionized employees for 20 minute meal periods pursuant to union contract. Aguilar v. Husco Int’l, Inc., 2015 WI 36 (Wis. 2015).

In Aguilar, the agreement called for 20 minute meal periods, resulting in shorter total shift lengths. This provision arguably conflicted with a Wisconsin Department of Workforce Development (DWD) regulation requiring 20 minute meal periods to be paid absent waiver (consistent with the general FLSA principle that breaks shorter than 20 minutes generally are compensable). After the matter was adjudicated through the DWD (which declined to require back pay based on its view that the parties’ agreement constituted substantial compliance with the waiver process), the parties proceeded to litigation. Ultimately, the Wisconsin Supreme Court opined that “the DWD decision [not to require back pay] rests in large part on the investigator’s determination that the failure to obtain the waiver that would have satisfied the regulation was ‘a technical violation’ that did not warrant awarding back pay.”

Proper treatment of meal and rest periods remains essential to compliance with federal and applicable state wage-and-hour laws.

Consistent With Recent Decisions, Maryland Judge Finds Vocational School Students Not FLSA “Employees”

Like interns, vocational students often provide some degree of service as part of their vocational program. For this reason, such arrangements are susceptible to the allegation that these services are compensable “work time” under the FLSA. While such allegations have been made in some recent cases, in the first handful of these to reach decision, courts have recognized that the “economic reality” of the vocational arrangement differs from employment for hire, and have declined to extend FLSA coverage to such a scenario. One recent decision joining those ranks is Harbourt v. PPE Casino Resorts Md., LLC, 2015 U.S. Dist. LEXIS 52328 (D. Md. Apr. 21, 2015).

Claudia Harbourt and her fellow plaintiffs attended (in whole or in part) defendant casino’s 12-week “dealer school” training course for table games such as blackjack, craps, roulette, and baccarat, offered as the company attempted to train and hire numerous dealers ahead of its April 11, 2013 opening. Plaintiffs claimed attendance at the course constituted compensable work because the casino was the “primary beneficiary” of their attendance, not they themselves, because it needed to find dealers, notwithstanding that the casino was not open and no “work” apart from the attendance at training was alleged. Plaintiffs also urged that the training was so specific to the casino’s planned operations so as not to constitute valuable general training regarding casino work. Federal District Judge Catherine C. Blake rejected these arguments, observing that Maryland’s strict gaming regulations (Md. Code Regs. 36.05.01 et seq.) greatly limited any casino-specific customization of the training, and ruling that Plaintiff’s allegations did not support their claim that they are the primary beneficiary under the standard set forth in Walling v. Portland Terminal Co., 330 U.S. 148 (1947).

Employers and vocational schools must continue to craft training programs with these principles in mind.

Trenton Sick Leave Law Withstands Judicial Challenge; Philadelphia Sick Leave Law May Become Preempted

Trenton, New Jersey, like numerous other municipalities (especially in New Jersey), recently enacted its own paid sick leave law. As with Seattle’s recent minimum wage rulemaking, a coalition of New Jersey business groups challenged the city’s authority to do so, urging that the ordinance exceeded the city’s police powers and offended constitutional protections. New Jersey Business and Industry Association et al. v. City of Trenton, case number L-467-15, Mercer Co. Superior Court.

Last week, Judge Mary C. Jacobson granted Trenton’s motion to dismiss the action, finding the municipality had a rational basis to enact the ordinance and that the city’s representation that the law would only be applied to employers in the municipality (notwithstanding any vagueness in the drafting of the coverage provision) addressed some of the plaintiffs’ allegations regarding the scope of the law.  The ordinance, like many other recently-enacted city leave laws, defines an employee as someone who works in Trenton for 80 hours per year, with certain exceptions. The business group Plaintiffs asserted that, as drafted, the law could affect employers that don’t have offices in the city.

In nearby Pennsylvania, state legislators have introduced a bill designed to preempt the City of Philadelphia’s sick leave measure, noting that patchwork municipal leave laws have unintended consequences, such as pushing industry outside city limits to avoid coverage.

