Wage and Hour Law Update : Wage & Hour Lawyer & Attorney : Jackson Lewis Law Firm : Minimum Wage, Overtime & Service Contracts

Joining its neighbor New York, as per a bill signed into law on June 6, 2013 by Governor Dannel P. Malloy, Connecticut’s state minimum wage will increase. Effective January 1, 2014, the minimum wage increases 45 cents (from $8.25 to $8.70) and a second increase of 30 cents takes  effect on Jan. 1, 2015 bringing the minimum wage to $9.00. It does not appear that the minimum wage due to tipped employees is increasing, except of course employers must now ensure sufficient gratuities are received to cover the increased tip credit that may be taken against the minimum wage owed.

While the federal minimum wage remains $7.25/hour, the same level since July 24, 2009, many states are moving forward with similar proposals to increase the wage floor at the state level. Employers with multi-state operations must be mindful of the minimum wage, tip credit wage, and minimum overtime wage in the states in which they operate.

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While some areas of wage-and-hour law are regulated extensively under the New York Labor Law and the relevant Wage Orders, in the area of vacation pay (and similar paid time off benefits) New York employers can define the terms of the benefit based on the seminal court decision addressing these issues, Glenville Gage Co. v. Industrial Bd. of Appeals of New York, Dep't of Labor, 70 A.D.2d 283 (3d Dep't 1979). Reaffirming the Glenville Gage rule, a New York appeals court recently vacated an award of monetary compensation for accrued and unused vacation pay awarded to a deceased employee’s estate. Steinmetz v Attentive Care, Inc., 2013 N.Y. Misc. LEXIS 2349 (N.Y. App. Term May 23, 2013).

In Steinmetz, plaintiff had been an executive employee for defendant. The parties did not dispute that she passed away with a large balance of accrued, unused vacation time. However, corporate policy and memoranda (in part authored and/or presided over by a plaintiff) stated that accrued vacation time had no cash value. Further, the company had never provided a payout to employees for accrued and unused vacation time. Absent express verbal assurances to the contrary, no entitlement to a payout was created, and the court vacated the trial court’s award of pay for the vacation time. Separately, the court noted that, as an executive, Plaintiff fell outside the “wage supplement” protections of N.Y. Labor Law § 198-c.

Steinmetz reiterates an important employment law principle in New York State: employer policies must clearly and unambiguously articulate benefits employers do and do not provide, and the terms of any provided benefits. Employers, of course, also must ensure that actual practice conforms to written policy.

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In 2010, the Ninth Circuit held in Cumbie v. Woody Woo, Inc., that an employee’s property right to tips attaches under the FLSA only if the employer is taking a tip credit pursuant to 29 U.S.C. § 203(m). In response to this decision the Department of Labor passed widely discussed-regulations which, contrary to the decision, purport to vest employees with statutory rights to tips under the FLSA, notwithstanding whether a tip credit is taken.  On Friday, as part of a challenge to the DOL’s rulemaking process giving rise to those regulations brought by the Oregon Restaurant and Lodging Association, Judge Michael W. Mosman of the District of Oregon ruled that the DOL’s regulations are invalid and should not be granted deference because they contradict settled precedent under Woody Woo, and are inconsistent with the language of the FLSA. Or. Rest. & Lodging v. Solis, 2013 U.S. Dist. LEXIS 80396 (D. Or. 2013).

The court analyzed the validity of the DOL’s post-Woody Woo rulemaking under the framework for analysis of regulatory action set forth in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Applying the Chevron analysis, Judge Mosman stated that the Ninth Circuit (which encompasses Oregon) in Woody Woo “based on the clear and unambiguous text of the statute . . . found that Congress intended only to limit the use of tips by employers when a tip credit is taken. This is not silence. This is repudiation. Therefore, I find that Woody Woo leaves no room for agency discretion here.” (emphasis in original). As a separate basis for invalidating the regulations, the court also found that the Section 3(m)’s “silence” – in not creating a rule for tip distribution in the absence of a tip credit – did not constitute a legislative “gap” for the DOL to fill, but rather Congressional intent not to regulate tips under those circumstances and let the marketplace dictate behavior.

“We are pleased that Judge Mosman recognized the shortcomings in the DOL’s rulemaking here,” stated Jackson Lewis Wage-and-Hour Practice Group leader and former DOL Wage-and-Hour Administrator, Paul DeCamp, lead counsel for the plaintiffs in the Oregon litigation. “The restaurant and hospitality industries have long faced an array of regulations imposed by numerous agencies, so tacking on additional restrictions that are contrary to established case law is especially unfair.”

DeCamp added that he believes a Departmental appeal to the Ninth Circuit is likely. This decision is a victory for the employer community, but until the likely Ninth Circuit decision that will come in the future, employers should remain cautious vis-à-vis tip distribution even if a tip credit is not being taken. It also remains important, as always, to confirm compliance with state law before implementing any wage-and-hour practice.

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FLSA plaintiffs from time to time seek to include potential “deep pocket” defendants as alleged “joint employers,” claiming that the alleged joint employer’s control over the entity which employed them was sufficient such that FLSA liability should attach. Recently, another federal court joined the growing body of decisions rejecting such claims. Diaz v. U.S. Century Bank, 2013 U.S. Dist. LEXIS 68399 (S.D. Fla. May 14, 2013).

In Diaz, a security service which provided security officers and related services to various clients, including U.S. Century Bank, employed plaintiffs. After each plaintiff was hired by the security service, he was assigned to work at the bank, one immediately and one following a stint at another client of the security company. The court, applying the eight-factor joint employer test identified by the Court of Appeals for the Eleventh Circuit, ruled that “Century Bank's minimal control and supervision of Plaintiffs [during their work at the bank], paired with its minor role in Plaintiffs' employment process and lack of involvement in the payment of Plaintiffs, all suggest the absence of a joint employment relationship.”

Businesses must continue to be consider the joint employer doctrine when managing vendor relationships.

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On May 28, 2013, New York’s highest state court, the New York Court of Appeals, will hear oral argument regarding the scope and application of New York Labor Law 196-d and its tip splitting provisions to Starbucks’ tip pooling practices. The court’s analysis of these issues, which came to the court as certified questions from the Second Circuit Court of Appeals, is expected to have industry-wide implications, including guidance regarding what standard applies in determining who is eligible to participate in a tip pool and whether, and to what extent, an employer may exclude otherwise eligible employees from participating in a tip pool.  As part of its deliberations, the Court will consider an amicus brief submitted on behalf of the New York State Restaurant Association by Jackson Lewis. A decision by the Court will hopefully provide clarity in this area of the law, as lingering uncertainty has served as a breeding ground for litigation.

[UPDATE] Yesterday afternoon the Court of Appeals heard oral argument.  While the Court did not preview any ruling, it did appear uncomfortable with the viewpoint advocated by counsel for the baristas, namely that any supervisory duties makes one ineligible to participate in a tip pool.   The argument ultimately will be archived and available for viewing here.  While the impact of the Court’s decision for the New York hospitality economy will be broad, the argument was historic for other reasons, as it marked the first session of argument presided over by newly-appointed Justice Sheila Abdus-Salaam, the first African-American female to serve on the high court.

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The New York Department of Labor has issued proposed regulations interpreting revised New York Labor Law § 193, concerning permissible deductions from wages.  The proposed regulations are available here, and are scheduled to be published in the May 22, 2013 issue of the State Register, with public comments regarding their content accepted until and including July 6, 2013.  Notably, the proposed regulations permit deductions for 1) the enumerated permissible deductions written into the statute as well as 2) deductions which are both for the benefit of the employee and “similar” to the enumerated ones.  § 195-2.1.  A separate provision of the regulations lists the specific categories to which a non-listed benefit must be “similar” in order to qualify as a permissible deduction.  § 195-4.4.  Watch this space for further coverage regarding the regulations and public commentary regarding their impact on employers with New York operations.

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The text of the New York legislature’s proposed minimum wage increase confirms increases as previously reported:

·         $8.00 on and after December 31, 2013

·         $8.75 on and after December 31, 2014

·         $9.00  on and after December, 2015.

Per the language of the amendment, the minimum wage requirements for food service workers and other tipped employees remains unchanged, pending any change to the Wage Orders governing such employees promulgated by the Department of Labor.  Employers should plan for these proposed increases, and monitor this space for further legislative developments. 

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New York City is expected to join the ranks of the growing number of jurisdictions which require private sector employers to provide paid sick days to employees.  The legislation, which is expected to be passed shortly by the City Council, reflects a compromise between advocates for such legislation, opponents within the business community and Council Speaker Christine Quinn, whose refusal to bring the bill to the Council floor for a vote was being leveraged as a campaigning point by other mayoral candidates.   Key components of the proposed legislation are as follows:

·         The legislation would mandate that employers with at least 15 employees eventually provide full-time employees with 5 paid days a year for absences due to illness.

·         However, for 18 months from the effective date of Spring 2014, it appears the mandate would only apply to employers with 20 or more employees.

·         Further, implementation would be delayed if the city's economy, as measured by a financial index maintained by the Federal Reserve Bank of New York, erodes.

·         Even businesses not covered by the paid leave requirement would be obligated to provide 5 unpaid days per year.

·         Retaliation against employees who use paid or unpaid leave provided by the law would be prohibited.

While Mayor Bloomberg is still expected to veto this legislative compromise, the City Council is expected to have enough votes to override his veto, as it recently did with respect to the City’s new law prohibiting employment discrimination against the unemployed.

We will provide further updates as they are available.

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Reports indicate that the New York State legislature and Governor Cuomo have tentatively reached agreement regarding the terms of the anticipated proposed increase in the state’s minimum wage. As portrayed in news coverage, the latest proposal would increase the minimum wage to $8/hour in 2014, $8.75/hour in 2015 and $9/hour by 2016, but not tie further future increases to the cost of living, an approach adopted by other states. The New York minimum wage has remained at the federal level of $7.25 since the last federal increase in July 2009, and some NY state legislators have termed this proposed increase overdue. Watch this space for further developments and confirmation of the increase to New York’s minimum wage. Employers should be prepared to respond to this hike, including employers in the hospitality industry (and others employing tipped workers, such as car washes and salons) who will have to adjust to any corresponding adjustment to the tip credit minimum wage, though none is anticipated at this time.

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In the latest chapter in the ongoing intern battles currently being waged in the United States District Court for the Southern District of New York, Judge Harold Baer rejected plaintiffs’ novel assertion of unlawful wage deductions. Wang v. Hearst Corp., 2013 U.S. Dist. LEXIS 3768 (S.D.N.Y. Jan. 9, 2013). The Wang litigation concerns the applicability of the FLSA and New York Labor Law to interns at various properties owned by media conglomerate Hearst Corporation.

In order to comply with the DOL-authored test for an intern to be properly classified as a “trainee” under the FLSA, the intern must receive instruction “similar to training which would be given in an educational environment.” In keeping with this requirement, many programs – including Hearst’s – require that the intern be enrolled and receive college credit, thereby presumably incurring costs associated with enrollment. In fact, under New York Department of Labor regulations, if an intern is receiving school credit, they are not “deemed to be working,” and no wages are due. 12 NYCRR § 142-2.11. Latching onto this concept, plaintiffs in Wang alleged that this enrollment requirement, in light of plaintiffs’ allegation that they were misclassified and should have been entitled to “employee” protections (notwithstanding this regulation), constituted an indirect deduction from wages, as the interns suffered the out-of-pocket cost associated with being enrolled and receiving course credit. Judge Baer ruled this claim defective as a matter of law, logically observing that Plaintiffs were “unable to provide a single authority for the position that Section 193(3)(a) [of New York’s deductions statute] should apply in cases where no wages, or anything arguably equivalent, are alleged . . . In other words, there can be no ‘deduction’ within the meaning of the statute when there is nothing from which to take away or subtract.”

Wang provides an excellent example of the creative arguments plaintiffs’ counsel continue to make as case law evolves under the Fair Labor Standards Act and New York law. Employers must analyze their own businesses and anticipate the most likely or creative arguments that employees (or their attorneys) may assert, consider potential defenses (including state and industry specific defenses) and take steps to minimize potential liability. 

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As discussed here, Pennsylvania’s legislature recently amended its state wage payment law to conform to the FLSA’s so called “8/80” rule for hospitals and other healthcare entities, which permits payment of an overtime premium on a bi-weekly or 80-hour basis provided that such premium is also paid for hours worked in excess of eight in a day.  See 29 U.S.C. § 203(j).  However, the window of liability created by the previous distinction between state and federal law has not closed, as exemplified by a new Court of Common Pleas decision.  Leclair v. Diakon Lutheran Soc. Ministries, 2013 Pa. Dist. & Cnty. Dec. LEXIS 1 (Pa. C.P. 2013).

Leclair joins the pre-legislation holding of a sister court in Turner v. Mercy Health Sys., 2010 Phila. Ct. Com. Pl. LEXIS 146 (Pa. C.P. 2010) in holding that, prior to the enactment of House Bill 1820 amending the Pennsylvania Minimum Wage Act (PMWA) to conform to the FLSA in this regard, biweekly averaging of overtime hours in a hospital violated the “express language” of the pre-amendment PMWA and its “clear and unambiguous mandate that employees receive overtime premium pay whenever they work in excess of 40 hours during a seven-day workweek.” 

While Pennsylvania health care employers are likely gratified by the legislature’s effectiveness in correcting the harsh rule applied in Turner, liability under state laws remains a key concern of employers in heavily-regulated states such as Pennsylvania.

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The Court of Appeals for the First Circuit has ruled that under Massachusetts’ unique tip statute, shift supervisors cannot participate in the tip jar-based tip pool in Massachusetts locations. Matamoros v. Starbucks Corp., 2012 U.S. App. LEXIS 23185 (1st Cir. Nov. 9, 2012). Several years ago, a California Appeal Court ruled just the opposite under California state law.

In Matamoros, the First Circuit confronted the issue of whether a shift supervisor was a proper tip pool participant under the novel language of the Massachusetts’ Tips Act, Mass. Gen. Laws ch. 149, § 152A, which limits tip pool participation to individuals employed as “a waiter, waitress, bus person, and counter staff, who: (1) serves beverages or prepared food directly to patrons, or who clears patrons' tables; (2) works in a restaurant, banquet facility, or other place where prepared food or beverages are served; and (3) who has no managerial responsibility.” Observing that this conjunctive test required Starbucks to meet all three prongs, the court focused on the last prong, whether shift supervisors possessed any “managerial responsibility.” Applying this literal Massachusetts-specific statutory definition without reference to legislative history or other extrinsic materials, the court concluded that the Tips Act “says what it means and means what it says” and, because the shift supervisors directed the work of others, the ruling that they should not have participated in the tip pool was correct. 

