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

As discussed previously, the USDOL Wage and Hour Division has ceased issuing Opinion Letters in response to specific requests for guidance from the public, but rather has decided to issue more general “Administrator’s Interpretations” of its own volition on topics of the DOL’s choosing. As with the first such Interpretation, which set forth the Division’s current view that loan officers generally cannot qualify for the administrative exemption, the Division’s second Interpretation, issued on June 16, also evinces a pro-employee position and contravenes Opinion Letters issued by the Division during the Bush administration. 

Specifically, Deputy Administrator Nancy J. Leppink’s “Interpretation” significantly modifies the Division’s application of § 3(o) of the FLSA, 29 U.S.C. § 203(o), which provides that time spent “changing clothes or washing at the beginning or end of each workday” can be non-compensable pursuant to “the express terms” of a collective bargaining agreement, or “by custom or practice” thereunder. This is a vital provision for unionized employers, as pursuant to case law time spent donning and doffing protective equipment is generally compensable unless addressed by the CBA or “custom or practice”. The DOL’s revised position is that: (1) time spent donning and doffing “protective clothing” (e.g., helmets, smocks, plastic aprons, arm guards, gloves, knife holders, etc.) is a compensable activity not subject to § 3(o); and (2) changing into “ordinary clothes” (i.e. a uniform) can commence the compensable workday even if the changing time itself is not compensable.   This second conclusion has potentially expansive implications.

As to the first issue, the Interpretation specifically rejects Opinion Letters issued by the DOL in 2002 and 2007 stating that the term “clothes” typically includes such protective equipment, and thus time spent in donning and doffing them can be non-compensable. Deputy Administrator Leppink found that excluding such “protective equipment” from the definition of “clothes” is consistent with Congress’ intent to narrowly circumscribe the 3(o) exclusion. However, in reaching this conclusion, the DOL assumes that § 3(o) is an exemption to an FLSA requirement, and thus is to be construed narrowly, despite the fact that many courts (including multiple Circuit Courts) have ruled that § 3(o) is not an “exemption” but instead a definition of “hours worked”, to be construed broadly. Ms. Leppink relied on DOL Opinion Letters issued in 1997, 1998 and early 2001 stating that “protective equipment” was not clothes for purposes of 3(o). (All three of these opinion letters were issued by the Clinton administration.)   Deputy Administrator Leppink acknowledged that recent Circuit Court decisions were consistent with the 2002 and 2007 Opinion Letters and contrary to the DOL’s new position. The Interpretation attempts to distinguish those appellate court decisions, but the new position of DOL cannot be reconciled with them. 

In a second and potentially much more controversial opinion, Ms. Leppink stated that even if “changing clothes” is excluded from “hours worked” under § 3(o) and is non-compensable, it nevertheless can be a principal activity that may starts the continuous compensable workday if it is otherwise a “principal activity.” The FLSA provides that employees are entitled to compensation for all hours worked from the beginning of the first “principal activity,” until the end of the last “principal activity,” including any task which is “integral and indispensible” to those principal activities. The 2007 Opinion Letter and numerous court decisions which held that where § 3(o) excludes from “hours worked” the time cannot start the compensable work day. Ms. Leppink rejected that position and referred to the conclusions in the 2007 Opinion Letter as “conclusory.”   An argument can be made that such an interpretation renders § 3(o) meaningless and is directly contrary to the legislative history of the statute. The DOL’s new position as set forth in the Interpretation, is that any time spent following clothes changing, including time spent walking or commuting to an employee’s actual work station, is now compensable regardless of whether the employer is unionized or § 3(o) is applicable, unless the employer can demonstrate such changing time is not integral and indispensable.    

All employers should carefully review their practices regarding whether any mandatory attire worn by employees constitutes a “uniform”, and whether changing time and/or time immediately following changing time is compensable in light of this Interpretation due to the expansive nature of its language. Unionized employers who have negotiated time donning and doffing protective clothing as non-compensable must carefully consider whether to continue such a practice.   An influx of FLSA claims, especially against unionized employers who have availed themselves of § 3(o), is likely and it will be up to the courts to decide whether to adopt the DOL’s modified positions.

New notice requirements regarding tip credit.

An employer would be prohibited from taking a tip credit against the minimum wage for a customarily tipped employee unless the employer informs such employees in writing that such a credit will be applied.  Compliance with this requirement will be presumed if an employer provides to an employee a written copy of the following Wage Board form notice in the employee’s native language and the employee signs such notice:

Food Service Worker Notice: The current minimum wage is $7.25. You will be paid at a lower wage of ______ per hour because you receive tips. The legal minimum you can be paid is $4.65 per hour effective July 24, 2009, $4.75 per hour effective January 1, 2010, and $5.00 per hour effective January 1, 2011. If you do not earn an average of at least $7.25 per hour after tips are included over the course of a week, the law requires us to give you an additional wage that week to make up for the difference.

