DOL Adopts Portions of Tipped Regulations Final Rule, Proposes Further Delay of Other Portions

While deciding to make effective some portions of the Tipped Regulations Final Rule published in the final weeks of the former administration, the U.S. Department of Labor (DOL) has proposed further delay and consideration of the most controversial provisions of the Rule, including the elimination of the “80/20 Rule” that purports to limit the percentage of time (i.e., 20%) a tipped worker could spend performing allegedly non-tipped duties while still allowing the employer to take a tip credit.

The Tipped Regulations Final Rule was first published in December 2020 but in February 2021, the DOL issued a rule to delay its effective date until April 30, 2021. The DOL has now decided that, upon expiration of the April 30th extension, some provisions of the Final Rule will become effective, including the prohibition on employers – including managers and supervisors – keeping tips received by workers, regardless of whether the employer takes a tip credit. Notably, at least for now the DOL is also retaining the portion of the Final Rule which defines who constitutes a “manager or supervisor” for purposes of this tip retention prohibition, even though that definition was not part of the 2018 law passed by Congress that established the prohibition on tip retention by employers. However, the Agency is seeking further public comment on whether to further revise the “managers or supervisors” provisions “to better understand those who also engage in tipped work.” That 60-day comment period will begin on March 25, 2021.

The DOL also is also making effective as of April 30, 2021, the provisions of the Final Rule that allow employers not taking a tip credit to include traditionally non-tipped workers, such as cooks and dishwashers, in tip-sharing agreements (i.e., tip pools), subject to the prohibition against “managers or supervisors” retaining such tips.  DOL is also keeping the provisions of the Rule addressing the recordkeeping requirements related to tipped workers.

However, the DOL expressed its intent to “withdraw and re-propose” portions of the Final Rule that address the elimination of the so-called 80/20 Rule and other aspects of the Rule applicable to workers who perform both tipped and non-tipped (i.e. “dual”) jobs. DOL also expressed its intention to withdraw the provisions in the Rule addressing the assessment of civil money penalties. As to these provisions, the DOL is proposing a significantly longer extension – until November 2021 – “to evaluate additional information about the questions of law, policy, and fact” raised by the provisions. Because the current proposal only addresses whether the extension should occur, and not whether or how the Rule itself might be revised, the Agency is allowing only a brief, 20-day public comment period (also beginning on March 25th) on the proposed 8-month extension.

Jackson Lewis will continue to monitor and report any further developments concerning the Tipped Regulation Final Rule. In the meantime, if you have any questions about the Final Rule, tip laws, or any other wage and hour issue, please consult a Jackson Lewis attorney.

A Few Out-of-State Telephone Calls Per Week May Be Sufficient to Establish FLSA Coverage, 11th Circuit Holds

An administrative assistant, who regularly made three to five telephone calls out of state per week to her employer’s clients and vendors, may have sufficiently engaged in interstate commerce to establish “individual coverage” under the Fair Labor Standards Act (FLSA), the U.S. Court of Appeals for the Eleventh Circuit concluded. St. Elien v. All County Environmental Servs., 2021 U.S. App. LEXIS 7935 (11th Cir. Mar. 18, 2021). The Eleventh Circuit has jurisdiction over Alabama, Georgia, and Mississippi.

With respect to an employer’s overtime pay obligation, the FLSA generally provides that

no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.

29 U.S.C. § 207(a)(1). Typically, whether an employee is covered under the FLSA is not in dispute, as the FLSA broadly covers not only individuals who are engaged in commerce or the production of goods for commerce (“individual coverage”) but also those who may not satisfy this standard but who are employed by a covered employer — an “enterprise engaged in commerce or the production of goods for commerce” (“enterprise coverage”). Occasionally, however, coverage disputes do arise, particularly when a claim involves a small company that seems to operate only within one state.