Employers with multiple locations must develop a plan for continued compliance with this growing legislation trend while seeking to avoid burdensome administration.

Illinois Federal Judge: Employer Free to Modify Terms of Vacation Policy Under Illinois Wage Law

In most states, private non-unionized employers are free to provide vacation and other benefits as they see fit (subject to evolving state and municipal requirements such as New York City’s Earned Sick Time Act), but must ensure any policy language complies with applicable state law and that any policy changes due not result in forfeiture of vested rights. These principles are highlighted by a new decision in Illinois. McCaster v. Darden Rests., Inc., 2015 U.S. Dist. LEXIS 40315 (N.D. Ill. Mar. 24, 2015).

Plaintiff McCaster worked two distinct stints as an employee for Olive Garden. During the first of these, she was eligible for a vacation and received an accrued vacation payout when she separated from employment. At her time of rehire, the Company’s policy had changed, requiring a threshold level of hours worked to be eligible for paid vacation. Following her second separation from employment, she sued seeking unpaid vacation asserting that the change to the policy was unlawful under the Illinois Wage Payment and Collection Act. The Court rejected her assertions that the Act required the employer to provide prorated paid vacation benefits to employees working less the threshold hours per week as defined in the revised policy.

Carefully crafted policy language is essential to minimizing exposure to claims for unpaid fringe benefits.

Massachusetts Highest Court Holds Businesses Not Required to Permit Tipping Under State Law

In 2013, New York’s highest state court considered which employees are eligible to participate in sharing tips from a communal tip jar, and even if eligible, whether the employer could nonetheless exclude them from participating. The New York court held an employer may exclude employees from sharing in tips even if they would otherwise be eligible to do so (though noted there might be some limit if only the highest ranking employees were included). Now, considering a related question, the Massachusetts Supreme Judicial Court has ruled that a Dunkin Donuts franchisee may prohibit tipping altogether without violating state law. Meshna v. Scrivanos, 2015 Mass. LEXIS 161 (Mass. Apr. 10, 2015).

In Scrivanos, the franchisee communicated to customers that tipping was not permitted through various measures including placing signs in the stores stating “no tipping” or “thank you for not tipping,” and instructing employees to communicate the policy to inquiring customers. Plaintiffs, whom the court agreed were “wait staff” within the meaning of Massachusetts’ Tips Act, argued that under the Act, a no-tipping policy was tantamount to “retaining” or “deducting” from tips “given” to the workers. The court, accepting direct appellate review from the trial court and skipping intermediate appeals, found that nothing in the Tips Act prohibits an employer from forbidding tips in the first instance, and that the Act only regulated tips given to employees under a policy permitting tipping. Because the employer had taken proper affirmative steps to notify patrons of the policy, the court also concluded the business did not violate the Act by retaining monies left in contravention of the policy.

“This is a welcome decision for Massachusetts employers, particularly given the state’s otherwise fairly restrictive rule concerning the disposition or splitting of tips where tips are permitted,” observed Jackson Lewis Boston Office Counsel Brian Lewis. “More broadly, the opinion demonstrates the importance of being able to establish that an employer has communicated its policy, whatever that policy may be.”

Massachusetts, like New York and many other states, continues to regulate tipping practices through its labor law provisions. Employers must examine their own tipping policies and practices under all applicable state laws.

Following Supreme Court Direction, Maryland Federal Court Rules Waiting Time Not Compensable

The United States Supreme Court’s 2014 decision in Integrity Staffing clarified that, under the Portal-to-Portal Act, preliminary and postliminary tasks are not compensable even if potentially done for the employer’s benefit, provided they are not integral and indispensable to the job functions for which a person is hired. Applying this concept, a Maryland Federal Court rejected FLSA claims seeking compensation for waiting time and other similar categories of preliminary and postliminary activity. Jones v. Hoffberger Moving Servs. LLC, 2015 U.S. Dist. LEXIS 36622 (D. Md. Mar. 24, 2015).

