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Wage & Hour Law Update

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.

Pennsylvania Judge Rejects Contract Claim for Meal Period Pay

Hospitals and other medical service providers continue to face waves of wage-and-hour claims concerning meal break practices, with non-exempt care providers alleging that they were unable to take unpaid meal periods, or that those meal periods were otherwise compensable.  A new decision from Judge Jeffrey L. Schmehl of the Eastern District of Pennsylvania rejects a claim of the latter category.  Bosler v. Bio-Medical Applications of Pa., 2015 U.S. Dist. LEXIS 13026 (E.D. Pa. Feb. 3, 2015).

In Bosler, plaintiffs were RNs and Dialysis Technicians who claimed that because they were unable to leave defendant’s premises and remained “on call” during meal periods, their meal periods became compensable under company policy and the Pennsylvania Wage Payment and Collection Law (“WPCL”).  The Court, observing that the WPCL does not create independent causes of action, only a mechanism for enforcement of contractual obligations to pay wages, rejected plaintiffs’ claims on two grounds:  1)  the inclusion of an appropriate handbook disclaimer stating that defendant’s handbook did not create a contract of any kind with employees; and, in addition and alternatively 2) the handbook contained no agreement to pay for such meal periods, as they were expressly excluded from the concept of “hours worked.”  As this language demonstrated there was no agreement to pay for such time, plaintiffs’ quasi-contractual unjust enrichment claim also was dismissed.

Classification and proper wage payment for RNs and other skilled healthcare industry employees remains a challenge under the FLSA and, in particular, state law.

New York Wage Board Issues Recommendation Regarding Tip Credit

Completing its task assigned by former Commissioner of Labor Peter Rivera, the current New York Wage Board has issued its recommended findings to the Commissioner with respect to tip credit issues.  Most importantly for hospitality employers – an industry sector which includes many small, low-margin businesses – if approved by the Commissioner, the available tip credit will be reduced at the end of this year so that the cash wage payable to industry tipped employees rises to $7.50/hour (a tip credit of $1.50 off of the minimum wage of $9.00 as of the end of this year, absent further legislation).  This is a 60% decrease in the available tip credit.  In an effort to compromise, the Wage Board has recommended the tip credit regulations provide for a $1 increase to the credit (i.e., a $6.50 per hour cash wage) if total compensation (wages and tips) reaches certain levels.  The precise mechanics of this proposed scheme are unclear and shall require clear regulatory guidance from the Department.

Acting Commissioner Mario J. Musolino remains free to modify or reject these proposals.  Industry employers, as they should now be accustomed to doing, must monitor the results of this Wage Board process.

Research Manager Properly Classified As Exempt Administrative Employee

To be “administratively” exempt from overtime, in addition to being paid appropriately on a  salary or fee basis, an employee must perform office or non-manual work directly related to the management or general business operations of his or her employer, with a primary duty which includes the exercise of discretion and independent judgment with respect to matters of significance.  A new decision from the Southern District of New York highlights the application of these principles.  Grupke v. Gfk Custom Research N. Am., 2015 U.S. Dist. LEXIS 9802 (S.D.N.Y. Jan. 28, 2015).

Judge Paul Crotty found that Plaintiff Grupke, a Research Manager for defendant market research firm who made recommendations which streamlined a number of Gfk business processes and had roles in vendor management and project cost estimation, performed work related to the operation of defendant Gfk’s business.  The Court concluded that She exercised discretion and independent judgment by “accumulating information, making recommendations to senior management, and implementing the chosen approach,” and the significance of this work was apparent because her “responsibilities encompassed planning, coordination, and administration of Gfk’s main research studies. . . . the core of its business.”

Employers are at times vexed by application of the administrative exemption.  Grupke is a welcome victory for one such employer and others defending applicability of the exemption in New York courts.

Utah Federal Court Reiterates That Employees Are Only Entitled to Tips Under FLSA If A Tip Credit Is Applied

While many state laws regulate the distribution of gratuities (as well as service charges and other fees), the overwhelming judicial view, as originally set forth by the Ninth Circuit in Cumbie v. Woody Woo and joined by district courts in other jurisdictions, holds that an employee’s right to tips under the FLSA flows exclusively from the tip credit provision 29 U.S.C. § 203(m).  In other words, employers who do not take a tip credit are free, under the Woody Woo interpretation of the FLSA, to distribute or retain gratuities as they see fit.  Although the Department of Labor now disagrees, another new decision adds to the consensus.  Brueningsen v. Resort Express, 2015 U.S. Dist. LEXIS 9262 (D. Utah Jan. 26, 2015).

Joining his colleague Judge Ted Stewart, Judge David Nutter of the District of Utah, applying Woody Woo, ruled that gratuities given to drivers making runs between Park City and Salt Lake City Airport as part of ski packages did not belong to those drivers under the FLSA.  The Judge found that “the statutory language is clear. It gives employers the choice of how they will pay their employees a minimum wage—either by taking a tip credit or not. If employers take a tip credit to supplement and meet the minimum wage requirement, employees are entitled to retain all tips, unless there is a valid tip pool that distributes the tips among the employees. If employers do not take a tip credit, they must pay their employees the full hourly minimum wage because they are not using a tip credit to make up the difference between the employees earnings and minimum wage requirements.”

Tip litigation shows no sign of slowing, and employers must analyze their gratuity and service charge practices accordingly with consideration to applicable federal jurisprudence and state law.  The Woody Woo decision binds courts within the Ninth Circuit (CA, WA, HI, OR AZ, MT, ID and AK).

District Court Affirms: Business Not Obligated to Pay $350,000 Performance Bonus to Employee Who Never Worked a Day

The importance of detailed drafting of employment documents – particularly those calling for commissions, bonuses or other types of incentive compensation – was highlighted recently by a plaintiff’s claim that, as a conditional hire who never worked a day at now-defunct Lehman Brothers, the Bank’s rescinding of her employment offer triggered its obligation to pay her a $350,000 annual performance bonus.  In re Lehman Bros. Holdings, 2015 U.S. Dist. LEXIS 6195 (S.D.N.Y. Jan. 20, 2015).

Plaintiff’s claim hinged on her January 12, 2007 offer letter which anticipated that she would begin employment on January 18 of that year.  It set forth criteria for her to receive or be disqualified from receiving the bonus, but did not address the scenario which ultimately occurred:  the rescission of her offer of employment on January 18 (the basis for which the parties disputed).

Plaintiff claimed that the Bank “could not unilaterally terminate its responsibility to pay her a $350,000 bonus by unilaterally terminating her employment contract prior to performance.”  The Court determined that her claim hinged “entirely on the nature of the bonus—if it was discretionary, compensatory or contingent on Ortegón’s remaining an LBI employee throughout the bonus period, then LBI was within its right of not paying her the bonus.”  Citing Truelove v. Ne. Capital & Advisory, Inc., 95 N.Y.2d 220 (2000).  Because the court could identify no language in the offer letter suggesting that the bonus was a sign-on bonus, as opposed to a bonus that would be paid to her for work performed under the terms set forth in the offer letter, the court ruled that she had not earned the bonus and that the bankruptcy court correctly granted summary judgment to Lehman Brothers.

Ms. Ortegón’s claim highlights the importance of clearly-identifying all criteria for earning incentive compensation.