Such was the case with Wendy St. Elien, who worked as an administrative assistant for All County Environmental Services, a small pest control company in Broward County, Florida. St. Elien sued All County and its owners, claiming they had violated the FLSA by failing to pay her overtime. The primary issue at trial was whether the company had sufficient interstate contacts to bring St. Elien within the FLSA’s individual coverage clause. To establish such coverage, St. Elien asserted that she called the company’s out-of-state customers, primarily to obtain payment information from, or permission to access the property of, “snowbird” customers, that is, those who lived out of state most of the year but spent their winters in Florida. St. Elien also telephoned out-of-state vendors to discuss billings and payments regarding local purchases made by All County. St. Elien made regularly made these types of telephone calls three to five times per week.

Two days into the trial, the district court granted judgment as a matter of law in favor of All County, finding that the company was not covered by the FLSA. The trial court premised its decision primarily on Thorne v. All Restoration Services, Inc., 448 F.3d 1264 (11th Cir. 2006), which held that for an employee to be “engaged in commerce,” he “must be directly participating in the actual movement of persons or things in interstate commerce by (i) working for an instrumentality of interstate commerce, e.g., transportation or communication industry employees, or by (ii) regularly using the instrumentalities of interstate commerce in his work, e.g., regular and recurrent use of interstate telephone, telegraph, mails, or travel.” Id. at 1266. The trial court concluded that St. Elien could not satisfy either prong of this standard and dismissed the case. St Elien appealed and the Eleventh Circuit reversed.

In reversing and remanding the case (presumably for a retrial), the Court of Appeals noted that the district court had reached an improper conclusion when applying the second method recognized in Thorne by which individual FLSA coverage may be established, that is, when an employee regularly uses “interstate telephone, telegraph, mails, or travel.” Contrary to the trial court’s determination, a reasonable jury could conclude that St. Elien’s weekly telephone calls to clients and vendors were sufficient to establish individual FLSA coverage, the Eleventh Circuit found. The Court of Appeals noted that several Department of Labor (DOL) regulations supported this conclusion, including  29 C.F.R. § 779.103, which states in part that “employees engaged in interstate or foreign commerce include . . . workers who regularly use the mails, telephone or telegraph for interstate communication” and 29 C.F.R. § 776.23(d)(2), which provides in part that “employees who regularly use instrumentalities of commerce, such as the telephone, telegraph and mails for interstate communication are within the scope of the [FLSA].”

If you have any questions about FLSA coverage or any other wage and hour issue, please consult a Jackson Lewis attorney.

Wisconsin Wage and Hour Law: Rounding Employee Time

Wage and hour claims, particularly those asserting class or collective violations, comprise a significant percentage of employment law claims across the country, and Wisconsin is no exception. Improper rounding and other timecard policies frequently are the culprit in such claims against employers.

Wage and hour lawsuits, whether individual or class/collective action in nature, typically are brought in Wisconsin under the federal Fair Labor Standards Act (“FLSA”), sometimes accompanied by parallel claims under state law. Such lawsuits can be not only financially draining on a company, but also often require a substantial devotion of time by company management, human resources personnel, and other employees.

What is “Rounding”?

“Rounding” refers to adjusting an employee’s clock-in or clock-out time to one more easily calculated, as opposed to using the exact time the employee clocked in or out. For example, the employee’s start or stop time would be rounded to the nearest five-minute increment, nearest one-tenth of an hour, or nearest quarter of an hour. This practice is particularly common among third-party payroll service and time entry providers or time entry program, so, an employer may be rounding without even knowing it.

The FLSA explicitly approves of the practice of rounding “provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.”  29 CFR 785.48(b). Federal and state guidance generally provides that a policy that rounds up or down to the nearest seven minutes will be considered compliant. For example, a policy that provides for an 8:07 a.m. clock-in to be rounded back to 8:00 a.m. and an 8:08 a.m. clock-in to be rounded forward to 8:15 a.m. would not result in the employee being undercompensated over the long term. Conversely, a policy that always rounds in the employer’s favor and to the employee’s detriment would violate the law.