Matamoros poses concerns for hospitality employers in Massachusetts, where it has now been clarified that tip pool participation is greatly constrained by the language of the Tips Act. While it is possible Starbucks will seek review of this decision from the United States Supreme Court, review of this state law issue does not seem likely. All Massachusetts hospitality employers should review their tip practices in response to this decision.

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Under New York law, a customarily tipped employee cannot be forced to share tips with an employer or its “agent”. In 2009, a New York federal judge ruled that Starbucks did not violate the New York Labor law (specifically Section 196-d) by permitting shift supervisors at New York Starbucks to receive tips from the coffee chain’s tip jar, despite baristas’ allegations that the shift supervisors exercised supervisory authority rendering them Starbucks’ “agent.” In re Starbucks Emple. Gratuity Litig., 264 F.R.D. 67 (S.D.N.Y. 2009). Now, following appeal of that decision and a related ruling concerning whether Starbucks can lawfully exclude assistant store managers from the very same tip pool, the Court of Appeals for the Second Circuit has asked the New York Court of Appeals, the state’s highest court, for definitive guidance as to who is an “agent” of the employer under the New York Labor Law, and thus precluded from participating in a mandatory tip pool. Barenboim v. Starbucks Corp., 2012 U.S. App. LEXIS 22061 (2d Cir. Oct. 23, 2012). Here is the relevant charge given to the New York Court of Appeals:

[We] seek further guidance from the New York Court of Appeals regarding the meaning of the words “agent” and “supervisor” under New York Labor Law. Further, we are unsure how [the Court’s direction in its 2008 World Yacht decision] to “liberally” construe § 196-d “in favor of the employees” applies where, as here, the entire dispute centers on who the employees—as opposed to the employer and his agents—are and, thus, who should benefit under the statute. Clearer direction is needed as to what factors New York views as determinative of who is an employer’s agent and, conversely, who is his employee.

The Second Circuit also asked for guidance regarding the retroactive applicability, if any, of the NY Department of Labor’s 2011 Wage Order. 

This space will keep readers apprised of all relevant development. The decision by the Court of Appeals will likely bring clarity to the often perplexing rules governing tipped employees.

[UPDATE]  By letter from the Clerk of the Court dated November 27, 2012, the Court of Appeals confirmed its acceptance of the certified questions.  The Court will now proceed to briefing and argument on those questions.

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New York’s Wage Theft Prevention Act does not apply retroactively to violations occurring before the April 2011 effective date (regardless of whether suit already had been filed or not), according to a decision from the Eastern District of New York. Quintanilla v. Suffolk Paving Corp., 2012 U.S. Dist. LEXIS 132469 (E.D.N.Y. Sept. 17, 2012). The Court joined the overwhelming majority of cases that have held the 100% penalty provision does not apply retroactively because it was a change in the law. In support of her holding, Judge Tomlinson noted all courts, except one, have refused to apply it retroactively. And as to that one minority decision, Judge Tomlinson found the court there failed to “cite any legislative history or other expression of legislative intent supporting retroactive application” and because Second Circuit precedent requires that a “remedial” statute have retroactive effect only based on a “‘clear’ expression of legislative intent” the absence of such evidence doomed Plaintiffs’ claim. 

Retroactive application of the WTPA may remain a litigation issue, but with each passing workweek retroactivity becomes less significant. New violations are subject to the 100% penalty provision.

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Governor Cuomo has signed into law the recently-passed bill amending New York Labor Law § 193. Based on the signature date of September 7, the new law – expanding the scope of permissible deductions under Section 193 to include, among other things, recoupment of overpayments to employees – takes effect on November 6, 2012. At present, the modifications to the law will expire three years later, in November 2015. 

Watch this space for updates regarding the New York Department of Labor’s interpretation and enforcement of the new provision.

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Financial services and insurance industry employers regularly classify service providers, including financial advisors and independent insurance agents, as independent contractors, especially if such individuals cultivate and service their own clientele with a high degree of autonomy. Despite that autonomy, knowledgeable industry professionals and their counsel are aware of the legal risks associated with the independent contractor classification. In a recent decision applying California law to a case in which several independent contractors asserted a variety of wage-hour claims based on their alleged status as “employees,” one judge upheld the propriety of the classification with respect to the defendant’s financial advisors. Taylor v. Waddell & Reed, Inc., 2012 U.S. Dist. LEXIS 117258 (S.D. Cal. Aug. 20, 2012).

The independent financial advisors in Taylor provided financial advisory services to clients pursuant to their Professional Career Agreement with the Defendant. They alleged that the control exerted by Waddell & Reed over the arrangement made them employees entitled to the protections of the California Labor Code. In rejecting their claims, Judge Anthony J. Battaglia of the Southern District of California utilized the independent contractor test set forth by the California Supreme Court (see S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989)) and relied heavily on a recent California Court of Appeal decision regarding the contractor status of insurance agents (see Arnold v. Mut. of Omaha Ins. Co., 202 Cal. App. 4th 580 (Cal. Ct. App. 2011). Applying Borello and Arnold, Judge Battaglia found that the advisors did have the hallmarks of true independent contractors, in that they:

·         believed they were creating, and intended to create, an independent contractor relationship (as evidenced by the Professional Career Agreement);

·         reported their earnings based on IRS Form 1099;

·         ran their own businesses providing financial planning services, investment products, and insurance, which required independent skill and planning, as well as state licensure;

·         paid their own business expenses, could hire assistants, chose their own work location (frequently away from the office), and were paid solely on a commission basis; and

·         were not subject to any legally significant right of Defendant to control the manner and means by which they conducted their sales business.

Observing that, under California law, “[e]ven if one or two of the individual factors might suggest an employment relationship, summary judgment is nevertheless proper when . . . all the factors weighed and considered as a whole establish that [plaintiff] was an independent contractor and not an employee," based on the facts before it, the Court granted summary judgment.

Extensive use of independent contractors, particularly where the body of contractors consists entirely or predominately of sole proprietors who are individual providers of services, leads to a higher probability of a claim alleging misclassification and denial of employee classification. Contractor classification decisions should only be made after consultation with counsel and an analysis of appropriate risk management strategies and the economic viability of the alternative employee classification. 

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Effective January 1, 2011, the New York Department of Labor promulgated a new wage order covering the hospitality industry. However, due to the New York Labor Law’s six year limitations period, litigation continues addressing the propriety of various industry employer practices under the old regulations. In one such case, Judge Thomas J. McAvoy of the Northern District of New York just ruled that, apart from shirts which bore an Applebee’s logo, standard apparel worn by servers at various New York Applebee’s controlled by defendant franchisee was not a “uniform” under the old regulations. Roach v. T.L. Cannon Corp., 2012 U.S. Dist. LEXIS 120507 (N.D.N.Y. Aug. 24, 2012).  This means that the employer was not obligated to purchase such items, reimburse employees for purchasing such items or provide a laundry allowance.

The apparel in question in Roach consisted of  “black, non-slip shoes; black pants; black shirts; jeans; khaki pants; plain, non-descriptive t-shirts; and plain, non-descriptive baseball-style caps.” The Court considered the three plaintiffs’ testimony regarding the nature of the apparel and where and how they procured it. Id. at fns. 10-13. The Court concluded that there was “no evidence that the employer imposed any stylistic requirements of the garments other than color, or, in the case of caps and t-shirts, that they be non-descriptive.” The Court also noted that “the employees purchased their wardrobe items at various footwear and clothing retailers open to the general public, leading to the conclusion that the items were of the nature that an objectively reasonable person would wear outside of a restaurant employment situation.” Thus, the clothing in question did not constitute a uniform. Plaintiffs were allowed to go forward on their claim that the cost of laundering apparel with the Applebee’s logo brought plaintiffs compensation below the tip credit minimum wage. 

New York’s new hospitality Wage Order revised the definition of uniform from that at issue in Roach to any “clothing required to be worn while working at the request of an employer, or to comply with any federal, state, city or local law, rule, or regulation, except clothing that may be worn as part of an employee's ordinary wardrobe.” 12 NYCRR § 146-3.10. However, Roach provides support for employer arguments (and industry practice) that the types of generally-available apparel at issue in the case are part of an “ordinary wardrobe.”  It is incumbent upon industry employers in New York State to analyze their uniform practices—and all other wage hour practices—under the wage order and of course, overriding federal law. 

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In a victory for the (always bustling) New York City moving industry, the Appellate Division, First Judicial Department has upheld a May 2011 trial court victory won by an industry association challenging the City Comptroller’s prevailing wage determination for the industry. Matter of Metropolitan Movers Assn., Inc. v. Liu, 95 A.D.3d 596 (1st Dep't 2012).

This new decision concerns the successful challenge of the movers’ industry association, the Metropolitan Movers Association, to a prevailing wage schedule for furniture movers issued by the Comptroller on July 1, 2010. New York law requires certain public contractors to pay “a service employee under a contract for building service work a wage of not less than the prevailing wage in the locality for the craft, trade or occupation of the service employee.” NY Labor Law § 231. The association brought an Article 78 administrative proceeding to challenge the Comptroller’s action in New York state court, and in May 2011 Justice Alice Schlesinger of New York County Supreme Court agreed with the Association’s position that the Comptroller acted arbitrarily and capriciously when he disregarded industry wage survey information (which reflected lower wage rates) and issued the schedule based solely on “the [substantially higher] wages earned by workers covered under the collective bargaining agreement of Local 814 of the International Brotherhood of Teamsters. 

The First Department affirmed the decision, finding that “[b]y ignoring the data from his own survey and instead blindly adopting Local 814's rates, the Comptroller failed to comply with the statutory mandate to determine the wage “to be prevailing" meaning the actual prevailing wage.” (Internal citation omitted). Thus, the “Comptroller's  exclusive reliance on a labor union agreement that does not reflect wages that are actually prevailing” was an “arbitrary and capricious” action, the applicable standard for invalidating such an agency action under New York law. 

Prevailing wage obligations place a heavy burden on employers. Employers doing business with New York City or other public sector entities requiring for the payment of prevailing wage or prevailing wage-type benefits (such as the federal Service Contract Act) must monitor their attendant obligations closely to ensure that payments are made appropriately and reported appropriately, and that labor costs are managed to the extent possible within the boundaries of applicable law.

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This Pennsylvania wage-and-hour law update was provided by Jackson Lewis attorney Stephanie J. Peet

In a positive development for Pennsylvania healthcare employers, on July 5, 2012, Governor Corbett signed into state law an amendment to the Pennsylvania Minimum Wage Act (“PMWA”), allowing hospitals and other healthcare employers in Pennsylvania to utilize the “8/80” overtime rule established by the federal Fair Labor Standards Act (“FLSA”) See 29 U.S.C. § 203(j).   Under this amendment, Pennsylvania healthcare employers may pay employees overtime for hours worked in excess of 8 hours per day, or 80 hours in a 14-day period. As with the federal rule, the amendment requires that the employer and employee reach an agreement or understanding as to this method of compensation prior to the performance of the work. 

The new law (House Bill No. 1820) effectively undoes the Philadelphia Court of Common Pleas’ March 2010 rulings in Turner v. Mercy Health System and Vanston v. Maxis Health System, which held that the payment of overtime in accordance with the “8/80” overtime rule violated the plain language of the PMWA. 2010 Phila. Ct. Com. Pl. LEXIS 146 (Pa. C.P. 2010).

While this new law is certainly welcome news for Pennsylvania healthcare employers, compliance remains challenging, and as in all aspects of wage and hour laws distinctions between federal and state law always must be analyzed.

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The New York state legislature has passed the proposed amendment to N.Y. Labor Law § 193, broadening the scope of permissible deductions from wages under New York law to include, among other items, recoupment of overpayments based on clerical errors. The amended statute will also permit deductions to pay for certain common employer-provided benefits, such as gym memberships and daycare. As this legislation already has the Governor’s approval, the bill becomes law effective 60 days after Governor Cuomo’s signature. Somewhat unusually, the bill contains a sunset provision expressly stating that this law shall be “deemed repealed 3 years after [its] effective date.” Thus, New York employers (and the NY Dept. of Labor) will have a three-year trial period under this new deductions rule, with further legislative action required to make the change permanent.

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As the New York legislative session draws to a close, a flurry of bills have been presented for consideration in both the Senate and Assembly, both inside and outside the employment law arena. Included among those is a bill, supported by this memorandum from the Governor’s office, which would amend New York Labor Law § 193 to expand the scope of permissible deductions from wages under state law. Currently, the NYSDOL takes the position that wage deductions, even with consent of the employee, are limited to the items specifically enumerated in the statute (insurance premiums, pension or health and welfare benefits, contributions to charitable organizations, payments for United States bonds, payments for dues or assessments to a labor organization) and similar deductions which the Department narrowly construes as being for the benefit of the employee. Among deductions that are prohibited in the Department’s view are recovery of wage overpayments, repayment of advances and repayment of loans. The proposed bill seeks to expressly expand the scope of permissible deductions to include repayment of wage overpayments, advances and loans and other similar types of payments, as well as “additional categories” of services many employers provide to employees for their benefit, such as gym memberships, cafeteria plans, daycare plans and other benefits. 

We will continue to advise in this space regarding legislative proposals at the state and federal level.

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Applicability of various FLSA white collar exemptions to workers in the information technology sector continues to be a detailed and difficult analysis, in part due to the Department of Labor’s rules regarding the “computer professional” exemption, which have failed to keep up with the  rapidly evolving workforce in the technology sector of the economy. The computer professional exemption requires work relating to “systems analysis” or “computer programming.” However, employees in information technology may not perform either of those tasks, yet still perform vital and technically sophisticated work for their employers. Thus, many employers avail themselves of the administrative exemption, asserting that the work performed is office or non-manual work relating to general business operations which requires discretion and independent judgment. In a new decision, the Ninth Circuit analyzed the applicability of the California state law analog to this exemption (Cal. Code Regs. tit. 8, § 11040(1)(A)(2)) to three IT workers, confirmed its applicability to two, and reversed a lower Court’s finding of applicability as to a third. Heffelfinger v. Elec. Data Sys. Corp., 2012 U.S. App. LEXIS 11508 (9th Cir. June 7, 2012). 

The first plaintiff worked “installing, maintaining, and managing a personnel records management database for the Department of Defense,” while the second also “serviced the DOD by maintaining and managing [its] personnel records management database.”  As the Ninth Circuit viewed it, the work of these two plaintiffs was  properly characterized as administratively exempt, because it was both “qualitatively” and “quantitatively” administrative (meaning it was both related to general business operations, and of sufficient importance to those operations), and because they exercised discretion and independent judgment in carrying it out. Id. at * 3-7. 

Because the third worker’s “duties primarily consisted of computer programming of business applications,” the Circuit court ruled that the lower court had improperly found him to be exempt under the administrative exemption, because a question of fact existed as to whether such work was “qualitatively” administrative. Id. at * 7-8.

