Taco Bell’s Prohibition on Employees “Heading for the Border” With Discounted Meals Does Not Violate California Meal Break Law, Ninth Circuit Rules

Affirming a district court order dismissing a putative class action, the Ninth Circuit Court of Appeals has held that Taco Bell’s policy of requiring employees to eat employer-discounted meals in the restaurant does not convert the meal period into “on duty” time such that the meal period becomes compensable under California law. Rodriguez v. Taco Bell Corporation, 2018 U.S. App. LEXIS 19825 (9th Cir. July 18, 2018).

California Wage Order 5-2001 requires employers to relieve employees of all duties during required meal periods. During the relevant period, Taco Bell offered 30-minute meal breaks that complied with California’s requirements but also offered, on a strictly voluntary basis, discounted meals to employees, provided the meals were eaten in the restaurant. The stated purpose of this in-store consumption policy was to preclude employees from using the employee discount to purchase meals for relatives, friends, or others, which Taco Bell considered a form of theft. The plaintiff, who worked for Taco Bell for about seven years, filed suit under several state wage statutes, claiming that the “on-premises discount policy subjected the employees to sufficient employer control to render the time employees spent consuming the meals as working time under California law.” If the meal consumption time did qualify as work time, employees would be owed an additional hour of pay at their regular rate of for each workday that a “duty free” meal was not provided.

Agreeing with the district court, the Ninth Circuit concluded that under the discounted meal policy, Taco Bell’s policy properly relieves employees of all duties and relinquishes control over their activities because purchase of such meals is “entirely voluntary.” If an employee prefers to leave the premises and eat elsewhere, he or she may purchase a meal at full price, bring food from home, dine at a different establishment or choose any other option for the meal break. The plaintiff presented no evidence that employees were pressured to purchase the discounted meals, to perform job activities while consuming the discounted meals or otherwise were precluded from doing whatever they wished during their breaks (provided, of course, that they did not interfere with the restaurant’s operations). The cases cited by the plaintiff in support of her arguments were distinguishable, held the Court of Appeals, because in each one the employees were required to participate in the activity in question (e.g. riding employer-provided buses to the work site). In short, held the Court, “[t]he employees are not on call and are free to use the time in any way they wish.” Therefore, the time spent consuming a meal under the employee discount policy does not constitute work time and the case was properly dismissed.

Please contact the Jackson Lewis attorney with whom you work with questions about the decision or any other wage and hour issues you may have.

Restaurant Industry Association Files Suit Challenging “80/20” Rule

The Restaurant Law Center, a public policy affiliate of the National Restaurant Association, has filed suit against the Department of Labor and its Wage and Hour Division, seeking to declare unlawful the DOL’s 2012 revision to its Field Operations Handbook, purporting to establish, through sub-regulatory guidance, the “80/20” tip credit rule or “20% Rule.” Restaurant Law Center v. U.S. Dept. of Labor, No. 18-cv-567 (W.D. Tex. July 6, 2018). The 80/20 Rule seeks to limit the availability of the tip credit when tipped employees spend more than 20% of their time performing allegedly non-tip generating duties. One of several problems in applying such a rule is identifying what is, and what is not, an allegedly “tip-generating” duty.

The lawsuit alleges that the DOL improperly created the 80/20 Rule by surreptitiously adding it to the Field Operations Handbook used by its agents, rather than abiding by the rulemaking process, thereby violating the Administrative Procedure Act. Noting that the Rule “spawned a nationwide wave of collective and class actions against the restaurant industry,” the lawsuit seeks to have it declared invalid and unenforceable. Last year, a panel of the Ninth Circuit Court of Appeals held as much in Marsh v. J. Alexander’s, LLC, 869 F.3d 1108 (9th Cir. 2017), noting that the purported guidance had become a “de facto [] new regulation masquerading as an interpretation.” However, the Ninth Circuit subsequently granted a rehearing before the full Court of Appeals. The case was argued in March 2018 before the full panel but the Court has yet to issue its opinion. In 2011, the Eighth Circuit deferred to the Rule. Fast v. Applebee’s International, Inc., 638 F.3d 872 (8th Cir. 2011). If the full Ninth Circuit affirms its panel decision, or the Fifth Circuit ultimately holds the 80/20 Rule invalid on an appeal of the just-filed lawsuit, a circuit court split would arise, with the case on a path to the Supreme Court. This is one to watch.