Hoffberger concerned a common allegation of field-based employees in construction and related fields as such employees often gather at an employer location or “yard” before deploying to a work site. Plaintiffs, moving company employees, claimed unpaid wages were owed for time spent: (1) waiting at the warehouse each morning before traveling to jobsites; (2) travelling from the warehouse to jobsites; (3) waiting at the jobsite before moving trucks and moving equipment had arrived; and (4) travelling—after completing work at a jobsite—to pick up paychecks at the warehouse. Judge James K. Bredar, applying Integrity Staffing, ruled that the wait time spent at Defendant’s warehouse, time spent traveling from the warehouse to a job site and time spent picking up paychecks were non-compensable as a matter of law. The Judge denied summary judgment as to a far narrower category of claims where plaintiffs could establish they performed uncompensated work at the warehouse prior to traveling to a job site. Days later, a Massachusetts Judge addressed similar issues, dismissing pre-and-post-shift travel time claims on summary judgment. Local 589, Amalgamated Transit Union v. Mass. Bay Transp. Auth., 2015 U.S. Dist. LEXIS 42178 (D. Mass. Mar. 31, 2015).

Employers of non-exempt workers must review Integrity Staffing and apply the Portal-to-Portal doctrine appropriately to their compensation practices for non-exempt workers, particularly those who work at varying job sites or in the “field.” Of course, as always, state law must also be reviewed.

Pennsylvania Federal Court: Cosmetology Student Not An “Employee” Entitled To Minimum Wage

Last week, a Pennsylvania federal judge held that a former cosmetology school student was not entitled to minimum wage as an “employee” under the Fair Labor Standards Act or the Pennsylvania Wage Payment and Collection Law. Jochim v. Jean Madeline Educ. Ctr. of Cosmetology, Inc., 2015 U.S. Dist. LEXIS 45663 (E.D. Pa. Apr. 8, 2015).

In Jochim, plaintiff filed a lawsuit against Jean Madeline, an accredited cosmetology school, claiming that she should have been paid for work she performed in its clinic while she was enrolled there as a student. Because Pennsylvania state law mirrors the FLSA, the court utilized one analysis to determine whether, as a matter of law, plaintiff was an “employee” of Jean Madeline.

Examining the economic reality of the relationship between the former student and the cosmetology school, the court ultimately found that the “economic reality of the relationship was that Jochim paid the School tuition in exchange for an education in cosmetology, and a significant part of her education involved working in Jean Madeline’s clinic as a student.” In reaching this conclusion, the court found that students received instruction on how to improve and were not sent away from the clinic if they performed treatments poorly (as an employee would be). Further, instructors made assignments based on the number of clients in the waiting area and which students were present in the clinic at the time, regardless of particular skill or care (unlike an employee assigned based on proficiency). Third, Jean Madeline provided the physical facilities and the necessary products required to practice treatments on clients; Plaintiff’s tuition included a fee for equipment, and Plaintiff could not opt out of this fee and buy her own equipment. Fourth, the only special skill required of plaintiff was completion of the hours of classroom training required by state law. Fifth, plaintiff had no guarantee of employment after graduation. Lastly, although the parties disputed whether the clinic operated at a profit or at a loss, the court found that, even accepting plaintiff’s assertion, “the entirety of the economic realities” weighed against finding an employment relationship even if the clinic were profitable in the aggregate. Plaintiff, like other students in education programs providing a clinical experience, was asked to perform increasingly difficult tasks, and her experience at the clinic was intended to provide her with the experience of working in a salon as a cosmetologist. Put simply, “the FLSA does not transform every training relationship into an employer-employee relationship.”

Business owners, in consultation with legal counsel, should analyze their relationship with all “trainees” to ensure compliance with federal and applicable state wage and hour laws.