Work in the Information Technology sector can implicate the gamut of white collar exemptions to overtime, while often still confounding employers, counsel and the Department as to which category or categories such work most properly fits into, taking into account also the DOL’s combination exemption regulation, 29 C.F.R. § 541.708. As always, once an FLSA classification decision has been made, state law considerations (such as those at issue in Heffelfinger) must be addressed.

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As with the United States Supreme Court’s decision last year in Wal-Mart v. Dukes, the employment law community eagerly awaits the impact of the California’s Supreme Court’s recent decision in Brinker Restaurant Corp. on pending and new putative class actions alleging violations of California meal and rest period requirements. One early return favors employers, as a superior court judge in Los Angeles County has denied a class certification motion, citing Brinker. Kimani, et al. v. Healthcare Investments, Inc., Los Angeles County, BC432360, 05/11/12 (Strobel, J).

In Kimani. plaintiffs alleged, inter alia, that the employer failed to “provide” a second meal break after five hours of work for employees working two consecutive eight-hour shifts, an alleged violation of California Labor Code § 512(a) and I.W.C. Wage Order No. 9 (11). While Plaintiff established that defendant's time records reflected that a second official break was not taken within the first 10 hours of work, in supplemental briefing defendant offered evidence that any employee working two 8-hour shifts was offered an opportunity for a paid break (not reflected in the timecards) between the two shifts. Because this evidence created the need for individualized determination as to whether such second breaks had been “provided” under Brinker, the court found there was insufficient “commonality” among the proposed class, and certification was denied. 

Numerous current defendants, and any new defendants in California meal-and-rest class actions, will immediately take up the mantle of Brinker, as Healthcare Investments has successfully done. The full impact of the decision remains to be seen.

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As we consistently explain, state wage and hour laws do not always follow the FLSA in regard to determining exempt status and issues pertaining to calculation of overtime.  State law is often unclear on these issues, and state courts and departments of labor often provide only limited guidance.  In a new decision, one Connecticut state court has confirmed that the FLSA’s fluctuating workweek method of paying overtime pursuant to 29 C.F.R. § 778.114 complies with the state wage law.  This decision is analyzed in detail here.

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As we frequently discuss in this space, application of the FLSA’s “learned” professional exemption is a frequent topic for litigation, including within the 9th Circuit. These disputes emanate not only from jobs not historically recognized by the DOL as learned professions, but even from within those areas, as exemplified by a new District Court decision in California. Rieve v. Coventry Health Care, Inc., 2012 U.S. Dist. LEXIS 58603 (C.D. Cal. Apr. 25, 2012).

Plaintiffs in Rieve held the position of Case Manager for Defendants’ business, which focused on assisting employers and insurers with reducing workers compensation related costs. The Case Manager position required candidates “to be a state-licensed RN and to have three or more years of case management experience” but did not entail duties involving “direct patient care.” Rejecting Plaintiffs’ claim that they were not learned professionals under the FLSA, the court observed that the Case Manager’s “role in the hierarchy of Defendants' business is quite closely aligned with the position occupied by a registered nurse, such that Plaintiff should be afforded the same treatment under the law as registered nurses engaged in the practice of nursing.” Thus, Plaintiffs were exempt learned professionals under the FLSA. 

The court however then conducted a separate analysis under state law, reaching a different conclusion based on peculiarities of California law.

The technical nature of the exemption inquiry, coupled with the relative paucity of appellate authority (despite the now widespread nature of FLSA claims) provides fertile ground for litigation. A challenge may come from a profession not historically recognized as “learned,” from a Registered Nurse as in Rieve, or even from a budding lawyer. A review of wage practices and the legality of such under the FLSA and applicable state laws, and concomitant discussion of risk management strategies, is the only mechanism—apart from luck—for limiting liability.

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California’s Supreme Court has again spoken on meal and rest period litigation, this time holding neither employers nor employees may recover their attorney’s fees in cases requiring employers to provide meal breaks and rest breaks. In the wake of its highly publicized Brinker Restaurant Corporation decision, where the Supreme Court ruled California law requires employers to provide but not to ensure non-exempt employees take meal breaks, the Court’s April 30 unanimous decision in Kirby v. Immoos Fire Protection, Inc. holds neither employers nor employees may recover attorneys fees in claims brought under the meal and rest statute. 

Labor Code section 226.7 requires employers to provide non-exempt employees with meal and rest breaks according to the terms of regulations issued by the California Industrial Welfare Commission. Labor Code section 218.5 calls for a trial court to award attorneys’ fees to the prevailing party “in any action brought for the non-payment of wages or fringe benefits, or health and welfare or pension fund contributions.” While typically California Labor Code provisions call for attorney fee awards to prevailing employees but not to prevailing employers, under section 218.5 the court may award fees to either employees or employer. Another statute, Labor Code section 1194, calls for attorney fee awards to prevailing employees only – not to employers – in claims for unpaid minimum wages. 

The Supreme Court in Kirby ruled that neither section 218.5 nor section 1194 apply to claims to recover meal and rest period premiums under section 226.7. Although the Supreme Court held five years ago in Murphy v. Kenneth Cole Productions, Inc. that the extra-hour-of-pay premiums for unpaid meal and rest periods were wages for statute of limitation purposes, in Kirby the Court held section 226.7 “is primarily concerned with ensuring the health and welfare of employees by requiring that employers provide meal and rest-break periods as mandated” and is not a wage payment statute. Consequently, the Court said, the attorney fee provisions of sections 218.5 and 1194 do not apply to claims brought under section 226.7. 

In Kirby, two plaintiffs sued corporate Defendant Immoos and a number of “John Doe” Defendants for various violations of the California Labor Code and related California law provisions, including the familiar claims under the Unfair Competition Law, Bus. & Prof. Code § 17200 et seq. Included among the seven causes of action was a meal and rest break violation claim under section 226.7. The two plaintiffs settled their claims with the individual defendants, and dismissed their claims against the corporate defendant Immoos. Immoos moved for attorneys’ fees as a prevailing party under section 218.5, asserting that because the meal and rest claims against it had been dismissed with prejudice, without any finding of liability, they were a prevailing party and section 218.5 should apply. The trial court granted attorneys’ fees to Immoos, and both parties appealed, with the Plaintiffs alleging they should receive attorneys fees on the meal and rest claim under section 1194. 

The California Supreme Court reversed, finding “in light of the relevant statutory language and legislative history…neither section 1194 nor section 218.5 authorizes an order of attorneys’ fees to a party that prevails on a section 226.7 claim.” Because section 1194 referred explicitly to minimum wage and overtime claims, the court saw no reason to expand its language to include a meal and rest break violation. Because “non-payment of wages” did not in the court’s view constitute “the gravamen of a §226.7 violation,” the language of §218.5 also did not apply.

While Kirby prevents an employer from shifting fees to unsuccessful meal and rest plaintiffs, it “nevertheless constitutes a victory for employers,” observes Jackson Lewis partner Rob Pattison. “Plaintiffs’ counsel in meal and rest actions may be forced to rely on a contingency arrangement with their clients to recover fees as a portion of a judgment or settlement, or in the alternative charge their clients an hourly or flat fee rate for their services. The unavailability of fee-shifting can serve as motivation to resolve the claims.” However, “meal and rest actions almost always include claims under provisions of the Labor Code which do provide for fee-shifting under section 1194 as well as under PAGA, in addition to the fee-shifting available under the FLSA and other employment statutes.” PAGA, the California Labor Code Private Attorneys General Act, permits “aggrieved employees” to recover a portion of civil penalties in court that could have been awarded in administrative claims before the State Labor Commissioner. PAGA also provides for attorneys’ fee awards. 

This space and Jackson Lewis’ California Workplace Law Blog will continue to provide analysis as California’s trial courts interpret and apply Brinker and Kirby.

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New York has a long history of maintaining a state minimum wage higher than that provided for at the federal level under the Fair Labor Standards Act. However, New York State minimum wage has remained harmonized with federal law at $7.25/hour since July 24, 2009 (though New York’s “tip credit” minimum wage for the hospitality industry of $5.00 is substantially higher than that required under federal law). Now, following a long period of inactivity, the New York State legislature is considering a proposal to raise the state minimum wage to $8.50. Now, partisan legislators have looked to economists to bolster support for their respective positions as to whether such a hike hinders or bolsters the state economy. Recently, Democrats cited to the opinion of one third-party economist that “Raising the incomes of low-wage workers will help businesses with their own sales,” through a “multiplier effect.” 

Watch this space for further developments.

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Jackson Lewis coverage of the California Supreme Court’s long-awaited decision in Brinker Restaurant Corp. v. Superior Court (Hohnbaum), No. S166350 (Calif. Apr. 12, 2012), addressing the requirements of that State’s meal and rest break statute, California Labor Code § 226.7, is available here.

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An unsettled fertile area of litigation in New York has been the circumstances under which various types of incentive compensation—such as bonuses—become “earned” as wages and thus entitled to the protections of the New York Labor Law, which provide greater remedies than common law claims for breach of contract.  In a recent decision, New York’s Court of Appeals upheld a lower court’s finding that an employer’s failure to pay one such bonus was a failure to pay earned wages subject to a recovery under the Labor Law, along with the statutory attorney’s fees and interest.  Ryan v Kellogg Partners Institutional Servs., 2012 N.Y. LEXIS 545 (N.Y. Mar. 27, 2012).

Ryan concerned an oral promise to pay a bonus to a broker-dealer employee, which a jury found to have been made despite the employer’s statements to the contrary.   The Court then reasoned that because the bonus was earned, the failure to pay it violated New York Labor Law.   

In finding the bonus claim actionable under the Labor Law, however, the court did not address the Labor Law’s exclusion of exempt executive, administrative or professional employees who earn over $900 per week from bringing Labor Law claims for unpaid wages. See e.g., Malinowski v. Wall St. Source, Inc., 2012 U.S. Dist. LEXIS 11575 (S.D.N.Y. Jan. 31, 2012).  Nor did the Court address the potential application of Section 198-c of the Labor Law, which by its terms provides that an exempt executive, administrative or professional employee who earns over $900 per week may not assert a claim for a “wage supplement,” such as a bonus, under the Labor Law. 

Entitlement to incentive compensation such as bonuses under New York law continues to be examined largely by reference to contract principals.  However, while a claim for such a bonus will stand and fall based on whether a finding of contract is made, the remedies available for a breach are greatly expanded where Labor Law coverage is implicated, as the revised statute now provides for 100% of the amount of liquidated damages, along with attorneys’ fees and interest. 

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Calling the New York Wage Theft Prevention Act’s annual notice requirement a waste of millions of dollars - and 51 million pieces of paper! – New York State Senators yesterday voted to repeal the Act’s annual notice requirement.  This narrower repeal, which is limited to the notice provision (and not the other provisions of the Wage Theft Act) and was sponsored by Republican Sen. John DeFrancisco, replaces earlier proposals to repeal the Act in its entirety.  The proposal must now be approved by the state Assembly before it can be considered by the Governor.  Watch this space for further developments. 

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Separated executives often assert wage claims following cessation of employment and big dollars are usually at issue. Important questions then arise, including principally: 1) whether the executive can assert a claim under the New York Labor Law; and, 2) just as importantly, who is responsible for any monies owed. A new decision issued by recently-appointed Judge Paul Engelmayer of the United States District Court for the Southern District of New York limits both an executive’s right to seek unpaid wages under the New York Labor Law, and the extent of liability of corporate officers for any amounts owed under a contract theory.  Malinowski v. Wall St. Source, Inc., 2012 U.S. Dist. LEXIS 11575 (S.D.N.Y. Jan. 31, 2012).

In Malinowski, the court addressed Plaintiff Malinowski’s claims arising out of his employment as the corporate defendant’s Chief Information Officer pursuant to a written employment agreement. Malinowski alleged that “he was not paid his guaranteed bonuses for the years 2007 and 2008 [and] . . . that he was not paid his salary for his final three weeks of work prior to his termination from WSS in April 2009.” Following a bench trial, the parties reached a settlement regarding amounts owed under the contract, with a single remaining dispute: “whether WSS's CEO . . . was personally liable to Malinowski for the salary and bonuses that WSS owed him.” 

Judge Engelmayer’s analysis of this question required the Court to address both Malinowski’s rights under the contract itself, as well as his rights under Article 6 of the New York Labor Law, which governs payment of wages. Essential to the court’s ruling that Plaintiff Malinowski could not recover under the Labor Law was the undisputed fact that he worked as a “bona fide executive . . . whose earnings [were] in excess of nine hundred dollars a week.” Thus, the court ruled that, based on prior precedent, he was not covered by Sections 191 (addressing payment of wages) or Section 198-c (addressing so-called “wage supplements”, such as the bonus at issue). The Court also ruled that while executives can assert Labor Law claims for unlawful wage deductions under the New York Court of Appeals’ decision in Pachter v. Bernard Hodes Grp., Inc., 10 N.Y.3d 609 (2008), a claim for unpaid wages such as Malinowski’s was distinguishable from a claim based on an unlawful “deduction” from wages within the meaning of New York Labor Law 193. 

Having resolved the question of statutory liability in Defendants’ favor (meaning that Plaintiff could not recover from WSS (or its owners or managers) under the New York Labor Law), the court turned to the issue of whether the CEO could be “individually liable to Malinowski based on the [not contested] breach of his employment agreement.”   Citing basic contracts and commercial law principles, the Court ruled that the agreement clearly demonstrated that the CEO had signed the agreement only in his capacity as a corporate executive, and not in his personal capacity. Thus, no liability under the contract attached to him. 

Malinowski provides strong precedent for employers defending wage claims brought by executives under the New York Labor Law. Avoidance of a viable wage claim includes avoiding liability for a plaintiff’s attorneys’ fees. However, while the decision provides support for a finding that there is no individual liability for unpaid wages asserted via a contract claim, it does not foreclose contract claims for such unpaid wages and bonuses, and employers must continue to ensure employment contracts and bonus agreements are well drafted and consistent with New York state law.

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“Retail or service” is a classic example of a phrase of which the apparent plain language meaning does not bear a strong relationship to its legal or practical meaning for purposes of application of the 7(i) exemption. In determining whether an employee works in an industry properly deemed “retail or service” (and accordingly establishing eligibility for the exemption provided the other two criteria of receiving at least 50% of wages via commissions and receiving time and one-half the minimum wage for all hours worked are met), most courts continue to adhere to the longstanding regulations and case law relating to the abolished “retail and service” exemption (prior 29 U.S.C. 213(a)(2)).