While Wisconsin law does not explicitly address rounding, the state’s wage and hour laws typically mirror the FLSA. To that end, guidance from the Wisconsin Department of Workforce Development (DWD) provides that rounding is permissible as long as it doesn’t result in an employee performing uncompensated work in the long run.

The Potential Risks of Non-Compliance

Both the FLSA and Wisconsin law provide for statutory damages, including unpaid wages, overtime, and liquidated double damages for wage and hour claims. In addition, prevailing plaintiffs typically will be awarded attorney’s fees. While an individual employee’s rounding or other time clock-based claim may  be for a relatively small (“de minimis”) amount, those damages and attorney’s fees can escalate quickly, and obviously become astronomical when class or collective claims are involved. For example, while an individual rounding claim over a two-year period may amount only to $100 in unpaid overtime, when that claim is doubled for liquidated damages and then applied to a nationwide company of 5,000 employees, suddenly the employer is facing potential damages of a million dollars plus attorney’s fees, which themselves may amount to several hundred thousand dollars more.

The Takeaway

Employers who have implemented, either directly or through third-party service providers, a system of rounding time in their payroll policies, should evaluate that system carefully to ensure that it is being equitably applied to employees and is not benefitting only the company. The mere presence alone of a rounding system may draw unwanted attention from plaintiff’s attorneys, as a single employee is all that is needed to initiate a potential class or collective action.

Jonathan Sacks is an Associate in the Milwaukee, Wisconsin office of Jackson Lewis. If you have any questions about time clock rounding or any other wage and hour issue, please contact Jonathan or another Jackson Lewis attorney.

Biden DOL Proposes Withdrawal of Former Administration’s Joint Employer and Independent Contractor Final Rules

On March 11, 2021, the U.S. Department of Labor (DOL) issued Notices of Proposed Rulemaking (NPRMs) to withdraw the Joint Employer and Independent Contractor Final Rules published during the previous administration.

The Joint Employer Final Rule

The Joint Employer Final Rule went into effect in January 2020 and addressed the standard for determining whether an employee may be deemed to be jointly employed by two or more employers. The Rule instructed that joint employer liability is guided by four primary, albeit non-exclusive, factors derived from the decision of the U.S. Court of Appeals for the Ninth Circuit in Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983). Those factors are whether, and to what extent, the proposed employer (1) hires or fires the employee; (2) supervises and controls the employee’s work schedules or conditions of employment; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records. Notably, the Final Rule emphasized that actual, rather than mere theoretical, exercise of control is required to establish a joint employment relationship. A more detailed discussion of the Final Rule can be found here: Department of Labor Issues Final Rule on FLSA’s Joint Employer Standard.

Although the Joint Employer Final Rule was designated as merely interpretive, rather than controlling, by the DOL at the time of its publication, shortly thereafter attorneys general for 18 states filed suit in federal court in New York to have the Rule vacated. The lawsuit claims that the Rule was promulgated in violation of the Administrative Procedure Act and that it will harm their states in multiple ways, including by lowering wages, decreasing compliance with worker protection laws, reducing their tax revenue, and increasing the administrative and enforcement costs for their comparable state law equivalents to the FLSA. That suit remains pending and the DOL cited it among the reasons for withdrawing the Rule and reconsidering its position, as well as the fact that a split exists among the federal circuit courts of appeal as to the proper joint employer analysis to apply.

The Independent Contractor Final Rule

The Independent Contractor Rule was published in January 2021 and currently is scheduled to go into effect in May 2021. That Final Rule provides that “an individual is an independent contractor, as distinguished from an ‘employee’ under the Act, if the individual is, as a matter of economic reality, in business for him or herself.” Under the Rule, the “economic dependence” inquiry focuses on five, non-exclusive factors. Two of the factors are considered primary: the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss. The remaining three factors come into play if the first two factors are inconclusive: the amount of skilled required, the “degree of permanence” of the parties’ work relationship, and whether the putative employee’s work is “part of an integrated unit of production.” Similar to the standard set forth in the Joint Employer Final Rule, the actual practices of the working relationship, and not what the parties’ contract may theoretically allow, is emphasized. A more detailed discussion of the Independent Contractor Final Rule can be found here: Department of Labor Issues Final Independent Contractor Rule.