Jackson Lewis will continue to monitor this case for future developments. In the meantime, if you have any questions about this or any other wage and hour issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.

Class and Collective Action Waivers in Arbitration Agreements Do Not Violate the NLRA, Supreme Court Rules

In a closely watched – and closely decided – ruling, today the Supreme Court upheld the enforceability of class and collective action waivers in employment arbitration agreements.  Epic Systems Corp. v. Lewis, 137 S. Ct. 809, 2018 U.S. LEXIS 3086 (May 21, 2018) (consolidated cases). The Court’s decision resolves the circuit split on whether such waivers violate the National Labor Relations Act (NLRA).  In a 5-4 decision authored by Justice Neil Gorsuch, with Justice Kennedy reprising his oft-recurring role as the swing vote, the Court held that arbitration agreement provisions requiring only individualized proceedings are enforceable and neither the Federal Arbitration Act (FAA) nor the NLRA dictate otherwise.

Jackson Lewis was counsel in one of the consolidated cases, where it successfully argued to the Fifth Circuit Court of Appeals that such waiver provisions are enforceable, a ruling that was affirmed by the Supreme Court today.  Conversely, the decisions of two other circuit courts (the Seventh and the Ninth), which recently had deemed the waiver provisions unenforceable, were reversed. Today’s ruling will be of particular benefit to employers with respect to wage and hour claims, where collective action lawsuits under the FLSA, and corresponding class actions under many state laws, have become prevalent (and exceedingly costly) in recent years. For a detailed discussion of today’s ruling, click here.

If you have any questions about today’s ruling, arbitration agreements or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Florida Federal Court Provides Path for Employer Recovery of Attorney’s Fees in FLSA Cases

In most lawsuits filed under the Fair Labor Standards Act (FLSA), an employer’s ability to recover any attorney’s fees under the prevailing standard – that a plaintiff filed the case in “bad faith, vexatiously or wantonly” – is much too difficult to satisfy.  A recent decision from the U.S. District Court for the Middle District of Florida, however, provides an avenue for recovery of such fees – at least in part.  Aralar v. Scott-McRae Automotive Group, LLLP, 2018 U.S. Dist. LEXIS 64045 (M.D. Fla. Apr. 17, 2018).

In Aralar, the plaintiff filed suit in federal court, claiming that his employer had improperly classified his automotive service advisor job as exempt and that as a result he was entitled to overtime pay and other damages under the FLSA.  However, as a condition of his employment the plaintiff had signed an arbitration agreement, one provision of which was the following:

If a party who has agreed to arbitrate claims under this procedure files or causes to be filed in court or state agency a complaint alleging a claim or cause of action which is subject to arbitration under this procedure, the defendant/respondent will notify the party or the partys attorney of the existence of the Arbitration Agreement, and request that the case be dismissed or stayed.  If the party does not move to dismiss or stay the action within 10 calendar days of service, and the defendant/respondent successfully moves to dismiss or stay the case and refer it to arbitration, the defendant/respondent may submit a request for payment of fees and costs to the Arbitrator, who shall award to the defendant/respondent and against the party the defendant/respondents reasonable costs and attorneys [sic] fees incurred because of the filing of the complaint.

After the plaintiff filed his judicial complaint, the employer gave notice of the arbitration agreement under this provision, yet the plaintiff took no action to stay or dismiss his lawsuit.  The district court subsequently stayed the case pending arbitration and ultimately the arbitrator dismissed the plaintiff’s claims, finding that his job was properly classified as exempt (a decision that pre-dates, yet conforms with, the Supreme Court’s recent ruling on the exempt status of automotive service advisors, discussed here).  The employer then sought, and the arbitrator awarded, attorney’s fees and costs of nearly $20,000 stemming from the plaintiff’s failure or refusal to dismiss his lawsuit, as provided for in the above provision.  The employer moved the district court to confirm the attorney’s fees award, while the plaintiff moved to have the award vacated.  Citing Fox v. Vice, 563 U.S. 826 (2011) and Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978), the plaintiff claimed that because his claims were not frivolous, there was a per se rule against awarding fees to the employer.  The district court disagreed, noting that these cases addressed the awarding of fees in Title VII and other civil rights cases, not FLSA cases.   The court rejected the plaintiff’s additional arguments for vacating the award, noting that none of them addressed the only available grounds currently existing to do so: procurement through corruption, fraud or undue influence by a party; partiality or corruption by the arbitrator; an arbitrator’s refusal to hear evidence or other misconduct; or where the arbitrator exceeded his or her powers.