In a decision adhering to this historical interpretation, a federal district judge recently ruled that a company selling term life insurance directly to policyholders is not a “retail or service” establishment within the meaning of the exemption. Burden v. SelectQuote Ins. Servs., 2012 U.S. Dist. LEXIS 7934 (N.D. Cal. Jan. 23, 2012). In Burden, Judge Saundra Brown Armstrong specifically referenced the longstanding DOL regulation requiring that an establishment with a “retail concept” meet the following test “(1) it typically ‘sells goods or services to the general public,’ (2) ‘serves the everyday needs of the community in which it is located,’ and (3) ‘performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process.’” Id. at *21 quoting 29 C.F.R. § 779.318(a). Citing to a companion DOL regulation which “expressly identifies ‘insurance’ as being among the ‘list of establishments to which the retail concept does not apply,’” Judge Armstrong rejected Defendant’s attempts to avoid the “preclusive effect” of that latter regulation by arguing that their telephone sales of insurance distinguished their business from the traditional “insurance” business identified in the regulation. In the Court’s view, “[a]lthough SelectQuote has changed the method by which an agent sells life insurance—namely, directly by telephone instead of face-to-face—the fact remains that SelectQuote is still selling life insurance.” Id. at * 26 (emphasis in original). This ruling rejected application of the more expansive view of “retail or service” espoused in Selz v. Investools, Inc., 2011 U.S. Dist. LEXIS 9364 (D. Utah Jan. 27, 2011)(company which sold “products and services to educate individual investors on how to personally invest in exchange markets on-line” qualified as retail or service).

7(i) is a valuable exemption for employers, as successful commissioned employees are often highly compensated, but it must be utilized with due care, after consultation with counsel, and, as always, heeding state law requirements.  Interestingly, the plaintiffs in this action were found exempt from overtime under California law since the California state law exemption is not premised on the application of a “retail or service” concept. That exemption is discussed in greater detail in this recent posting from our colleagues at Jackson Lewis’ California Workplace Law Blog.

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As widely reported (including here and here), a bill will be introduced today in the New York Assembly to raise the state’s minimum wage from $7.25 to $8.50, beginning next year. Specifics of the proposed increase are not yet available. This push comes as no surprise to students of the state’s minimum wage, which has historically outpaced the federal minimum but has remained flat with federal law at $7.25 since the national minimum wage reached that level in July, 2009.

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California has joined New York in requiring a new hire wage notification under its Wage Theft Prevention Act, with the California statute effective for all new hires on or after January 1, 2012. To assist employers, the California Division of Labor Standards Enforcement has issued its model form complying with the new law. The DLSE’s model form is available here.

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In August, we discussed the California Supreme Court’s ruling addressing the circumstances under which a non-California resident can be covered by that state's employee-friendly Labor Code.  Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011).  Yesterday, the Court of Appeals for the Ninth Circuit adopted the state court’s ruling, rejecting Defendant’s constitutional challenges to that decision.  Sullivan v. Oracle Corp., 2011 U.S. App. LEXIS 24625 (9th Cir. Dec. 13, 2011).  California-based employers must be mindful of Sullivan's applicability to their non-California employees.

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The state minimum wage is set to increase in eight states at the start of the new year.  By statute, many states review and revise their respective minimum wage annually, to reflect changes in the cost of living.  San Francisco, one of several municipalities with its own minimum wage law, will also increase its minimum wage.  More detailed coverage is available here.

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New York’s landmark Wage Theft Prevention Act, which was recently modified and adopted in California, requires employers to issue to all New York employees an annual notice complying with the requirements of New York Labor Law § 195 (as amended by the Act). While the statute was effective in April 2011, the annual notice requirement, which is in addition to the statute’s mandatory new hire notice and other requirements, is applicable for the first time in 2012. The notice must be provided prior to February 1, 2012, and the notice obligations are summarized here. Notice can be provided electronically as long as certain requirements are met.

While there is no mandatory form of notice, the New York State Department of Labor has provided sample forms. In addition to English, the NYSDOL has provided these forms in other languages, consistent with the requirement that the notice be provided in English and also in the employee’s “primary language.” 

Large employers, and employers with a large virtual or remote segment in their workforce, are already wrestling with how to assemble a compliant notice program under the Act.  The absence of clear guidance regarding certain provisions and requirements makes compliance more difficult. However, compliance is paramount, as failure to provide the annual notice constitutes a violation of Section 198(1-b), which, under the Wage Theft Act, can carry with it a penalty of “fifty dollars for each work week that the violations occurred or continue to occur”, among other potential remedies. 

Jackson Lewis attorneys are available to assist employers with compliance efforts, including New York Labor Law compliance experts Richard Greenberg and Craig Roberts.

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In April, we addressed at length New York’s newly-enacted “Wage Theft Prevention Act.” Now, through Assembly Bill 469, California has adopted a nearly identical law, the California Wage Theft Prevention Act. Effective January 1, 2012, the law increases the penalties available under existing provisions of the California Labor Code, and adds a detailed notice requirement to employees, echoing the requirements recently imposed on employers by N.Y. Labor Law § 195. 

Codified as Cal. Labor Code § 2810.5, the California WTPA notice requirement requires private California employers of non-exempt employees not subject to certain collective bargaining agreements to provide each new hire with a notice containing:

(A) The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable.

(B) Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances.

(C) The regular payday designated by the employer in accordance with the requirements of this code.

(D) The name of the employer, including any “doing business as” names used by the employer.

(E) The physical address of the employer’s main office or principal place of business, and a mailing address, if different.

(F) The telephone number of the employer.

(G) The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.

(H) Any other information the Labor Commissioner deems material and

Id. § 2810.5. (a)(1). Employers also must provide a notice to existing employees within seven days where there are any changes to the above information, unless the change is conveyed through a Cal. Labor Code § 226-compliant wage statement. 

One prominent question not addressed by the California statute is whether a mandatory or recommended notice form will issue under the new law’s notice requirement, which provides only that “The Labor Commissioner shall prepare a template that complies with the requirements [of the law].” Of course, interpretation of the notice requirement and all other provisions of the Act within the context of the California Labor Code and California law will become hotly-contested issues for California courts.

With New York Wage Theft Act compliance and issues already providing grounds for litigation, this new California law (along with California’s new written commission plan law and new legislation imposing significant damages for misclassification of individuals as independent contractors) adds yet another layer of compliance and exposure to the already difficult environment for California employers, who should strongly consider developing an action plan over the next 60-days to ensure compliance with the WTPA requirements.

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As discussed by our colleagues at the California Workplace Blog, California governor Jerry Brown has signed into law AB 1396, requiring all employers doing business in California to draft written contracts for any agreements with employees that involve commissions as a method of payment for services.  California joins New York in the vanguard of making such a writing a requirement.  N.Y. Labor Law § 191(1)(c).  Of course, such a writing remains a best practice under almost all circumstances. 

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Numerous state wage laws provide for limitations periods longer than the maximum three years provided under federal law (such as six years under the New York Labor Law). Some state statutes fail to address the issue, giving rise to litigation over how far back a plaintiff can go on his or her minimum wage, overtime or other wage claims. In a unanimous decision issued late last week, the Arkansas Supreme Court held that the limitations period for overtime claims under the Arkansas Minimum Wage Act is three years, not five as urged by Plaintiffs.  The issue had been certified by a federal district judge to the state’s highest court.  Douglas v. First Student, Inc., 2011 Ark. 172 (Ark. 2011). The Douglas action is being defended by a Jackson Lewis team consisting of wage-and-hour specialists Steve Munger, Skip Smith and Justin Barnes. 

 “We have traditionally applied a three-year statute of limitations to actions arising under a liability that is imposed by statute,” observed Associate Justice Jim Gunter, who authored the opinion. “[We] hold that a three-year statute of limitations would apply to private cause of action brought pursuant to the [Arkansas Minimum Wage Act].” Douglas v. First Student, Inc., Supreme Court Case No. 11-361 (Order Nov. 3, 2011). In so holding, the Court rejected plaintiffs’ argument, based on earlier Arkansas precedent, that a five-year “catch-all” statute of limitations should apply, because in Douglas any liability was created expressly by statute, as opposed to a blend of statutory and contractual claims. 

This ruling in Douglas constitutes a victory for Arkansas employers, harmonizing the statute of limitations for actions under state law with the FLSA’s three years. The vagaries and unanswered questions of many state wage laws continue to trip up employers, especially those with multi-state operations.

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While states generally are free to enact wage and hour laws providing greater protections than contained in the Fair Labor Standards Act, sometimes such laws run afoul of federal statutes governing particular industries. In a recent decision exemplifying this type of preemption, a judge in the United States District Court of the Southern District of California ruled that the oppressive meal and rest break provisions of the California Labor Code (which will be clarified by the California Supreme Court following oral argument on November 8), conflict with and are preempted by the Federal Aviation Authorization Act of 1994 (FAAA), because the state requirements interfere with interstate commerce. Dilts v. Penske Logistics LLC, 2011 U.S. Dist. LEXIS 122421 (S.D. Cal. Oct. 19, 2011). This is a significant victory for industry employers as class action lawsuits alleging violation of these requirements have been prevalent in California.

Dilts concerned the meal and rest statute’s interference with the FAAA provision providing that “a State . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.” Id. at * 13 quoting 49 U.S.C. § 14501(c)(1).  California’s strict meal and rest break laws, which the Court characterized as fairly rigid, force drivers to alter their daily routes while searching out appropriate places to pull off the highway and park their vehicles, preventing them from making some daily deliveries. Allowing California to “insist exactly when and for exactly how long carriers provide meal breaks for their employees would allow other states to do the same, and do so differently,” Judge Janis L. Sammartino observed. Id. at * 27.

Navigating the maze of federal, state and local regulation of wage-hour laws is never easy, particularly in heavily regulated industries such as trucking or aviation. Employers in these industries must monitor the status of the law to determine how best to comply with potentially competing provisions on the state and federal level. This decision points that the first step of any analysis is first to determine a statute or regulation’s enforceability.

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California Governor Jerry Brown recently signed the new law regarding “willful” misclassification of independent contractors under the California Labor Code summarized previously.  Further details regarding the enactment of this new law are available at the Jackson Lewis California Workplace Law Blog here.

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As we have discussed, federal courts generally interpret the FLSA in conformity with longstanding FLSA principles stated in, among other seminal cases, United States v. Klinghoffer Bros. Realty Corp., 285 F.2d 487 (2d Cir. 1960). Under the Klinghoffer rule, the FLSA generally just mandates: 1) the payment of overtime at the regular rate for hours in excess of 40; and, 2) that employees receive en toto at least minimum wage for all hours of work in a workweek. Thus, an employee who is paid for 35 hours at a rate above the minimum wage, and then later alleges that he or she worked 36 hours, has a claim under the FLSA only if inclusion of that additional hour pushes his or her regular rate for the 36 compensable hours below the minimum wage (currently $7.25/hour). A new decision calls this longstanding rule into question. Norceide v. Cambridge Health Alliance, 2011 U.S. Dist. LEXIS 103686 (D. Mass. Aug. 28, 2011).

In reviewing Defendant’s motion to dismiss a non-overtime off-the-clock claim under Klinghoffer, Judge Nancy Gertner observed that the courts following the Klinghoffer rule have “mostly done so by citing to Klinghoffer without any further analysis of whether, in fact, the weekly average rule effectuates the legislative intent of the FLSA's minimum wage law.” Id. at * 12. Observing that the First Circuit (encompassing Massachusetts) has not had cause to rule on the issue, the judge concluded that “the plain language of the minimum wage provision, the remaining parts of the FLSA, and the Congress' primary goal of protecting workers buttresses the conclusion that Congress intended for the hour-by-hour method to be used for determining a minimum wage violation.” Id. at * 19.

While many state laws already provide employee protection for gap time by requiring an agreed upon rate to be paid for all hours worked, Norceide is an adverse decision for all employers, particularly those with operations in jurisdictions regulated predominately or exclusively by the FLSA, and those within the First Circuit (Massachusetts, Rhode Island, New Hampshire, Maine and Puerto Rico). Such employers are not only liable for gap time claims but also the additional 100% liquidated damages available under the FLSA. Proper tracking of hours worked remains of paramount importance for all employers.

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As noted by our colleagues at http://www.californiaworkplacelawblog.com/, California’s highest court has scheduled oral argument in the Brinker Restaurant Corporation litigation, addressing the state’s meal and rest requirement, for November 8, 2011.  By rule, the Court must issue its decision within 90 days of oral argument, or, by February 6, 2012.  The decision should provide long-awaited clarity on the issue of whether employers must “ensure” meal periods are taken or whether they must only be made “available,” which has spawned years of expensive litigation both prior to and following the Court of Appeal’s 2008 ruling in Brinker Restaurant Corp. v. Superior Court, 165 Cal. App. 4th 25 (Cal. App. 4th Dist. 2008), the California Supreme’s Court’s acceptance of the appeal and consolidation with other Court of Appeal cases.

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California, like several other states including Massachusetts and New York, has historically been harsh on employers which abuse the independent contractor designation, classifying individuals who are integrated into their business and function as employees as contractors for the purposes of avoiding tax and wage costs. In fact, Federal Express’ now decade-long battle with courts and agencies over its classification of drivers as independent contractors originates in part from the California state appellate decision in Estrada v. Fedex Ground Package System, Inc., 154 Cal. App. 4th 1 (2007). Now, the California legislature has added a new measure which, barring an unlikely veto, expands misclassification liability further.

Senate Bill 459, passed on September 8, 2011, would make it unlawful for any “person” to willfully misclassify an individual as an independent contractor—not just for a statutory “employer” to do so. This raises the specter of individual liability for misclassifications under the new law. The bill also imposes a penalty of $5,000 to $15,000 for each violation, with escalators to the $10,000 to $25,000 range based on the finding that a given person or company has engaged in a “pattern or practice” of violation. The law also provides that anyone found in violation must post a notice to employees and the public regarding the violation, potentially creating a “ripple effect” for further claims. 

Violations of 459 are predicated on “willful misclassification”, which is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” This broad language, with the conjunctive requirements of voluntariness and knowledge, will create ambiguities (and of course litigation) in the wake of the law’s passage as to interpretation of this definition.

The difficult and expensive wage-and-hour compliance environment in California is not news. However, this new enactment, once it receives the likely approval of Governor Brown, would expand exposure both in terms of potentially liable parties (i.e., individuals) and the costs of misclassification. Any entity or individual conducting business in the State of California which has not yet analyzed its classification of workers as contractors is well advised to do so now.

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Pursuant to a 2002 ballot measure, Oregon state law requires an annual minimum wage adjustment to keep pace with inflation, as measured by the Consumer Price Index. Oregon Labor Commissioner Brad Avakian recently announced that based on the CPI the 2012 minimum wage in Oregon will be $8.80/hour, up from $8.50/hour at present. Oregon is one of several states (including Florida, Washington, Nevada and six others) which ties minimum wage assessment and increases to the CPI.

As the political debate continues to rage regarding the best ways to protect workers and jumpstart the national economy, states will continue to adopt individualized measures, such as tying increases to inflation or (at the other extreme) outright repeal of the minimum wage. Employers must always stay abreast of state law developments in each state in which they operate and ensure compliance with the maze of state wage and hour laws. 