Service Worker Notice: The current minimum wage is $7.25. You will be paid at a lower wage of ______ per hour because you receive tips. The legal minimum you can be paid is $5.65 per hour effective July 24, 2009. If you do not earn an average of at least $7.25 per hour after tips are included over the course of a week, the law requires us to give you an additional wage that week to make up for the difference.

Mandatory tip pooling.

An employer would be permitted to require tip pooling among customarily tipped employees as long as the employer advises them in writing of the tip pooling system, does not set the percentages for pool participants and maintains all records of the tip pool.  This would be a significant change from the current law prohibiting mandatory tip pooling.  Further, included in the non-exhaustive list of customarily tipped employees are counterpersons who serve customers, captains who serve customers and food runners.  Maitre d’s are now identified as employees who are not engaged in direct service and who may not participate in a tip pool.  The proposed regulations also specify that if a tip pool includes individuals not regularly engaged in service, the tip credit may not be taken.

Spread of hours – set-off eliminated.

This existing requirement mandates that industry employers pay employees for an additional hour at the minimum wage for any workday in excess of 10 hours.  Currently, however, any wages paid in excess of the minimum wage can be set off.  Under the proposed Order, this set-off is eliminated.   Regardless of the base wage paid, an additionalhour of pay at the basic minimum hourly wage rate is due for any day in which such employee’s workday is more than 10 hours.  This means that every non-exempt employee engaged in the industry must be paid an additional hour at the minimum wage for each day in which that employee’s workday is longer than 10 hours.  The spread of hours payment would now be required for more highly compensated kitchen staff, and must be included in the calculation of overtime.

Service charges or charges purported to be gratuities must be called “administrative fees”.

The industry has been struggling with the impact of the New York Court of Appeals decision in Samiento v. World Yacht as to what is required to ensure a reasonable consumer understands that a service charge is not a gratuity disbursed exclusively to service staff.  The proposed Order provides that an employer could meet such standard by including the following notice in a contract or agreement with the customer or on any menu and bill listing prices: “This establishment charges an administrative fee to offset costs associated with the administration of your event. This administrative fee is not a gratuity and is not being directly distributed in its entirety to the employees who service your event.”

“Wash and wear” exemption from uniform maintenance pay.

Currently, employers are required to pay a weekly laundry allowance to employees if they are responsible for maintaining their uniforms, even if the uniform does not require dry-cleaning.  While a set-off applies to the extent the employee is paid wages (excluding tips) in excess of the minimum wage, this is a significant financial obligation for industry employers, because most service employees are paid at the tip credit minimum wage.   Under the proposed Order, employers would not be required to reimburse employees for uniform maintenance costs where uniforms: (a) are made of “wash and wear” materials, (b) may be routinely washed and dried with other personal garments, and (c) do not require ironing or any other special treatment, such as dry cleaning, daily washing, or commercial laundering.  This exemption would not apply where an employee is required to wash his uniform daily and the employer does not provide a sufficient number of uniforms for the employee or reimburse the employee for the purchase of sufficient uniforms consistent with the average number of days generally worked by the employee.

It is important to note that even if a uniform cleaning allowance is inapplicable, the Wage Order also prohibits an employer from requiring an employee to purchase any “uniform.”  While the Wage Order reiterates that ordinary basic street clothing selected by the employee is not a “uniform,” it specifically excludes “any specific type and style of clothing prescribed by the employer to be worn at work (e.g., where a restaurant or hotel requires a tuxedo or a skirt and blouse or jacket of a specific or distinctive style, color, or quality, such clothing would be considered uniforms.)”  Employers who mandate specific types of clothing from specific shops would be required to pay the full purchase cost of such items.

Wage rates.

The proposed Wage Order would increase the minimum cash wage for a customarily tipped food service worker from $4.65 to $4.75 on January 1, 2010 and to $5.00 on January 1, 2011.  Similarly, the proposed Wage Order would increase the minimum cash wage for other customarily tipped employees from $4.90 to $5.65 on January 1, 2010.

Overtime calculation.

The proposed Wage Order provides that if an employee is not informed in writing of his or her regular and overtime rates of pay, overtime is calculated by dividing the employee’s total weekly earnings by the lesser of 40 hours or the hours actually worked.  In practice, this means that if an employee is misclassified as exempt and paid a salary, an employer will not be able to divide total earnings for the week by hours worked and just pay half-time for overtime hours.

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The proposals identified above are not all of the recommendations made by the Wage Board. Industry employers should review carefully other changes contemplated by the Report and Recommendations.

The Commissioner of Labor will now file the proposed Wage Order and the Board’s report and publish them in at least ten newspapers of general circulation in the state.  Objections to the Wage Board’s Report and Recommendations must be filed with the Commissioner within 15 days of such publication. Within 45 days of the filing of the report, the Commissioner of Labor must, through publication, adopt, modify, or reject the proposed Wage Order.  The Order will become effective within 30 days after it is published. The Commissioner also may remand the matter to the Wage Board for further discussion.