Four months after its controversial nominee, David Weil, withdrew his name from contention as Administrator of the Wage and Hour Division (WHD) of the Department of Labor (DOL), the White House has nominated Acting Administrator Jessica Looman to head the post. Prior to joining the DOL as Principal Deputy Administrator of the WHD at the beginning of 2021, Ms. Looman was executive director of the Minnesota building trades coalition. She had been in the position of Acting Administrator since June 2021 but due to regulatory requirements for agency nominees, that title officially has been removed, despite the fact that she will retain all of the same duties while her nomination is pending.

Since Ms. Looman began leading the WHD as Acting Administrator, the Division has rescinded final rules, issued during the previous administration, concerning the joint employer and independent contractor analyses, and has signaled its intent to issue new final rules regarding the independent contractor analysis and eligibility for the executive, administrative, and professional (i.e., the “white collar”) exemptions. Notably, a court subsequently deemed unlawful the DOL’s withdrawal of the independent contractor final rule, and that rule is now in effect unless and until a new final rule is enacted. For more information on this development, see our article, DOL Withdrawal of Trump-Era Independent Contractor Final Rule Unlawful, Court Rules.

Prior to Ms. Looman’s nomination, the Biden Administration tapped Dr. David Weil for the position. Dr. Weil headed the WHD under the Obama Administration and, under his leadership, the DOL published an overtime final rule that would have more than doubled the minimum salary to qualify for the white collar exemptions. That rule was struck down by a Texas federal judge shortly before going into effect in late 2017 and a new final rule was issued under the Trump Administration, raising the minimum annual salary to a relatively more modest $35,568. It remains to be seen whether, as part of its current rulemaking efforts, the WHD will once again seek a substantial increase in the minimum salary required to qualify for these exemptions.

Whether Ms. Looman’s nomination will be taken up by the Senate prior to the midterm elections in November 2022 is in doubt, and those elections certainly could impact the outcome of her nomination. Jackson Lewis will continue to monitor and report any updates on both Ms. Looman’s nomination and the status of the new final rules that are likely to be proposed. In the meantime, if you have any questions about these or any other wage and hour questions, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Reversing summary judgment in favor of the U.S. Department of Labor (DOL), the Eighth Circuit has held that jury questions exist as to whether the defendant employed drivers who provide non-emergency medical transport services or whether it properly classified those drivers as independent contractors. Walsh v. Alpha & Omega USA, Inc., 2022 U.S. App. LEXIS 19431 (8th Cir. July 14, 2022). The Eighth Circuit has jurisdiction over the federal courts in Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.

Background

Alpha & Omega USA, Inc. d/b/a Travelon (“Travelon”) engages drivers for non-emergency transportation of patients to and from medical appointments (known as special transportation services (STS)). Travelon provides vans and electronic tablets to the drivers and pays for some of their costs, such as internet service and vehicle insurance. Customers pay Travelon for the transportation services, which in turn distributes those payments to the drivers. However, drivers must pay Travelon a 35% commission for all weekly payments totaling $300 or more per week and a variety of expenses such as fees for dispatch services, insurance, vehicle lease and maintenance, and tablet rental. These fees are how Travelon generates its revenue.

Travelon assigns trips to drivers on the electronic tablets through an application called “MediRoutes,” which monitors the drivers’ locations and availability. Although Travelon establishes the hours during which dispatch services are available (M-F 5:00 a.m.-6:00 p.m., Sa 5:00 a.m.-4:00 or 5:00 p.m.), drivers may set their own schedules within these hours.

The company classifies and pays the drivers as independent contractors but, following an investigation, the DOL’s Wage & Hour Division concluded that the drivers were in fact employees and sued the company on behalf of 21 drivers for minimum wage, overtime, and recordkeeping violations. On cross-motions for summary judgment, the trial court agreed with the DOL that the drivers were employees and awarded them both backpay and liquidated damages. Travelon appealed, and the Eighth Circuit reversed.