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While it is generally understood that decisions of courts apply retroactively (as interpretations of the law) while newly enacted statutes do not (as pronouncements of new law) unless expressly provided by the statutory language, challenges to these principles often arise, especially when the decision or enactment modifies recoverable damages. In a victory for employers, Massachusetts’ highest court ruled last week that the 2008 legislation which created a “treble damages” remedy for violations of the Massachusetts Wage Act applies only to violations which occurred after the statute’s enactment date of July 12, 2008. Rosnov v. Molloy, 2011 Mass. LEXIS 735 (Mass. Aug. 31, 2011). This decision is in accord with a prior federal court decision.  DiFiore v. Am. Airlines, Inc., 688 F. Supp. 2d 15 (D. Mass. 2009).

Rosnov concerned an attorney who worked for a separate law office and, after leaving that office, was able to prove at trial that she was entitled to a commission for a referral based on an oral contract.  Following the jury’s verdict, plaintiff argued to the trial court that the treble damages provision should apply even though her claim was brought in 2007 and related to events occurring in an earlier time period. The trial court agreed, and awarded treble damages.  In analyzing the case under the traditional rule regarding retroactivity, the Supreme Judicial Court of Massachusetts observed that “the distinction between legislation that concerns ‘substantive rights,’ and legislation that concerns ‘procedures’ and ‘remedies,’ has proved to be difficult to draw.” Nevertheless, the court ruled that “Absent an express legislative directive to the contrary . . . the mandatory treble damages . . . should not be retroactively applied.” Finding no such express directive, the court held that the provision did not apply to claims accruing before the enactment date of July 12, 2008.   

While this ruling is favorable to employers, and hopefully will inform courts analyzing retroactivity of damages provisions  under other statutes, such as New York’s Wage Theft Prevention Act (and the decisions to date have indicated the statute does not apply retroactively), the harsh reality in Massachusetts is that the treble damages provision remains applicable for wage claims accruing after July 2008, creating significant potential liabilities.

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In keeping with the State’s “Live Free or Die” motto, the New Hampshire legislature last week took the unusual step of repealing the State’s minimum wage law.  This action, supported by Republican legislators seeking to eliminate what they consider “job killing” regulations, has little practical effect, as the repealed New Hampshire minimum wage was harmonized with the federal minimum of $7.25 per hour.  Thus, this repeal only impacts employers not covered by the FLSA, typically limited to small localized businesses operating intra-state with less than $500,000 in annual revenue.  In fact, many New Hampshire lawmakers supporting the bill acknowledged that the repeal was in large part symbolic.

One unclear aspect of the amendment pertains to the use of the tip credit under State law.  The amendment did not repeal New Hampshire’s provision requiring that a tip credit employee receive “a base rate from the employer of not less than 45% of the applicable minimum wage.”  It is unclear whether this provision now can be read to refer to the federal “applicable minimum wage,” or whether New Hampshire law simply defers to the federal requirement.  At present, tip credit employees only must receive $2.13 per hour under the FLSA (less than 45% of the federal minimum wage). 

“While the legislature obviously felt strongly, this change will have little or zero impact on most state employers of size,” observes Debra Weiss Ford, Managing Partner of Jackson Lewis’ Portsmouth, New Hampshire office.  “State employers need to continue to monitor wage/hour compliance, which in many industries is not focused on the minimum wage.” 

Other states are unlikely to follow New Hampshire’s lead, as the trend in most state legislatures, including New York and Massachusetts, has been to expand worker protections. We will continue to advise regarding legislative developments in this area, including the recent Congressional hearings on the efficacy of the FLSA.

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Pursuant to New York State Department of Labor guidance and New York case law, incentive compensation is not considered “wages” unless it is “earned.” See generally Truelove v. Northeast Capital & Advisory, Inc., 95 N.Y.2d 220, 225 (2000). Accordingly, disputes over an employee’s entitlement to incentive compensation in New York often turn on whether a particular bonus, or other type of incentive payment has been earned, and thus become “wages” which may not be subject to subsequent forfeiture or nonpayment. Recently, the Appellate Division’s First Department, which sits in review of the trial courts in Manhattan, rejected an executive’s claim under Article 6 of the New York Labor Law for such a payment. Cuervo v Opera Solutions LLC, 2011 NY Slip Op 6197 (1st Dep't Aug. 11, 2011).

In Cuervo, a majority of the appellate panel ruled that because the executive level employee’s offer letter had reserved to the employer the right to modify the commission schedule, the plaintiff had no claim to further commission payments based on the employer’s unilateral modification (provided, of course, that minimum wage and overtime requirements were met). The dissent focused on whether the plaintiff was an executive or administrative employee who would be categorically exempt from the payment-of-wages protections of Article 6 of the Labor Law (and whose entitlement to any further compensation would thus be limited to his remedies under contract law).

As litigation over incentive payments continues to expand, to ensure compliance with the law and avoid costly disputes over incentive compensation. all employers should regularly review their incentive compensation programs and agreements to ensure they clearly state when any such potential incentive compensation is ”earned.”

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In a long awaited decision, California’s Supreme Court has ruled that the State’s Labor Code provisions governing overtime pay may apply to non-residents working in California for “a California-based employer.” Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011). A detailed analysis of the decision and its potential implications is available here.

California wage-and-hour practitioners and commentators continue to await the California Supreme Court’s ruling regarding the scope of the Labor Code’s “meal and rest” requirements in Brinker Restaurant Corp.

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Wage and hour plaintiffs, like all plaintiffs, seek recovery from the largest, most viable defendants. Often, employees who separate from failing businesses seek to broaden the scope of the concept of “employer” within the meaning of wage-hour laws and include as defendants other potentially-liable parties with “deep pockets.” As discussed here, a federal court in Pennsylvania recently rejected call center plaintiffs’ efforts to ensnare Bank of America in their FLSA litigation on a joint employer theory. Now, a federal court in California – applying California state law – has rejected a similar effort to include the (defunct) primary employer’s outside Human Resources and Benefits consultancy as a joint employer. Field v. Am. Mortg. Express Corp., 2011 U.S. Dist. LEXIS 84601 (N.D. Cal. Aug. 2, 2011).

Plaintiff Field was employed by Defendant American Mortgage Express. However, under American Mortgage’s contract with co-defendant Gevity HR, Gevity was responsible for administering all Human Resources functions, including recruitment, the development of workplace resources for recruited employees, and payroll. A Gevity employee served as American Mortgage’s human resources director. Further, the contract between the two parties expressly stated that employees recruited and employed pursuant to this program would be jointly employed by both entities. 

Plaintiff Field sued both entities under various California Labor Code provisions. Defendant American Mortgage failed to appear in the case, and defendant Gevity (despite the contractual language) moved for summary judgment as to its employer status. Applying the California Supreme Court’s recent decision in Martinez v. Combs, 49 Cal. 4th 35 (2010), Judge Edward Chen of the Northern District of California rejected Fields claim against Gevity because Field could not establish that: 1) Gevity exercised control over plaintiff’s wages, hours or working conditions; 2) Gevity suffered or permitted Field to work; or, 3) that Gevity engaged plaintiff. The Judge dismissed Gevity’s role as “ministerial,” observing that the material decisions relating to Fields’ employment all were made by American Mortgage executives, and rejected Field’s assertion that he, executive director of American Mortgage’s Western Division Wholesale Lending operations, was required to “consult with or obey” Gevity’s employee with respect to human resources matters. 

Fields is a favorable decision for all employers, and for outside human resources consultants and PEOs in particular. Of course, employers must remain vigilant in analyzing the control their organization exerts over sub-contractors, independent contractors and the employees of any other organization.

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As we have previously discussed, the FLSA contains an exemption for commissioned employees in the retail or service industry who meet certain parameters: colloquially referred to as the “7(i)” exemption. California has a similar exemption which the California Court of Appeal, Second Appellate District recently applied to a sales consultant, holding that Defendant’s payments qualified as “commissions.” Areso v. Carmax, Inc., 195 Cal. App. 4th 996 (Cal. App. 2d Dist. 2011). 

Plaintiff Areso was engaged in selling defendant’s “used vehicles, warranty plans, used vehicle appraisals and vehicle accessories,” and received payments based on the products and services she sold. At issue were two different versions of Carmax’s sales consultant pay plan for California employees.  Under both, plaintiff was eligible to receive a fixed amount per sale of a car, and then a percentage of the purchase price of accessories sold. The trial court ruled both of these “per vehicle” pay plans were “a performance-based incentive system and thus, fairly understood to be a commission structure under Labor Code § 204.1.” Id. at 1000.

Areso appealed. The Court of Appeal began its analysis by noting that Wage Order 7-2001 exempts from California Labor Code overtime requirements “any employee whose earnings exceed one and one-half times the minimum wage if more than half of that employee’s compensation represents commissions.” Id. at 1002-3. This exemption mirrors 7(i), but without the requirement that the employee be in a “retail or service” industry. The court observed that the Cal. Labor Code also contains a definition of commission wages, namely “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Id. citing Labor Code § 204.1 (emphasis in original). 

The Court then analyzed previous California appellate authority addressing other types of incentive compensation, such as a percentage of the hourly rate charged to a customer, and “point” systems based on the items sold, but not tied to the price of those items. The Court observed that “none of the[se] cases interpreting § 204.1 has involved the compensation system which, like Carmax’s, compensate sales people with a uniform payment for each item or service sold and as a result, no cases construed the word ‘amount’ in the statute. This is an issue of first impression, and new facts require new law.” Id. at 1007. Rejecting plaintiff’s contention that in order to be “proportionate”, the percentage of the items sold payable to the commission employee must fluctuate, the Court observed that “paying sales people a uniform fee for each vehicle is proportionate—a one-to-one proportion. The compensation will rise and fall in direct proportion to the number of vehicles sold.” Id. at 1008. 

The Carmax decision represents a welcome victory for California employers seeking to apply this overtime exemption. Observes Jackson Lewis Partner JoAnna Brooks, who regularly handles wage and hour litigation in California, “The decision is surprising because it rejects the Division of Labor Standards Enforcement’s traditional guidance that a commission must be a percentage of the actual sales price. Other forms of fixed incentives are typically deemed bonuses or piece rates. Thus, it may be lawful to pay a fixed commission, but calculating a fixed payment based on anticipated “profit” after deducting expenses, such as overhead costs, may still be deemed a bonus. The consequences are significant, because it can result in mis-classification of an inside sales worker.”

Despite this decision, California wage and hour laws remain full of pitfalls for employers. Employers should proceed with caution. As Brooks notes, “Even employers who meet California’s commission exemption must take additional steps to ensure they have a properly drafted commission plan explaining when commissions are earned, the applicable rates paid, calculation of overtime and the impact of separation from employment.” 

California employers must continue to stay in the vanguard of wage and hour compliance to avoid costly litigation. 

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As discussed in detail on Jackson Lewis’ California Workplace Blog, the Ninth Circuit has resuscitated the California Labor Code’s “learned professional” exemption, reversing a decision from the Eastern District of California which held that unlicensed accountants could not qualify as a matter of law.  Campbell v. PricewaterhouseCoopers, LLP, 2011 U.S. App. LEXIS 12062 (9th Cir. Feb. 15, 2011).

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New York employers have struggled with the New York State Department of Labor’s view that all gratuities must be distributed on a daily basis, regardless of whether they are collected in cash or via credit card and regardless of employee preference.  Late last week, without notice, the NYSDOL modified this position.  Effective immediately, New York employers may include credit card tips on an employee’s next paycheck, with or without consent of the employee, as long as the tips are provided by the next regular payday. In so stating, the Department also reaffirmed that an employer may subtract a pro-rated share of any fees imposed by the credit card company.  Further, upon request of an employee, a New York employer may even include cash tips in the paycheck as long as the gratuities are specifically noted on the paystub, and the employer maintains the mandated records of gratuities received by employees.   The full text of the NYSDOL’s posting is below.   

Employers with any questions regarding interpretation of, or compliance with, this provision should consult with counsel, due to the significant potential damages arising out of wage and hour violations.

Payment of Tips Received By Credit Card & Cash

When tips are given by customers via credit card, the employer must pay the employee the amount due no later than the next regularly scheduled pay day. The employer may subtract from the employee's tips the pro-rated share of the charge levied by the credit card company. An employer remitting tips to an employee must include a breakdown between the tips and the wages on the employee's wage statement, which must meet all other requirements for wage statements. This position reflects a change in DOL policy as set forth in DOL opinion RO-08-0032 related to this issue. That opinion is hereby rescinded.

When customers pay tips in cash, employers may, as a service to their employees, allow employees to leave cash tips earned over the course of a pay period with the employer. The employer must issue a tip payment for the total amount of those cash tips along with any wage payment for the same pay period. A request by an employee for the employer to provide this service must be voluntary, and the agreement cannot be a pre-condition of employment or a condition of continued employment. The employer must still keep a daily record of the tips earned by each employee provided this service, and have those records available for inspection by the employee and/or the Department. The wage statement provided with the tip payment must contain a breakdown of tips and wages, and meet all other requirements for wage statements.

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Per an announcement on the Florida Agency for Workforce Innovation’s web site, the state minimum wage will increase, effective June 1, 2011, to $7.31 per hour. Under the Florida Minimum Wage Act (which applies to all workers covered by the FLSA), the Agency is required to adjust the Florida minimum wage pursuant to a calculation based on the percentage change in the federal  Consumer Price Index for urban wage earners and clerical workers in the South Region.  The tip credit under Florida law remains $3.02, thus the direct tip credit minimum wage for non-overtime hours has increased to $4.29.

This change highlights the common problem of subtle distinctions between the FLSA and state law. Florida employees covered by both statutes who are paid at the minimum wage (with or without a tip credit) must now receive six cents more per hour than minimum required by federal law, and receive overtime at time-and-one-half that rate, or $10.97.

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Expanded Jackson Lewis coverage of New York’s Wage Theft Prevention Act is now available here. 

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The New York State Department of Labor has provided model forms to comply with the Wage Theft Prevention Act.  Also included are instructions for completing the forms and  Guidelines for complying with the Act’s revisions to N.Y. Labor Law § 195.  The forms are not mandatory but any form utilized must incorporate the mandatory elements.  The forms will be provided in Chinese, Haitian-Creole, Korean, Polish, Russian, and Spanish, though it does not appear that all languages are available yet.  If the DOL has not provided a foreign language translation, the employer may use English only. Notably, the Guidelines do not require the form for exempt employees to identify the exemption under which the employee is classified.  The Act applies to all New York employers. 

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Despite the recent revised Hospitality Wage Order, the culmination of a multi-year process seeking to bring clarity to the at-times murky wage/hour regulations governing New York restaurants, litigation over these issues continues unabated. This phenomenon was ably remarked upon in a recent New York Times editorial by Zagat’s guide founder Nina Zagat. Now, the most recent installment in this lengthy chapter concerns popular midtown-Manhattan restaurants Alto and Convivio, which have closed recently amidst speculation that the closures are related to a wage lawsuit. Counsel for the restaurants has denied this allegation.