In short, concluded the court, the parties signed a contract and the plaintiff did not honor it.   As a result, the district court had very limited grounds to disturb the arbitration award and found no such grounds in this case.  For an area of law in which any attorney’s fees are nearly impossible to collect for defendant employers, this case provides useful guidance for employers who have implemented, or are considering implementing, arbitration programs.  From a practical perspective, prevailing employers likely will not be able to collect all of their fees against plaintiffs in FLSA cases but, at a minimum, use of a provision such as the one in this case, albeit limited in the extent of fees and costs potentially recoverable, may provide significant leverage for negotiation and ultimate resolution of FLSA claims.

If you have any questions about enforcement of arbitration agreements in FLSA cases or any other wage and hour question, please consult the Jackson Lewis attorney(s) with whom you regularly work.

Are Employers Willing to Risk Getting PAID?

(Updated 4/12/2018)

Last month, the DOL announced the Payroll Audit Independent Determination program (“PAID”), a self-auditing program designed to encourage employers to uncover and voluntarily report potential minimum wage and overtime violations and avoid the risk of penalties or liquidated damages that would be imposed if the Agency discovered the violations in the first instance.  We initially discussed the PAID program here.

This week, the WHD formally began the six month (or so) trial program and posted additional guidance, including a “Q & A” section, regarding the program on the DOL’s website, to provide further detail as the circumstances under which the program is (and is not) available and, presumably, to ease concerns that employers, who are contemplating participation in the program, might have.  Specifically, the WHD identifies the following eligibility requirements as to any proposed PAID self-audit:

  • The employer is covered by the FLSA;
  • The employees at issue are not subject to prevailing wage requirements under the H-1B, H-2B, or H-2A Visa programs; the Davis Bacon Act or related acts; the Service Contract Act; or any Executive Order;
  • Neither the WHD nor a court of law has found within the past 5 five years that the employer has violated the minimum wage or overtime requirements of the FLSA by engaging in the same compensation practices at issue;
  • The employer is not currently a party to any litigation (private or with the WHD) asserting claims involving the same compensation practices;
  • The WHD is not currently investigating the compensation practices at issue;
  • The employer is not specifically aware of any recent complaints by its employees or their representatives to the employer, the WHD or a state wage enforcement agency asserting FLSA violations of the compensation practices at issue; and
  • The employer has not previously participated in the PAID program to resolve potential FLSA violations from the same compensation practices.

In addition, DOL states that absent evidence of health or safety concerns (e.g. potential child labor violations), if it declines an employer’s request to participate in the program it will not use that request as a basis for a subsequent investigation.  But DOL acknowledged that PAID self-audit requests will be subject to Freedom of Information Act (FOIA) requests, which could result in unwanted publicity for and/or additional litigation against employers.

The guidance does not address potential parallel claims under state law, over which the DOL has no jurisdiction and, as Acting WHD Administrator Bryan Jarrett reiterated during a DOL-sponsored webinar on April 10th, the PAID program does not currently cover other potential claims (e.g. FMLA claims) regulated by the Agency.  The concern as to how, if at all, the PAID program would alleviate possible liability for parallel state law claims was underscored last week when New York Attorney General Eric Schneiderman announced that his office will continue to investigate such claims and seek full remedies under state law, regardless of whether an employer has separately participated in the PAID program.  Deriding the program as a form of amnesty, Schneiderman referred to it as “nothing more than a Get Out of Jail Free card for predatory employers.”  This week, in a letter to Secretary of Labor Alexander Acosta, Schneiderman was joined by the Attorneys General of nine other states and the District of Columbia, who likewise questioned the “troubling” nature of a program that allows employers in effect to obtain an “interest-free loan” without penalty by simply paying wages that it already owed to employees.  Moreover, expressed the Attorneys General, employers might be able to obtain global settlement agreements that encompass state law claims, even though resolution of those claims was not supervised by the DOL and even though the employer might, unbeknownst to it, be under a state investigation at the time.  This is particularly problematic, noted the Attorneys General, because many state wage and hour laws provide protections and remedies for employees greater than those available under the FLSA.