In proposing to withdraw the Independent Contractor Final Rule, the DOL asserts “that, upon further review and consideration of the Rule, the Department questions whether the Rule is fully aligned with the FLSA’s text and purpose or case law describing and applying the economic realities test.”

What Happens Next

The DOL’s proposed withdrawals of these Final Rules are open for public comment until April 12, 2021, after which the Agency likely will either issue new Final Rules with revised standards or will simply withdraw the current Rules, resulting in a return to the standards existing before those Rules were in effect. Importantly, regardless of the positions ultimately adopted by the DOL, more stringent or otherwise different standards may apply to parallel wage and hour claims under state law.

Jackson Lewis will continue to monitor and report further developments concerning these Final Rules. In the meantime, if you have any questions about this development or any other wage and hour issue, please consult a Jackson Lewis attorney.

Full Fifth Circuit to Hear FLSA “Day Rate” Case, Vacating Panel Opinion

In April 2020, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held that paying an employee a set amount for each day he works (i.e. on a “day rate” basis) does not satisfy the “salary basis” component required to qualify as overtime-exempt under the Fair Labor Standards Act (FLSA), regardless of whether the employee earns the weekly minimum salary (currently, $684) required for the exemption. The panel revised its opinion in December 2020, but its holding remained the same. That decision has now been vacated and the case will be reheard by the full (en banc) Fifth Circuit. Hewitt v. Helix Energy Solutions Group, Inc., No. 19-20023 (5th Cir. Mar. 9, 2021). The Fifth Circuit includes the federal courts in Texas, Mississippi, and Louisiana.

In Hewitt, the plaintiff worked on an offshore oil rig for periods of about a month at a time, known as “hitches.” The company paid the plaintiff a set amount for each day that he worked, and he received bi-weekly paychecks. Despite earning over $200,000 during each of the two years he was employed, and admittedly being paid at least $455.00 for each week in which he worked (the minimum salary required for exempt status during the time of his employment), the plaintiff filed suit, claiming he was entitled to overtime for each week he worked in excess of 40 hours.

The relevant U.S. Department of Labor (DOL) regulation provides that

an employee will be considered to be paid on a ‘salary basis’ within the meaning of this part if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.

29 C.F.R. § 541.602(a). The regulation further provides that “an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or  hours worked.” Id. § 541.602(a)(1).

Because the plaintiff was paid – albeit handsomely – only for the days he worked, he did not receive a “predetermined amount . . . without regard to the number of days or hours worked.” Therefore, concluded the panel, the “salary basis” requirement was not met. In so concluding, the panel aligned itself with the Sixth Circuit Court of Appeals, which had similarly ruled in Hughes v. Gulf Interstate Field Services, Inc., 878 F.3d 183 (6th Cir. 2017).

In its original opinion, the panel did not address the potential applicability of Section 541.604(b) of the regulations, which provides in part that

an exempt employee’s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.

In its revised opinion, however, the majority opinion pointed out that the employer might have been able to avoid the result had it simply guaranteed the plaintiff a salary of at least $455 per week (the minimum requirement at the time of plaintiff’s employment), but did not do so and did not even argue that the “reasonable relationship” provision applied.