Last August, three individuals who worked as an assistant, food runner and busser, respectively, filed a putative collective and class action against the corporate under the FLSA and New York Labor Law, alleging minimum wage violations under the FLSA, misappropriation of gratuities, failure to pay New York’s “spread of hours” premium and failure to pay the required uniform allowance. In December, District Judge Berman granted Plaintiffs’ request for conditional certification under the FLSA, and permitted the circulation of a notice of pendency inviting “similarly situated” employees to join the lawsuit. Reyes v. Altamarea Group, LLC, 2010 U.S. Dist. LEXIS 139132 (S.D.N.Y. Dec. 22, 2010). Since that time, counsel for the named Plaintiffs has filed approximately a dozen consents to join the case against Altamarea pursuant to 29 U.S.C. § 216(b). 

While the actual basis for the closure decision remains confidential and a mystery, it is certainly no secret that class action wage-and-hour litigation continues to be a, if not the, most prominent legal threat to industry employers in New York state, and there is no substitute for reviewing practices with counsel before they become the subject of litigation.

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As discussed in greater detail here, effective March 1, 2011, retail employers with 50 or more employees must provide employees working a consecutive 4-6 hour shift with a 15 minute nonworking break and must provide employees working more than 6 consecutive hours with a non-working break of at least 30 minutes. (if the 30 minute break applies, the employee is not entitled to a 15 minute break) For employees working 8 consecutive hours, employees must be provided with an additional nonworking break of 15 minutes for each additional 4 hours of work on that shift.  For shifts not exceeding 6 hours, the 15 minute break may be waived in writing. See Md.Code Ann., Lab. & Empl. 3-710.

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While the New York State Department of Labor’s new Hospitality Industry Wage Order clarified many wage and hour issues for industry employers, the appropriateness of tip pool participation of certain categories of employee continues to be an area of uncertainty. On January 13, 2011, Federal District Judge Laura Taylor Swain granted summary judgment to Manhattan restaurant Brasserie Ruhlmann (“Restaurant”), on Plaintiffs’ claims that the restaurant violated the FLSA and N.Y. Labor Law (NYLL) by permitting captains and banquet coordinators to participate in the Restaurant’s tip pool. Garcia v. La Revise Assocs. LLC, 2011 U.S. Dist. LEXIS 3325 (S.D.N.Y. Jan. 13, 2011).

The plaintiffs in Garcia were three servers and one busboy at the restaurant, who participated in its tip pool consisting of servers, runners, busboys, captains, bartenders, and the Restaurant's banquet coordinator. The Plaintiffs alleged that tip pool participation of captains, bartenders and the banquet coordinator violated the FLSA and NYLL because these employees were “employers” (or agents of the employer) within the meaning of the law, or in the alternative were not employees who "customarily and regularly receive tips.” 

Judge Swain disagreed, observing that captains played “a substantial role in customers' dining experience at the Restaurant by assisting servers, answering questions, and overseeing food service…” Judge Swain also found that the captains did not set the terms and conditions of employment for the front-of-the-house employees who provided the food service. Id. at * 22-23. This is a vital recognition of the role of non-managerial captains in food service. In finding the banquet coordinator an employee who customarily and regularly receives tips, the Court noted that the banquet coordinator “dealt directly with private party hosts in advance of events for planning purposes and worked directly with the hosts and their guests during the events to ensure their satisfaction.” Id. at * 20.

This decision represents the first substantive judicial direction on the lawful composition of the tip pool in a New York fine dining establishment in over a decade. See Ayres v. 127 Restaurant Corp., 12 F. Supp. 2d 305 (S.D.N.Y. 1998). While industry employers should be gratified by this favorable ruling recognizing the role of captains and banquet coordinators in providing customer services, they should continue to analyze the composition of their tip pool based on the realities of their workplace, not the job titles assigned to the various service positions.  For example, in order to participate in such a pool, captains must not be managerial employees. With respect to banquet coordinators, each business must conduct a thorough analysis of the banquet coordinator’s service and non-service duties in order to analyze whether including the position in any pool is a viable option.

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As reported here and here, the New York Department of Labor will have a full plate in 2011 enforcing both the new Hospitality Industry Wage Order (applicable to industry employers) and the Wage Theft Prevention Act (applicable to all employers in New York). The Hospitality Wage Order modifies many of the rules governing industry employers, and the dangers of non-compliance are magnified by the Wage Theft Act, which increases the penalties for all violations of Labor Law Article 6. Under the Act, liquidated damages for such violations increase from 25% to 100%. The Act also expands the wage notification requirements of New York Labor Law § 195.

In addition to liability for unpaid wages, penalties and attorneys’ fees, New York employers also could be faced with inclusion on the NYSDOL’s “Non-Compliant Labor Standards Employer Search” Internet database. See http://lsempviolations.labor.ny.gov/LSEmpViolations/index.faces. Violators are listed on this web site for six years.

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As previously noted here, New York Governor David Paterson has signed into law the Wage Theft Prevention Act.  The new law amends the New York Labor Law to create new recordkeeping obligations for employers, as well as significantly greater damages for violations of the Labor Law than previously were available.  

An expanded analysis of the Act is now available on www.JacksonLewis.com by clicking here.

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Yesterday, the New York State Department of Labor issued the final version of the new Hospitality Industry Wage Order, as previously discussed here and here. The final Wage Order, substantially revises various long-standing New York industry rules, including, the tip credit amount, permissibility of tip pooling, and spread of hours calculations. The Final Wage Order includes only a few changes from the NYSDOL’s Proposed Order, which was issued for notice and comment in October:

• Defining a “service employee” as an employee “who is primarily engaged in providing direct personal service to guests, patrons or customers and who regularly receives tips from such guests, patrons or customers.”; and

• Revising language industry employers are required to include in bills, contracts or other writings to customers in order to convey the precise nature of any mandatory gratuity or service charge. These regulations are an effort to provide clarity to service charge requirements in the wake of Samiento v World Yacht, 10 NY3d 70 (2008).

We will provide further detailed analysis of the new Wage Order – as well as information about upcoming Jackson Lewis seminars on its implications – on www.JacksonLewis.com shortly.

UPDATE:  On December 16, 2010, the Department announced that the final Wage Order issued on December 15, 2010 had been disseminated in error.  The Department also announced an “implementation period,” under which employers have until March 1, 2011 to reflect the changes required by the new Wage Order in the payroll systems.  However, employers availing themselves of this implementation period must, as of the first pay period after March 1, 2011, retroactively pay any additional wages owed under the new Wage Order for the period from January 1, 2011 until such payments are made. 

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On December 13, New York Governor David Paterson signed into law the “Wage Theft Prevention Act,” a bill which provides new and expanded protections for workers under the New York State Labor Law. 

Among other provisions, the new law (which takes effect in 120 days) includes the following provisions:

·         An increase in the liquidated damages penalty for violations of Labor Law Article 6 from 25% to 100% -- the amount available under the FLSA:

·         Any employee not provided with the new hire “rate of pay” notice required by N.Y. Labor Law § 195 may bring a cause of action to recover $50 for each workweek that such a violation occurs, as well as attorneys fees;

·         The notice previously required by Labor Law § 195 must now be provided to each employee in English and the language “identified by each employee as the primary language of such employee;” and

·         Expanded wage statements which include, among other new requirements, the employee’s basis of pay, whether hourly, piece rate, salary or other basis, and, for non-exempt employees, the applicable overtime rate. Under the new law, any change to an employee’s regular rate must be reflected in the wage statement, or in a revised Labor Law § 195 notice. 

We will provide further details regarding the obligations posed by this new law in the near future on www.JacksonLewis.com.

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As discussed here, a New York appellate court recently upheld the conviction of a corporate officer who oversaw a policy of providing “loans” to employees in lieu of wages. Now, another intermediate New York court has followed suit, affirming the conviction, upon a guilty plea, of Spiridon Anthoulis for “grand larceny in the third degree and failure to pay wages in violation of Labor Law § 198-a(1).” People v Anthoulis, 2010 NY Slip Op 8126 (N.Y. App. Div. 2d Dep't Nov. 9, 2010).

This affirmance of Anthoulis’ conviction ends a saga arising out of a scheme perpetrated by Anthoulis and other principals of 4-A General Construction Corp., and SNA General Construction Corp. between February of 2000 and January of 2004, to illegally pay low wages to workers on construction projects contracted by the New York City Housing Authority (NYCHA), in violation of the state prevailing wage law rates contractors are required to pay employees working on public projects. In all, Anthoulis, the two corporate entities and two other individuals were ordered to pay $9.5 million dollars in fines and restitution, and all three individuals pled guilty to criminal charges, arising out of their failure to pay prevailing wage to the construction workers responsible for kitchen and bathroom renovations on various NYCHA projects. 

The investigation was conducted by the New York State Attorney General’s Office and the Department of Investigation’s Office of the Inspector General for the Housing Authority, and determined not only that the responsible parties had failed to pay prevailing wages, but had submitted sworn documents containing false assertions regarding compliance with prevailing wage. 

All employers, but especially those engaged in public works projects and covered by prevailing wage requirements, must take their wage payment, recordkeeping, and reporting obligations seriously. 

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In addition to the FLSA and New York Department of Labor’s (NYSDOL) Wage Orders, both of which contain minimum wage and overtime requirements, pursuant to Article 8 of the New York Labor Law, employers in New York may be required to pay “prevailing wage” to workers employed on public works projects, (There is a separate prevailing wage provision applicable to covered Building Service employees.) This obligation is triggered where a “public agency [is] party to a contract involving the employment of laborers, workmen, or mechanics, and the contract . . . concern[s] a public works project." Matter of Erie County Indus. Develop. Agency v Roberts, 94 AD2d 532, 465 N.Y.S.2d 301 (1983) affd 63 NY2d 810, 472 N.E.2d 43, 482 N.Y.S.2d 267. Rejecting a recent opinion letter from the NYSDOL, New York’s highest court recently held that charter schools do not satisfy the necessary prerequisite for application of the statute - requirement that a public agency be party to contract involving employment of laborers, workmen, or mechanics. Matter of New York Charter School Assn. v Smith, 2010 NY Slip Op 7375 (N.Y. Oct. 19, 2010).

Smith resulted from an August 31, 2007 NYSDOL opinion letter in which the Department reversed its position taken seven years prior and stated that  “the prevailing wage law mandate of Labor Law § 220 applie[s] to all charter school projects.” Following issuance of the 2007 opinion, the Commissioner of Labor immediately provided notice to charter school organizations of the Department’s intention to enforce the new policy interpretation. Litigation commenced immediately.

In its opinion, the Court of Appeals considered and rejected three separate bases put forward by the Commissioner of Labor for finding that charter schools, by their nature, are “public agencies party to a contract involving the employment” of construction workers:

1)      the charter agreement governing the operation of a charter school is itself a contract with a public entity that contemplates the employment of workers on facility projects;

2)      the charter school itself should be regarded as a public entity for purposes of the prevailing wage law; and

3)      charter schools may be regarded as a third-party intermediary when it enters into a charter school facility contract on behalf of or in place of the chartering entity (usually a school district), pursuant to the charter that created it.

Id. at * 3. 

As to the first argument, the court observed that a charter agreement in New York is “an authorizing agreement under which an agency has determined that an applicant school is competent to be licensed as an educational corporation and nothing more.” Id. at * 4. Thus, the charter agreement is not itself a contract involving the employment of covered workers. In rejecting the second argument, the Court noted that the Labor Law itself defines the four categories of public entity covered by the law: the state; a public benefit corporation; a municipal corporation; or a commission appointed pursuant to law – and that educational corporations were expressly excluded. Id.  Finally, the Court noted that while the Labor Law recently was amended to ensure prevailing wage coverage where “private parties are carrying out public work projects on behalf of public owners,” the amendment was not intended to extend to charter schools. Id. 

Smith highlights both the intricate nature of prevailing wage coverage analysis and, separately, how a modification of position by a state department of labor can cast uncertainty into an entire industry. Employers and counsel must stay abreast of these types of developments to ensure and appropriate and timely response is made. 

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As previously discussed here, the New York legislature recently enacted the Construction Industry Fair Play Act. The law is effective tomorrow. In sum, the law provides that an individual providing services in the construction industry only qualifies as an “independent contractor” under the Act, if s/he meets the following test:

(1) [the worker] is free from control and direction in performing the job, both under his or her contract and in fact; (2) the service performed is outside the usual course of business; and (3) the worker is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue

This is an example of what is commonly referred to as the “ABC” test for independent contractor status. It is utilized by various state agencies to define who is excluded from employee status for purposes of, for example, workers compensation or unemployment benefits. See generally 22 Berkeley J. Emp. & Lab. L. 295. The use of the phrase “and” requires that all three prongs of the test be met for contractor classification. The result is a very broad definition of “employee.”

The New York State Department of Labor has issued the mandatory posting required to be displayed by covered employers. The poster is available here.

New York construction industry employers must analyze whether they are covered by the Act (necessitating among other things immediate posting of this new NYSDOL poster), and how the Act’s narrow definition of “independent contractor” impacts their classification of workers. This legislation is similar to numerous pieces of legislation in other states. In certain instances, such legislation, and related state initiatives, is not limited to the construction industry.

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While wage-and-hour compliance programs traditionally focus on FLSA and, as regularly discussed in this space, any applicable state laws, county and municipal governments also have the right to impose additional requirements. See previous post here. Two proposed municipal laws which would mandate that employers provide paid sick leave to employees hit snags last week.

In Milwaukee, a proposed ordinance requiring large businesses to provide workers with nine paid sick days, and smaller businesses to provide five paid sick days, was put on hold further following a 3-3 decision by the Wisconsin Supreme Court on whether Milwaukee County Circuit Judge Thomas Cooper properly struck down the proposed law. Milwaukee Association of Commerce v. City of Milwaukee, 2010 WI 122 (Oct. 14, 2010). Based on the deadlock, the Supreme Court remanded the case back down to a lower appellate court for review. Id.

In New York City, City Council Speaker Christine Quinn indicated she would not support a proposed paid-sick leave bill, effectively tabling the measure indefinitely despite widespread belief that, if put to a vote, the bill would pass. The Speaker promised to continue a dialogue with the legislators responsible for the bill.

As legislators continue to balance a struggling economy with the goal of worker protection, more and more local governments may seek to take action to fill in perceived gaps in the federal or state floor. Employers in larger municipalities (and in active counties such as Miami-Dade) must be aware of these developments.