Jackson Lewis will continue to monitor the PAID program during its trial period and, to the extent possible, evaluate its efficacy as a beneficial employer alternative to potential wage and hour claims and Agency-initiated audits.  If you have any questions about this or any other wage and hour issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.

Department of Labor Issues Initial Guidance on Tip Pooling Amendment

This week the Department of Labor issued new guidance, in a “Field Assistance Bulletin,” on the recent amendment to the FLSA regarding tip sharing.  The recent amendment to the FLSA (which was included in the omnibus budget bill) bars “supervisors or managers” from retaining tips but expressly allows tipped workers to share tips with non-tipped workers, so long as the employer does not take a tip credit and the individuals participating in the tip sharing are not managers or supervisors.   The amendment, however, contains no definition of the terms “supervisor” or “manager.”  The new guidance explains that, for purposes of the new amendment to the FLSA, a “supervisor or manager” is an individual who performs the duties of an exempt manager under the FLSA’s “executive” exemption.

Under DOL regulations, to satisfy the duties test for the executive exemption, three requirements must be met:  (1) the employee’s primary duty must be management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; (2) the employee must customarily and regularly direct the work of two or more other employees; and (3)  the employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

Under the DOL guidance, whether an employee is paid on a salary basis is not relevant to whether they can participate in sharing tips. Thus, if a manager performs the duties of an exempt employee under the executive exemption but is not paid on a salary basis, the individual still could not share in tips received by employee, even though they may be non-exempt because they fail to satisfy the salary basis test.  The DOL has stated its intention to “proceed with rulemaking in the near future to fully address the impact of the 2018 [FLSA] amendments” which, hopefully, will provide further clarification as to how the executive exemption duties test will be applied in the tip-pooling context.

Jackson Lewis will continue to monitor developments related to the new tip-pooling law.  Additionally, employers should review state-law requirements and their interaction with the FLSA.   If you have any questions about this or any other wage and hour issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.

Supreme Court Exempts Automobile Service Advisors from Overtime, Rejects ‘Narrow Construction’ Principle under FLSA

After years of litigation, this week the Supreme Court concluded that service advisors who work in an automobile dealership are exempt from overtime under the FLSA.  Much more profoundly, the Court unequivocally rejected the principle, a longstanding bane to employers, that FLSA exemptions should be “narrowly construed” due to the Act’s status as a “remedial” statute.  Encino Motorcars, LLC v. Navarro, 2018 U.S. LEXIS 2065 (Apr. 2, 2018).  A full review and analysis of the Court’s opinion can be found here.


Wisconsin Legislature Preempts Local Enactment of Wage and Hour Regulations

Joining more than two dozen other states that have barred local enactment of minimum wage or other employment laws, on March 22, 2018 the Wisconsin legislature passed Assembly Bill 748, intended to promote statewide uniformity in the regulation of employment practices. AB 748 prevents local governments and municipalities from enacting and enforcing their own ordinances relating to various employment matters, including several areas pertaining to wage and hour law.  Governor Scott Walker is expected to sign the Bill into law in the near future.  In addition to precluding local counties and municipalities from enacting ordinances regulating “labor peace” agreements, requiring more stringent occupational licensing, or mandating employer provision of pension or other benefits, AB 748 prohibits local jurisdictions from enacting laws:

  • Regarding employee work hours and overtime, including shift schedules.  However, certain ordinances regulating business operating hours or the work hours of certain traveling sales  crew workers are excluded;
  • Prohibiting employers from requesting salary history information from prospective employees;
  • Establishing minimum wages for local government employees, contract employees or employee work that is funded by financial assistance from the local governmental unit.  This provision supplements existing Wisconsin law, passed more than a decade ago, prohibiting local jurisdictions from enacting minimum wage laws related to private employers; or
  • Regulating “wage claims or collections.”  Investigation of disputes regarding such claims will remain the purview of the Wisconsin Department of Workforce Development.