Affirming Dismissal, Seventh Circuit Holds Window Washing Business Is a “Service” Establishment and Its Employees Are Paid on a “Commission” Basis, Bringing Clarity to Application of 7(i) and Sharply Criticizing DOL Regulations and Its Application of 7(i)

In one of the most comprehensive circuit court opinions to address application of Section 207(i) of the FLSA—the provision of the law that allows employers to comply with the overtime provisions of the FLSA by paying commissioned employees of a retail or service establishment at least 1.5 times the minimum wage, instead of their regular hourly rate—the Seventh Circuit, in an opinion by Judge Posner, has clarified this section which recently been the subject of increasing litigation in the federal courts. Alvarado v. Corporate Cleaning Servs., 2015 U.S. App. LEXIS 5270 (7th Cir. Apr. 1, 2015).

The Court directly addresses two of the core requirements in applying 7(i): (1) what is a “commission” for purposes of 7(i); and, (2) what types of establishments constitute a “retail or service establishment.” In doing so, the Court rejects DOL regulations, noting the DOL (who submitted an amicus brief on behalf of the employees) has, in its interpretation of 7(i), become “obsessed with its incomplete, arbitrary and essentially mindless catalog of sellers lacking a ‘retail concept.’” The Court also criticizes the Plaintiffs’ attorneys for seeking a voluntary dismissal to avoid an adverse ruling on appeal, with the Court refusing to dismiss the case even though the parties filed a joint stipulation of dismissal. For these reasons, the opinion is a “must-read” for anyone considering FLSA compliance through application of 7(i).

Plaintiffs in Alvarado were window washers. They were paid using a point system, where each job was assigned a certain number of points, which were then multiplied by a rate to determine their pay. Points were assigned based on the complexity of the task and the number of hours the job was expected to take. Plaintiffs were not paid overtime wages at 1.5 times their regular rate of pay for the hours they worked in excess of forty hours per week.

Plaintiffs argued Section 7(i) did not apply because they were paid on a piece-rate system, not a commission basis, and that the defendant’s business was not a “retail or service establishment” because it lacked a “retail concept.” The Seventh Circuit disagreed. Addressing first the commission versus piece-rate conundrum, Judge Posner explained that “nomenclature is not determinative” and that word “commission” need not be used for 7(i) to apply. He then rejected the dueling tests urged by the parties (and the DOL)—i.e., whether the compensation bore an “identifiable and consistent correlation” to the price charged to the customer (Plaintiffs’ test) or whether the compensation was “proportional and correlated” to the price (Defendants’ test). Instead, he explained, the distinction between the two compensation schemes is much simpler: in a piece-rate system, “a worker is paid by the item produced” regardless if there has been an actual sale; whereas in a “commission system,” the worker is paid a specified amount only when there has been a “sale.” An employee working in a piece rate system, for example, is paid for producing goods for inventory for potential future sales (which are not guaranteed) but for a commissioned employee, they are only paid if there has been a sale.

The Court also noted that typically commissioned employees work irregular hours—which was consistent with the work performed by the window washers, who worked fewer hours in the winter and during inclement weather. And that is consistent with the purposes of 7(i), which was to level the compensation for those who work irregular hours.

Turning to the second issue—whether the defendant operated a “retail or service establishment”—the Court explained that a “service establishment” is “much broader” than a “retail establishment” and noting that the statute applies to “retail establishment” or a “service establishment,” in the disjunctive, and does not require the “service establishment” to be a “retail service establishment.” The Court concluded the window washing services provided by the defendant was a service. But even if that were not enough (the Court held it was), the defendant was a “retail service establishment” too because it was not a wholesaler and provided a service to the ultimate consumer (again, a simple and straight forward standard readily interpreted and applied). It did not matter that the window-washing service was sold primarily to commercial and governmental buildings or that the building owners passed on the cost to the tenants.

The Court rejected the DOL’s decades-old regulatory list of establishments that “lack a retail concept,” finding the list provides “no explanation for the choice of which firms to describe as lacking a retail concept,” and describing it as a “mindless catalog” that is “arbitrary”. Finally, the Court distinguished cases applying the defunct 13(a)(2) exemption, which contained the term “retail or service establishment” (and a definition of it), finding that it bore no connection to Section 7(i), a provision enacted for a different purpose than the 13(a)(2) exemption (now repealed), which applied to intrastate employers.

This decision brings needed clarity to employers seeking to apply Section 7(i) to their workforce.