Given that “day rate” pay is a common practice in the oil industry in the Gulf of Mexico, the Fifth Circuit’s ultimate decision on this issue is particularly important, and whether the full court will uphold the panel’s conclusions or reach a different result remains to be seen. In the meantime, if you have any questions about this decision, exemptions under the FLSA, or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

As Expected, DOL Delays Independent Contractor Final Rule

On March 2, 2021, the U.S. Department of Labor (DOL) formally delayed the effective date of the Independent Contractor Final Rule, from March 8, 2021 to May 7, 2021. The Final Rule, published during the last two weeks of the prior administration, provides that “an individual is an independent contractor, as distinguished from an ‘employee’ under the Act, if the individual is, as a matter of economic reality, in business for him or herself.” Under the Rule, the “economic dependence” inquiry focuses on five, non-exclusive factors, two of which are considered primary – the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss – and three additional factors that come into play if the first two factors are inconclusive: the amount of skilled required, the “degree of permanence” of the parties’ work relationship, and whether the putative employee’s work is “part of an integrated unit of production.” The actual practices of the working relationship, and not what the parties’ contract may theoretically allow, is emphasized.

Although only a minority of the more than 1,500 comments supported the proposed delay, the DOL concluded that “allowing more time for consideration of the [] Rule is reasonable given the significant and complex issues the [] Rule raises, including whether the [] Rule is consistent with the statutory intent to broadly cover workers as employees as well as the costs and benefits of the rule, including its effect on workers.” Ultimately, the Final Rule as currently constituted may be revised to make it more difficult to classify workers as independent contractors.

Jackson Lewis will continue to monitor and report any further developments concerning both this Final Rule and the Tip Regulations Final Rule that was delayed just last week. In the meantime, if you have any questions about these Final Rules or any other wage and hour issue, please consult a Jackson Lewis attorney.

DOL Delays Tip Regulations Final Rule, Independent Contractor Final Rule Likely Next

As expected, the U.S. Department of Labor (DOL) has formally delayed the effective date of the Tip Regulations Final Rule, from March 1, 2021 to April 30, 2021. The Tip Regulations Final Rule, issued in late December 2020, implemented a 2018 amendment to the FLSA that permits tipped employees, such as restaurant servers, to pool tips with non-tipped workers, such as cooks and dishwashers, so long as the employer does not take a “tip credit,” while prohibiting employers, including managers and supervisors, from keeping tips received by employees under any circumstances. The Final Rule also codified, with minor changes, the DOL’s elimination of the so-called “20%” or “80/20” Rule, limiting the percentage of time (i.e., 20%) a tipped worker could spend performing allegedly non-tipped duties and still take a tip credit. Because the change to the law permitting tipped and non-tipped workers to share tips (when a tip credit is not taken) is set forth in an amendment to the FLSA, no regulation can change that rule. But the Final Rule also provides details of who qualifies as a “supervisor” or “manager” and thus is excluded from receiving tips, issues not specifically addressed in the statute.

The DOL received only 19 comments regarding its proposed delay of the effective date of the Final Rule and agreed with the vast majority of those comments supporting the delay. The DOL noted that shortly after the Final Rule was published, nine attorneys general filed a lawsuit in a Pennsylvania federal court seeking to upend the Rule, and the delay would provide time for the Agency to evaluate that complaint. The lawsuit focuses primarily on the 80/20 Rule, asserting that the DOL’s elimination of that Rule was arbitrary and thus violates the Administrative Procedures Act because, among other things, the DOL did not adequately identify and weigh the costs and benefits of the Rule’s elimination.

At about the same time as it sought to delay the Tip Regulations Final Rule, the DOL also proposed delaying the effective date of the Independent Contractor Final Rule, published in the waning days of the previous administration. We anticipate that this delay is forthcoming soon.

Jackson Lewis will continue to monitor and report any further developments concerning these Final Rules. In the meantime, if you have any questions about these Final Rules or any other wage and hour issue, please consult a Jackson Lewis attorney.