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As analyzed in more detail  here, the California Supreme Court recently ruled that the California labor code provision prohibiting employers from taking or sharing in tips left for employees by customers – Cal. Lab. Code § 351 (“Section 351”) – does not provide  private litigants with a right to sue their employers directly for alleged misappropriation of tips. Lu v. Hawaiian Gardens Casino, Inc., No. S171442 (Aug. 9, 2010). 

In Lu, the defendant casino required card dealers to segregate 15 to 20 percent of their tips, which the casino deposited into a tip pool account for distribution to designated employees who provide services to customers.  Employees who received these segregated tips included chip runners, poker tournament coordinators, poker retention coordinators, hosts, customer service representatives, and concierges.  

The California Supreme Court took up Lu, after both the trial and first appellate court held that Plaintiff Lu had no private right to sue under Section 351, to settle a conflict with another intermediate appellate court which held that a private right of action existed under Section 351. See Grodensky v. Artichoke Joe’s Casino. The court addressed the limited question of whether Section 351 created a private right of action for employees.  Without ruling on the legality of the defendant’s tip pool policy, the Court found no private right of action for employees under Section 351, either explicitly or implicitly. However, the Court observed that employees can still pursue Section 351 relief through the Labor Commissioner, or sue for allegedly misappropriated tips under common law or other statutory theories.

Employers should continue to draft and administer their tip pooling policies carefully, in light of federal and state laws and regulations. This point is underscored by the fact that the FLSA provides a private right of action and 100% liquidated damages plus loss of any taken tip credit for misappropriated gratuities.

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Like many states with state wage and hour laws, the New York Labor Law contains certain unique provisions. One such provision is Section 198-c, which addresses an employee’s right to recover “wage supplements” such as reimbursement for expenses, health, welfare and retirement benefits and vacation, separation or holiday pay.. Section 198-c expressly provides that its provisions shall not apply to any person in a bona fide executive, administrative, or professional capacity whose earnings are in excess of nine hundred dollars a week. The New York State Appellate Division, Second Department, reiterated this exclusion this week. Section 198-c’s limitations are a valuable defense for New York employers when defending claims brought by excluded employees for such wage supplements because if such claims are excluded from Labor Law protection, there is no ability for the plaintiff’s counsel to recover attorney’s fees or statutory liquidated damages. See Fraiberg v 4Kids Entertainment, Inc., 2010 NY Slip Op 6158 (N.Y. App. Div. 2d Dep't July 20, 2010). 

The relevant facts in Fraiberg are simple. Fraiberg, the controller of a business that ceased operations, asserted both a contract claim and a Labor Law Claim under Section 198-c for, inter alia, alleged unpaid severance. Affirming the trial court, the appellate court agreed that Fraiberg demonstrated a contractual entitlement to severance. However, reversing the trial court, the Second Department granted summary judgment to the employer on Fraiberg’s claims under Section 198-c for severance, attorneys’ fees and liquidated damages.   The court stated that since plaintiff acknowledged at her deposition that she worked in a bona fide executive, administrative, or professional capacity and earned in excess of $900 per week, the defendant “established that…she could not assert a claim [under 198-c] to compel the payment of the severance package.”

While not relevant to the court’s holding, in dicta, the court stated that the New York State Court of Appeals decision in Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609 (N.Y. 2008) stands for the proposition that executives may bring claims for unpaid wages under Article 6 of the New York Labor Law. Article 6, which includes Section 198-c, allows recovery for any unpaid wages not paid per the parties’ agreement as well an award of liquidated damages and attorneys’ fees.   Many read Pachter as merely stating that the deduction from wages provision of Article 6, specifically section 193, applies to executives but that executives generally cannot assert claims for unpaid wages under Article 6.

Like many other states, New York has detailed state wage and hour laws with many nuances. All employers with New York State operations must ensure they recognize obligations and defenses not only under the FLSA but also applicable state laws.

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The surge of state wage and hour claims continues in California. Among the numerous California Labor Code provisions which has been the subject of repeated litigation is California Labor Code § 226(a) (“226”), which creates specific requirements concerning the content of employee wage statements. Included among its provisions is a requirement that wage statements indicate the “total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime.” Last month, a California appeals court analyzed this statute in the context of a claim brought by a non-exempt co-manager, who claimed that her wage statements violated this 226 requirement. Morgan v. United Retail, 2010 Cal. App. LEXIS 1194 (Cal. App. 2d Dist. June 23, 2010).

As recited by the court, the alleged unlawful wage statement contained the following information:

For employees who did not work any overtime hours during the pay period, their wage statements listed the total regular hours worked by the employee, which equaled the total number of hours worked. For employees who worked overtime hours during the pay period, their wage statements separately listed the total regular hours worked and the total overtime hours worked by the employee. However, the statements did not add the regular and overtime hours together and list the sum of those hours in a separate line.

Plaintiff Morgan’s claim, which had been rejected by the trial court on summary adjudication, was that this failure to combine non-overtime and overtime hours and provide a “separate line” indicating total hours constituted a violation of 226. 

The appeals court, after noting that no Court had previously analyzed a wage statement which “separately lists the total number of regular hours and the total number of overtime hours worked by the employee,” reviewed the existing decisions analyzing 226’s “total hours worked” requirement. Observing that the cases finding 226 violations focused on the inaccurate or misleading nature of the wage statements in question (such as wage statements providing an “average” number of hours worked, as opposed to actual hours worked), and citing a recent federal decision dismissing a 226 claim on a similar theory (Rubin v. Wal-Mart Stores, Inc., 599 F.Supp.2d 1176 (N.D.Cal. 2009)), the Court held that the failure to provide a separate line with the total hours did not constitute a violation. The Court rejected plaintiff’s contention that a violation occurred because the information provided was insufficient to calculate proper overtime, observing that the plaintiff and other putative class members were paid by the hour, and not on a “salary, commission, or piece-rate basis.”

Morgan provides some much-needed clarity regarding an employer’s obligations under 226. Inclusion of the “separate line” in wage statements (as Morgan indicates United Retail later did), reduces uncertainty and legal risk.  

Wage and hour compliance is a constant struggle due to the need not only to comply with the FLSA but also with all applicable state laws.

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In a decision reiterating important independent contractor issues for employers, the Ninth Circuit Court of Appeals last week reversed a lower court decision holding that certain delivery drivers were properly classified as independent contractors under various provisions of the California Labor Code. Narayan v. EGL, Inc., 2010 U.S. App. LEXIS 14279 (9th Cir. July 13, 2010).

At the trial court level, Judge Ronald M. Whyte of the Northern District of California concluded that the drivers, although residents of California providing delivery services in California, were independent contractors under the laws of Texas, the governing law set forth in the drivers’ “Leased Equipment and Independent Contractor Services” agreement with EGL, a nationwide provider of logistics services.  In a footnote, the court further held that “[t]he result would be no different if California law governed.”

Reversing the decision, the Ninth Circuit observed that ‘[w]hether the Drivers are entitled to those benefits [under the Cal. Lab. Code] depends on whether they are employees of EGL, which in turn depends on the definition that the otherwise governing law--not the parties--gives to the term ‘employee’” (emphasis added). The Circuit Court held that the parties’ selection of Texas law to “govern” the contract applied only to disputes about interpretation of the contract (i.e, Texas contract law), not the application of employment statutes like the California Labor Code. Simply put, the Circuit Court held that the drivers’ claims under the Cal. Labor Code did not “arise” from the contract (i.e., did not call primarily for interpretation of that contract) – the contract was simply relevant evidence relating to their claims of employee status.  Finally, the Court reversed Judge Whyte’s ruling that the drivers were independent contractors (even under California law) because, in the Court’s view, he “did not apply the relevant factors [for IC status] identified by the Supreme Court of California to the facts in this case.”

While the Appellate Court’s failure to recognize the choice of law clause may not be relevant to most employers, the central holding and vital takeaway is very straightforward: independent contractor status is generally narrowly construed and currently under intense scrutiny. Further some aspects of the relevant analysis vary not only from state to state but from statute to statute. Additionally, and critically, the intent of the parties as reflected by the parties’ agreement is often of little importance to an administrative agency’s or court’s analysis, as Narayan clearly demonstrates.

All employers, and especially those with multi-state operations, must focus on the propriety of their organization’s use of contractors.   A more detailed analysis of this issue can be found here.

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Employers with New York State operations must ensure they understand the New York State Department of Labor's current position as to new hire notices and wage deductions.

New Hire Notices

As previously reported here, since October 26, 2009, New York state employers have been obligated to notify all new hires in writing of their hourly rate, overtime rate (if applicable) and payday, and receive a written acknowledgment of such notification.  The Department has issued model forms for various types of pay structures, all of which can be found on the Department's website, but continues to advise employers that use of the model forms is not mandatory.   One of the Department's model forms is directed to new hires the employer intends to treat as exempt employees, and both the form and its accompanying instructions require employers to list the exemption applicable to such employees.  However, this form and its accompanying instructions were not fully consistent with the general guidelines for compliance, also posted by the Department on its website.  Such guidelines simply stated that the exemption “should” be listed; it did not make doing so mandatory.  

Recently, the Department modified its general guidelines and now consistently advises that the exemption must be listed for exempt employees on the new hire notice.  In order to comply with the Department’s position, employers must ensure they carefully analyze the appropriate exemption(s) prior to listing them on any notice to ensure such statement is accurate.   It is important to note however that this new directive goes beyond the statutory requirement contained in Section 195 of the Labor Law, although the statute does provide the Department with the right to issue "requirements as to content and form."  

Wage Deductions

In addition to permitting deductions "in accordance with the provisions of any law or any rule or regulation issued by any governmental agency", Section 193 of the Labor Law permits deductions "for the benefit of employee" as long as such deductions are authorized in writing.   Over the years, the Department, through opinion letters, has advised that this language permits deductions for various issues (such as wage overpayments and repayment of loans) as long as the employer obtained written consent and limited such deduction to 10% of gross wages for the payroll period. 

However, since 2006, based on New York State Court of Appeals’ decision in Angello v. Labor Ready, the Department has consistently narrowed its interpretation of the phrase “for the benefit of the employee.”   For example, in a 2007 opinion letter, the Department stated that in order for a deduction “for the benefit of the employee” to be permissible it must be  a deduction which benefits the employee which is also similar to those enumerated in the statute (i.e., insurance premiums, pension or health and welfare benefits, contributions to charitable organizations, payments for United States bonds, payments for dues or assessments to a labor organization). Thereafter, through opinion letters, the Department modified its prior position as to the legality of certain wage deductions, such as a deduction from a final paycheck to cover used but unaccrued paid time off, and deductions for loan repayments and wage overpayments. The Department now states that such deductions are impermissible regardless of the employee's written consent.  Based on the Department's consistently evolving, highly-protectionist pro-employee position, employers should carefully review their wage deduction practices in New York State.

Every business with New York operations should review these wage and hour compliance issues with counsel to ensure compliance.

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As discussed here, Connecticut’s highest court has clarified that discretionary bonuses are not subject to that state’s wage claim statute, Conn. Gen. Stat. 31-72, et seq.  See Ziotas v. The Reardon Law Firm, P.C., SC 18292 (Conn., June 8, 2010). Ziotas concerned a law firm associate employed pursuant to an at-will employment agreement which included a provision for a discretionary bonus. The Supreme Court reinstated the trial court’s original decision (reversed by the intermediate appellate court on appeal), that because the bonus was discretionary and based on factors other than simply the employee’s performance (such as the firm’s overall performance), it did not constitute “wages” within the meaning of the wage payment statute, even though the employee might be entitled to the same bonus under the contract itself. This decision is consistent with the general legal principle in many states (such as New York, discussed here) that incentive compensation (such as bonuses and commissions) becomes “wages” under the law once that compensation is “earned”. As Ziotas demonstrates, defining the factors used to determine any potential incentive payment as well as any earning criteria is often essential if an employer wishes to keep claims for incentive compensation outside the purview of wage statutes (and the attorneys fees provision often contained therein).

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In Samiento v World Yacht, 10 NY3d 70 (2008), the New York Court of Appeals held that whether a labeled service charge is a “gratuity” for purposes of N.Y. Labor Law § 196-d that must be distributed to service staff depends on the “reasonable customer’s” understanding. One of the many questions unanswered by the decision is whether this standard applies only prospectively to § 196-d compliance following the Court’s February 2008 ruling. In a blow to industry employers, the Appellate Division’s First Department, the intermediate appeals court encompassing Manhattan, has ruled that employers can be subject to liability for undistributed service charges prior to the World Yacht decision. Ramirez v Mansions Catering, Inc., 2010 NY Slip Op 4857, 2 (N.Y. App. Div. 1st Dep't June 8, 2010). A New York federal court is currently considering the same issue. 

Generally, the question of retroactivity turns on whether a new judicial decision constitutes “the creation of a new legal principle.” Id. at * 1. If it does not, then it is simply an interpretation of the law, and has retroactive application. In Ramirez, the Court observes that the question answered by World Yacht had been acknowledged but, importantly, not answered by the Court of Appeals’ earlier opinion on the same subject. Id. at * 2 citing Bynog v Cipriani Group, (298 AD2d 164 (2002), affd as mod 1 NY3d 193 (2003). Because the legal issue addressed in World Yacht – namely “whether mandatory service charges could constitute "gratuities" under Section 196-d” – had not been resolved previously, World Yacht “was not a departure from existing law” and did not constitute a “new rule.” Id.  This conclusion ignores the fact that the entire industry generally believed that, consistent with federal law, the combination of using the term “service charge” and taxing the collected monies provided an employer with the right to retain the collected monies in whole or in part.

Food service and hospitality industry employers have been focused on this issue for over 2 years. While all such employers should ensure their current practices fully comply with this decision, at least based on this decision, liability can be imposed for periods prior to February 2008 within the 6 year statute of limitations. 

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As recently discussed here¸ a properly drafted commission agreement is essential in New York (and every state) to minimize exposure to a variety of claims, including claims for alleged unpaid commissions and improper wage deductions. In fact, in New York and other states, a written signed commission agreement is required pursuant to state law, absent which adverse inferences can be drawn.

A counter-example to the Swig Equities decision (see discussion linked above), which demonstrated the value of such an agreement, is the recent decision of the New York state trial court in Nichols v. SG Partners, Inc., 2010 NY Slip Op 30174U (N.Y. Sup. Ct. Jan. 25, 2010). Plaintiffs in Nichols were two former executive recruiters who received a base salary plus commissions. Upon termination they sued to collect alleged outstanding commissions for placements they had made. In their Complaint, they described the employer’s practice in calculating commissions to be to “more or less annually tally the placements made by plaintiffs and make additional payments based upon a percentage of the revenues from the placements.” The employer asserted that no such enforceable oral contract existed, or in the alternative was barred by various defenses to contract formation. 