Notably, in a last-minute amendment to the Bill, local counties and municipalities will not be precluded from enacting and enforcing employment discrimination laws that provide greater protection than those provided under Wisconsin law.

For more information on AB 748 or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

California Supreme Court Adopts State Agency Formula for Calculating Overtime Value of Flat-Sum Bonus, Rejecting Federal View

The California Supreme Court has held that, under state law, when an employee earns a flat-sum bonus during a pay period, the overtime pay rate will be calculated using the actual number of non-overtime hours worked by the employee during the pay period. Alvarado v. Dart Container Corp., 2018 Cal. LEXIS 1123 (Cal. Mar. 5, 2018).

In so holding, the Court reversed a lower court of appeal decision that had rejected policy guidance issued by the California Department of Labor Standards Enforcement (DLSE). Please find the rest of this article in our Publications page here

U.S. Department of Labor Announces Self-Audit Program

Mistakes happen.  But when those mistakes result in a violation of the Fair Labor Standards Act, what is an employer to do?  Pay twice the amount of wages owed to cover both back wages and an amount equal to liquidated damages? Hope no one notices?  Well, thanks to the Wage and Hour Division (WHD) of the DOL, another option is now available to provide “make whole” relief to the employees and a binding release of FLSA claims for the employer, without the agency penalties and without the liquidated damages that may provide nothing more than a windfall to employees who have received all wages due.   The WHD has announced a new pilot program designed to encourage employer self-reporting of potential minimum wage and overtime violations.  Under the Payroll Audit Independent Determination (“PAID”) program, an employer who uncovers potential wage violations during a self-audit may voluntarily report those findings to the WHD, which will work with the employer to pay any wages due to employees without the additional risk of the penalties or liquidated damages the agency might impose were it to initiate the audit.  The WHD intends to operate the program for approximately six months and then undertake an assessment of its effectiveness.

Under the PAID program, if an employer discovers any non-compliant, or even questionable, minimum wage or overtime practices (including, for example, misapplication of the “white collar” or other exemptions), it can provide to the WHD the identity of the affected employee(s), the relevant timeframe and a calculation of the wages owed.   The WHD may agree with the employer’s determinations or may arrive at its own calculations, after which it will notify the affected employees and provide them with a summary of the wages owed and the settlement terms.  If the employee executes the settlement agreement, the employer will have to pay the wages due no later than the next regular pay period.

While the intent of the PAID program is to resolve potential wage and hour claims more expediently – with less financial cost to employers than if the same issues were uncovered during an agency audit and with faster payment of the wages to the affected employees –  participation in the program is not without risks to employers.  Many employers are wary of proactively contacting a federal agency with the admission of an error.  Employees are also not obligated to accept the proposed settlement terms simply because the WHD has endorsed them.  An employee, for example, might consult his or her own attorney, resulting in an increased, rather than decreased, prospect of litigation.  That risk is magnified if a significant number of employees are implicated, as the possibility of a viable collective or class action likely would bolster the interest of a plaintiff’s attorney.

In addition, because any settlement will be limited to the potential wage violations and timeframe at issue, the employer will not have the opportunity to obtain a general waiver and release as part of the settlement terms.  Notably, employers may not use the PAID program to resolve issues already being investigated by the WHD; that already are the subject of litigation or arbitration (whether actual or threatened); or about which the employer already has been contacted by an employee’s attorney or other representative to settle.

Nevertheless, in industries that currently are, or routinely have been, the focus of WHD audits, or for companies that already have identified substantial wage and hour risks in their workplace, the PAID program provides an option to employers to address and resolve wage and hour compliance issues without fear of the substantial penalties and liquidated damages ensuing from an agency-initiated audit.

Jackson Lewis will continue to monitor the PAID program as the DOL provides additional information.  If you have any questions about this or any other wage and hour issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.