DOL Withdraws Opinion Letters Regarding Sleeper Berth Time, Independent Contractor Status

Continuing its early pattern of reversing positions adopted during the former administration, on February 19, 2021 the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) withdrew two more Opinion Letters. The first, Opinion Letter FLSA2019-6, addressed whether service providers for a virtual market company were properly classified as independent contractors or in fact were employees. Given the DOL’s recent proposal to delay the effective date of the Independent Contractor Final Rule that was published in early January 2021, with the likely intent of ultimately issuing a new rule, the Agency’s withdrawal of FLSA2019-6 was not surprising.

Perhaps more surprising was the withdrawal of Opinion Letter FLSA2019-10, issued in July 2019. In that Opinion Letter, the DOL concluded that if a truck driver, or driver’s assistant or helper, is completely relieved of duty and is provided with adequate sleeping facilities (including the truck’s sleeping berth), the individual is not “working while riding” and therefore is not entitled to compensation for that time – regardless of how many hours a particular trip lasts or how much duty-free time is provided on that trip. Despite its acknowledgment when issuing FLSA2019-10 that its prior guidance was “unnecessarily burdensome” on employers and that the position taken in FLSA2019-10 promoted a more straightforward reading of the applicable regulations, the DOL nevertheless has now readopted its former position, that only up to 8 hours of sleeping time may be excluded in a trip 24 hours or longer, and no sleeping time may be excluded for trips under 24 hours.

If you have any questions about this development, or any wage and hour or  issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.

The Proposed Federal Covid-19 Relief Bill Includes a $15 Minimum Wage Hike and Elimination of the Tip Credit. Will Those Provisions Survive?

Making good on President Biden’s campaign promise, the House of Representatives has included in its $1.9 trillion Covid-19 relief bill, known as the “American Rescue Plan Act of 2021,” revisions to the Fair Labor Standards Act (FLSA) that would increase the federal minimum wage to $15 per hour by 2025. The current federal minimum wage is $7.25 and has not increased since 2009. Under the proposal, the minimum wage would almost immediately increase to $9.50 per hour, then would increase annually by $1.50 per hour until reaching $15 in 2025. Each year thereafter, any further increase would be based on the median hourly wage of all employees for the prior year.

In addition, under the bill the $2.13 minimum wage, known as the “tip credit,” that employers currently may pay to employees who customarily and regularly receive at least $30 per month in tips, would be eliminated by 2025, requiring employers by then to pay both tipped and non-tipped employees the same. In a similar, stepped fashion to the standard minimum wage, the tip credit initially would increase to $4.95 per hour and then would annually increase $2.00 per hour until it matched the standard minimum wage.

The bill also would eventually eliminate an FLSA provision that currently allows employers to pay a subminimum wage to employees under the age of 20 who are within the first 90 days of their employment, as well as a provision that allows an employer to obtain a certificate from the Secretary of Labor to pay a subminimum wage to its employees with physical or mental disabilities.

Whether these minimum wage provisions will remain in the Covid-19 relief belief is questionable. The non-partisan Congressional Budget Office (CBO) estimates that, by 2025, a $15 minimum wage would increase pay for 17 million people and pull 900,000 out of poverty. But the CBO also estimates that about 1.4 million jobs would be lost, as employers eliminate jobs to account for their higher labor costs. Some economists disagree with the CBO’s latter conclusion, pointing to studies that show minimum wage increases at the state level over the past several years have not resulted in significant job losses, if any at all. How Economists See Biden’s $15 Wage Proposal.

Nevertheless, the minimum wage provisions may not be allowed to remain in the pandemic relief bill if, as anticipated, Congressional Democrats seek to pass it without significant Republican support, using the procedure known as reconciliation. While the Senate may use reconciliation to pass bills with only a simple 51-vote majority versus the 60-vote supermajority threshold required to defeat a filibuster, there are limits on the types of laws that may be passed using reconciliation – and the minimum wage provisions may be deemed outside of those limits. Specifically, the fact that the minimum wage provisions are merely incidental to the primary purpose of the relief bill, as well as the fact that the minimum wage provisions are not within the jurisdiction of the Budget Committee proposing the bill, likely would cause some senators to object to the provisions, which would then require a 60-vote supermajority to overcome. As a result, President Biden has acknowledged that due to the limits of reconciliation, his proposed minimum wage hike is unlikely to ultimately remain in the relief bill and would instead have to be addressed separately. Biden Doesn’t Think $15 Minimum Wage Hike Will Survive COVID-19 Relief Bill.