Because no written contract governed the parties’ agreement regarding, inter alia, when a commission was earned, the Court refused to dismiss as a matter of law Plaintiffs’ claims that the employer breached the oral contract governing payment of commissions. Further, the Court did not dismiss the Plaintiffs’ assertion that the company’s commission payment/reconciliation process constituted an unlawful deduction from wages. Relying on precedent, the Court held that the claim under Section 193 was not duplicative of the claim for breach of contract, even though the claim sought recovery of the same commission compensation. This ruling also revived Plaintiffs’ claims under Labor Law § 198.1-a for a 25% penalty on the owed wages and attorneys’ fees.

Failure to enter into a written commission agreement creates enormous potential exposure for all businesses that employ commissioned staff.

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Reacting to outcry from the employer community, on June 3, 2010 the Miami-Dade County (FL) County Commission amended its recently enacted wage ordinance which defined “wage theft” as failing to pay an employee any portion of his or her wages within 14 calendar days of the work having been performed. Prior to this amendment, the ordinance potentially rendered all semi-monthly pay plans unlawful with respect to covered employees. This amendment will become effective June 13^th unless vetoed by the Mayor. A veto is not expected.

The revised Ordinance provides that it is lawful for an employer to pay wages either:

1. no later than 14 calendar days from the date on which the work was performed, or

2. pursuant to any other pay schedule that an employer has established, by policy or practice, “whereby employees earn and are consistently paid wages according to regularly recurring pay periods.”

The potential penalties for “wage theft” violations, which include back wages, liquidated damages, treble damages based on economic losses resulting from non-payment and costs and attorney's fees, remain unchanged.

More extensive discussion and best practices guidelines regarding the new law are available here.

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In a recent decision, the Honorable Eileen Bransten of the Supreme Court of the State of New York, New York County, reinforced to all employers the need to utilized well-drafted commission agreements.  The court considered a claim from a real estate broker alleging that she was not paid commissions and bonuses for sales that she arranged, in violation of her agreement with the employer.   Rejecting her claim, the court pointed to express language in the parties’ agreement stating that the alleged commissions would only have been earned upon a closing and transfer for title, and stated that “parties to a brokerage agreement are free to add whatever conditions they may wish to their agreement, including a condition that the contract of sale actually be consummated before the broker is deemed to have earned his commission.” Root v Swig Equities, LLC, 2010 NY Slip Op 50843U at * 5 (N.Y. Sup. Ct. Feb. 10, 2010).   

The court then went further and, while recognizing the general principle that a “seller cannot avoid liability for a broker’s commission based on the non-occurrence of a condition precedent if the seller is responsible for its non-performance”, cited to existing case law and ruled that “[a] broker may choose to agree that even ‘if the sale falls through because of the seller’s fault, he shall be entitled to nothing.” Id.  The court then turned to the plaintiff’s claim for unpaid commissions under the New York Labor Law.   After stating that any Labor Law claim must be premised on a contractual right to recover commissions, the court rejected plaintiff’s labor law claim stating that “without a contractual right to the commissions [plaintiff] seeks to recover, she fails to state a violation of [the Labor Law].” Id. at * 7. 

This decision reinforces to employers the importance of well-drafted commission agreements with specific condition precedents for the earning of commissions.   In fact, in New York, written commission agreements are mandated and the lack of such an agreement not only limits an employer’s ability to defend a claim for unpaid commissions but also creates a presumption that the terms of employment that the commissioned salesperson has presented are the agreed terms of employment. N.Y. Labor Law § 191(1)(c).

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As previously reported in detail here, in November 2009 then-New York Commissioner of Labor Patricia Smith issued an Order accepting the 2009 Restaurant and Hotel Industry Wage Board’s recommendation to consolidate and modify the Wage Orders currently in effect covering New York restaurant and hotel industry employers. The Department however has yet to issue the proposed text of the consolidated Order which, if enacted, would both impose additional obligations on covered New York employers, as well as provide such employers with additional rights and protections, such as:

• Requiring employers to notify affected employees when taking a “tip credit” under the New York Labor Law (the “Labor Law”);
   
• Requiring an additional hour of pay to be provided to all non-exempt employees whose workday is over 10 hours  (the “spread of hours” requirement) regardless of the hourly wage earned by such employees;
   
• Permitting employers to mandate “tip pooling” under the Labor Law – at present, employers may mandate “tip sharing” (where a tipped employees shares his or her tips with supporting customarily tipped employees, such as busboys) but a tip pool, wherein all tips received are pooled and redistributed amongst customarily tipped employees, must be voluntarily; and
   
• Providing a “wash and wear” exemption to an employer’s obligation to provide a laundry cleaning allowance for mandated “uniforms.”

The Department of Labor’s next step is to submit the proposed Order to the State Register for a 45-day public comment period.

Given this uncompleted, mandatory legislative step, and the potential for public comment leading to further discussion and/or revision, it is unclear when a consolidated Order will take effect. However, it is likely that practices will not need be modified until at the earliest well into Summer 2010. We will continue to monitor the status of the Order and provide updates.

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As every California employer knows, wage and hour class actions in California are never-ending.  One basis for many of these class actions has been employers' alleged non-compliance with California meal and rest period requirements.  As to meal periods, the two overriding issues have been whether an employer is required to ensure non-exempt employees take their meal period or just offer such an opportunity and whether such meal period must be taken prior to completion of 5 hours of work.   This issue has significant financial ramifications to California employers as California law imposes a penalty of 1 hour of wages for each day an employee misses a meal period and for each day an employee misses a rest period.  The California Supreme Court is currently reviewing these issues in two consolidated cases and is expected to schedule oral argument in the coming months.  Once oral argument before the court occurs and the court hands down its decision within 90 days thereafter as required by California law, we hope there will be some clarity on these issues.

Robert Pattison, Managing Partner of Jackson Lewis' San Francisco office, has prepared a white paper discussing these issues in detail.  This white paper, which includes a statutory analysis and a discussion of the shifting positions of the State Labor Commissioner, can be accessed at this link. Most importantly, Jackson Lewis suggests that to ensure compliance pending this decision, California employers continue to ensure that no non-exempt employees works more than 5 hours without taking a meal period.

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While the FLSA undeniably provides a plaintiff with the right to assert a statutory claim for unpaid overtime and receive all statutory damages, whether, and under what circumstances, such a claim can be asserted under a state wage and hour law is not always so clear.  In fact, in Maryland, courts had reached conflicting conclusions as to whether such a statutory claim could be asserted in a misclassification or similar case where the claim was not based on an employer's failure to pay promised overtime (i.e., unpaid recorded overtime by a non-exempt employee).  Effective October 1, 2010, this issue is no longer in dispute in Maryland as the Maryland Wage Payment and Collection Law has been amended to include "overtime wages" within the definition of wages. 2010 Md. ALS 99.  Maryland employers must now recognize that they are potentially subject to both federal and state liability for unpaid overtime.

This enactment highlights the need to analyze all potential wage and hour strategies and liabilities under both federal and state law.

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Employers must not only ensure compliance with the federal minimum wage but also any applicable state minimum wage.  Nevada’s minimum wage is dependent on whether an employer offers qualified health insurance benefits.  Effective July 1, 2010, the Nevada minimum wage increases to $8.25 per hour for employers that do not offer qualified health insurance benefits, and to $7.25 per hour for employees that do offer such benefits.   While the $7.25 rate comports with the FLSA, it is still relevant to Nevada employers as Nevada requires payment of daily overtime if an employee works more than 8 hours in a day and has a regular rate of pay of less than 1½ times the state minimum wage. 

For further information, see Nevada Minimum Wage, Daily Overtime to Increase on July 1 at http://www.jacksonlewis.com/legalupdates/article.cfm?aid=2037. 

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Subsequent to our post of April 6, the California DLSE issued a lengthy new opinion letter regarding trainees, available here. In it, the Division upholds the uncompensated “intern” status of participants in the Year Up program, a program in which a not-for-profit places 18-24 year olds in underserved communities to develop marketable skills in the information technology arena for 6 month assignments. The Division applied the six factor conjunctive test utilized under federal law in reaching its conclusion:

1)  The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;

2)  The training is for the benefit of the trainee

3)  The trainees do not displace regular employees, but work under close observation

4)  The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded

5)  The trainees are not necessarily entitled to a job at the completion of the training period

6)  The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

See, e.g., Reich v. Parker Fire Protection Dist., 992 F.2d 1023, 1026 (10th Cir. 1993).

The opinion letter departs from the DLSE’s more expansive eleven-factor test, which included the additional factors below, observing that they “do not appear to be based upon any source statute or regulation from which they derive nor are the additional factors identified with specific case law.”

7)       Any clinical training is part of an educational curriculum;

8)       the trainees or students do not receive employee benefits;

9)       the training is general, so as to qualify the trainees or students for work in any similar business, rather than designed specifically for a job with the employer offering the program, i.e. upon completion of the program, the trainees or students must not be fully trained to work specifically for only the employer offering the program;

10)   the screening process for the program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program, and

11)   advertisements for the program are couched clearly in terms of education or training, rather than employment, although the employer may indicate that qualified graduates will be considered for employment.

While the DLSE’s willingness to abandon these supplemental factors is an encouraging sign, the difficulty of satisfying the original six-factor test remains. Few internship programs, whether offered through the not-for-profit sector or otherwise, are as fully compliant with the prevailing federal test as that offered by Year Up.

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The Supreme Court dealt a blow to New York wage-and-hour defendants sued in federal court last week, overruling established precedent requiring plaintiffs bringing New York Labor Law (“Labor Law”) class actions in federal court to waive the 25% liquidated damages “penalty” in order to proceed on a class basis.  In Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 2010 U.S. LEXIS 2929 (U.S. Mar. 31, 2010), the Supreme Court applied the age-old test from Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) and held that the state law rule requiring such a waiver is “procedural” as opposed to “substantive”, and has no application in federal court, where opt-out class actions are governed by Federal Rule of Civil Procedure 23. 

Class action Labor Law plaintiffs in federal court now may seek a 25% penalty in behalf of all class members, increasing the potential class-wide damages.  It remains a divided question, unanswered by the higher courts, as to whether any wage-and-hour plaintiff may recover the 25% penalty and the 100% liquidated damages under the FLSA for the same time period.  Compare Yu G. Ke v. Saigon Grill, Inc., 595 F. Supp. 2d 240, 261 (S.D.N.Y. 2008) with Jin v. Pac. Buffet House, Inc., 2009 U.S. Dist. LEXIS 74901 at * 24 (E.D.N.Y. Aug. 24, 2009).

Other states containing class action limitations in their state procedural codes, whose federal courts previously had deferred to the state rule, may now also be subject to class actions in federal court seeking relief under the state’s wage-and-hour laws.   However, the Court did not conclusively state that all such provisions were unenforceable but rather focused its analysis on the intent of the New York provision requiring waiver of penalties.

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In addition to (oftentimes conflicting) state and federal wage laws, employers in particular counties – including such notables as Miami-Dade County (FL), San Francisco County (CA – where the minimum wage of $9.79 is almost $2/hour higher than the state minimum wage) and New York City – must also stay abreast of wage legislation at the county level.  On March 25, New York City Council Member Gale Brewer, along with more than 30 co-sponsors, reintroduced the Earned Paid Sick Leave Act for debate and consideration. In short, the Act would require private employers in the City to provide employees a minimum number of paid sick days each year.  Washington DC and San Francisco already have such laws in place.  Further detail and discussion is available here.

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Federal law merely mandates that employers pay employees as promptly as possible.  State and local laws often require employers to pay wages no less frequently than weekly/bi-weekly/semi-monthly or monthly.  And often these requirements differ based on the type of employees.  For example, in New York, only manual workers need to be paid weekly but most other workers generally need to be paid no less frequently than semi-monthly.

Florida law does not impose any direct pay frequency requirements on employers.  However, the recently enacted Miami-Dade Wage Theft Ordinance requires private sector employers to pay all employees employed in Miami-Dade County within 14 days from the date the employee performed the work, absent a written agreement between the employer and employee extending such time period to 30 days.    Damages for violations (i.e., late payment of wages in excess of $60) are three times the back wages owed, and supervisors can be individually liable for violations.

Employers with multi-state locations must constantly stay abreast of state laws.

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The Ninth Circuit Court of Appeals recently ruled that the FLSA does not restrict employer-mandated tip-pooling arrangements when no tip credit is taken by the employer against the minimum wage obligation.  Cumbie v. Woody Woo, Inc., et al., No. 08-35718 (9th Cir. Feb. 23, 2010).  Further, the Court rejected the DOL’s regulation at 29 C.F.R. § 531.35, and held that the employees in Woody Woo had no legal right under the FLSA to retain all of their tips, except where the tip credit is taken by their employer. 

In Woody Woo, all tips received by the restaurant went into a “tip pool”, the proceeds from which were redistributed to all employees, including the kitchen staff, who (it is universally understood) are not “customarily tipped” for the purposes of the FLSA in the restaurant industry.  Importantly, all employees received an hourly wage that complied with both federal and Oregon minimum wage laws: again (it can’t be said enough), no tip credit was taken. 

Based on this decision, in states where state wage-and-hour laws track the FLSA (or states with no applicable state wage law), especially those within the Ninth Circuit, employers may want to consider tip pooling arrangement similar to the one addressed by Woody Woo. Where the FLSA is the only statute at issue, Woody Woo stands for the proposition that, provided all employees receive the federal minimum wage (currently $7.25/hour), tips can be collected and redistributed to the entire labor pool, or even potentially kept by management, without violating the FLSA. 

However, in many states, state wage and hour laws expressly  prohibit the construct Woody Woo authorizes. In New York, for example, tip pooling and tip distribution is limited to voluntary pooling among employees who “customarily” receive tips and an employer or its agent cannot retain any tips. N.Y. Labor Law § 196-d.

Finally, even in states with no state law restrictions, common law theories of contract, quantum meruit or unjust enrichment (which are part of most states’ common laws), or statutory theories under consumer protection or business practices statutes can be utilized by employees to attack tip distribution arrangements where any tips are siphoned away from employees engaged in direct service. This concern is underscored if the customer is not explicitly advised that non-service personnel may receive a portion of tips. 

Further discussion of this decision can be found on www.JacksonLewis.com by clicking here.

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The following report is sent to us from Richard I. Greenberg and Felice B. Ekelman

The New York Department of Labor’s 2009 Restaurant and Hotel Industry Wage Board has submitted its Report and Recommendations to consolidate the individual wage orders for the restaurant and hotel industries into a single Hospitality Industry Wage Order.  Commissioner of Labor M. Patricia Smith had convened the Wage Board to recommend changes in the wage and hour regulations that govern restaurant and hotel industry workers following recent modifications to wage rates, gratuities and allowances emanating from the latest increase to the New York minimum wage (see New York Employers Subject to Modified Wage Orders Effective Immediately.

If approved, the September 21, 2009 Wage Board Report and Recommendations would implement many significant changes to existing restaurant and hotel wage orders.  Some of these recommendations are summarized after the jump.

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