Jackson Lewis will continue to monitor and report any developments concerning the minimum wage proposal. If you have any questions about this or any wage and hour or  issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.

DOL Seeks to Delay Tip Regulations, Independent Contractor Final Rules

One day after President Biden entered office, the White House issued a memorandum directing all agencies to review, and consider delaying, any rules that had been issued by the former administration but that were not yet effective. Following that directive, the U.S. Department of Labor (DOL) has proposed delaying the effective dates of the recently-issued Tip Regulations and Independent Contractor Final Rules. Under the proposal, the effective dates of these Final Rules would be postponed 60 days, from March 1, 2021 to April 30, 2021 for the Tip Regulations Final Rule and from March 8, 2021 to May 7, 2021 for the Independent Contractor Final Rule.

To effectuate these delays, the DOL is required to formally provide a public comment period, which it has now done. These comment periods will expire on February 17, 2021 and February 24, 2021 for the Tip Regulations Final Rule and the Independent Contractor Final Rule, respectively.

The Tip Regulations Final Rule, issued in late December 2020, implements a 2018 amendment to the FLSA that permits tipped employees, such as restaurant servers, to pool tips with non-tipped workers, such as cooks and dishwashers, so long as the employer does not take a “tip credit,” while prohibiting employers, including managers and supervisors, from keeping tips received by employees under any circumstances. Because these aspects of the Final Rule implement statutory amendments to the FLSA, no regulatory change may alter those provisions. However, the Final Rule also clarified who is a considered to be a “manager” or “supervisor,” and thus ineligible to participate in sharing of tips, and further regulatory changes may alter those nuances. Most notably, the Final Rule also codifies, with minor changes, the DOL’s previous guidance eliminating the so-called “20%” or “80/20” Rule, limiting the percentage of time (i.e., 20%) a tipped worker could spend performing allegedly non-tipped duties while still allowing the employer to take a tip credit. Instead, under the Final Rule, if tipped employees perform duties related to their tipped occupation, either contemporaneously or for a reasonable period before or after their tipped duties, an employer is permitted to pay them using a tip credit, regardless of whether those duties directly generate a tip. To read about the Tip Regulations Final Rule in greater detail, go to Labor Department Issues Final Rule on Tip Pooling Amendments, Elimination of ‘20%’ Dual Jobs Rule. The DOL may attempt to eliminate this regulation and revert to the DOL’s former application of the so-called “20% Rule.”

The Independent Contractor Final Rule, which was issued less than two weeks before the end of the Trump administration in January 2021, provides that “an individual is an independent contractor, as distinguished from an ‘employee’ under the Act, if the individual is, as a matter of economic reality, in business for him or herself.” Under the Final Rule, the “economic dependence” inquiry focuses on five, non-exclusive factors, two of which are considered primary – the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss – and three additional factors that come into play if the first two factors are inconclusive: the amount of skilled required, the “degree of permanence” of the parties’ work relationship, and whether the putative employee’s work is “part of an integrated unit of production.” Under the Final Rule, the actual practices of the working relationship, and not what the parties’ contract may theoretically allow, is emphasized. To read about this Final Rule in more detail, go to Department of Labor Issues Final Independent Contractor Rule.

Ultimately, the temporary delay of these Final Rules may result in their permanent withdrawal through issuance of new final rules. Jackson Lewis will continue to monitor and report any developments in this respect. In the meantime, if you have any questions about these Final Rules or any other wage and hour issue, please consult a Jackson Lewis attorney.

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