The “Economic Realities” Test

The FLSA guarantees a minimum wage for all hours worked and overtime for any hours worked over 40 per week for all covered, non-exempt employees. As the U.S. Supreme Court first noted more than 70 years ago, individuals who perform services for a company as an independent contractor are not afforded the FLSA’s minimum wage and overtime protections because they are not “employees.” The FLSA, however, says little about how to distinguish an employee from an independent contractor.

Over the years, both the courts and the DOL have developed similar, yet somewhat varying, standards and factors that should be used for determining whether an individual is an employee or an independent contractor. The standards developed seek to reveal the “economic reality” of the relationship between the employer and the individual, and are derived from six, non-exclusive factors originally presented by the Supreme Court in two cases on the same day, United States v. Silk, 331 U.S. 704 (1947), and Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947).

The Eighth Circuit has concluded (without actually deciding, it notes) that the economic realities test is the proper method for determining whether an individual is an employee or an independent contractor, and applies a six-factor test that closely mirrors the Supreme Court’s original version. Those six factors are:

(1)   the degree of control exercised by the alleged employer over the business operations;

(2)   the relative investments of the alleged employer and employee;

(3)  the degree to which the alleged employee’s opportunity for profit and loss is determined by the employer;

(4)  the skill and initiative required in performing the job;

(5)   the permanency of the relationship; and

(6)   the degree to which the alleged employee’s tasks are integral to the employer’s business.

The Circuit Court Decision

In reversing the trial court’s grant of summary judgment, the Eighth Circuit concluded that jury questions exist as to whether the drivers are employees or are independent contractors, particularly with respect to factors one (the employer’s degree of control), three (the drivers’ opportunity for profit or loss), and six (whether the drivers are integral to the employer’s business).

With respect to the employer control issue, the trial court concluded that Travelon exercised significant control by assigning trips, pressuring drivers to accept trips, regulating the times during which drivers could provide services, requiring them to obtain permission to take breaks, tracking them through GPS location monitoring, and requiring them to submit travel logs. However, the Court of Appeals noted that both the company’s owner and its long-time dispatcher testified that drivers were allowed to turn down trips without penalty. Moreover, a driver who claimed he felt pressured to accept assignments admitted that on occasion he declined trips without repercussion. Furthermore, the Court of Appeals found that drivers were able to, and did in fact, set their own schedules within the available service hours and could change their schedules daily. Additionally, the fact that the company limited the available service hours was more an indication of “common sense” rather than control over the drivers, given that the drivers were providing non-emergency transportation services that rarely would be required outside of these hours.

As to the “opportunity for profit or loss” factor, Travelon set the drivers’ rates and facilitated trip assignments through the MediRoutes app, thereby limiting to some extent the drivers’ opportunity for profit or loss. Drivers, however, were able to earn additional income by, for example, transporting multiple customers at a time to make trips more profitable and by using their own vehicles and tablets rather than leasing them from the company. In addition, competing testimony existed over whether drivers could provide transportation services independent of Travelon, even while using Travelon’s vans.

As to the final factor – whether the drivers are integral to Travelon’s business – the DOL asserted that Travelon refers to itself as an STS provider, that is registered with Minnesota as an STS provider, and that its customers depend on the drivers to perform services. The Eighth Circuit, however, found that Travelon distinguishes itself from actual STS providers, instead describing itself as an “intermediary company that supports the drivers’ transportation businesses” by leasing vehicles and equipment to drivers and selling dispatch subscriptions. Thus, Travelon’s revenue is generated entirely from commissions and fees charged to the drivers, not from the fees paid by the passengers as would be the case with traditional STS providers.

Accordingly, the Court of Appeals concluded questions of material fact remain for a jury as to whether these three factors favor a finding of an employer-employee or employer-independent contractor relationship. Thus, the summary judgment ruling was reversed and the case remanded for trial.

If you have any questions about this decision, the independent contractor analysis under the FLSA, or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Rhode Island has joined the list of states adopting laws governing the payment of tips. House Bill (HB) 7510, which is codified as Public Law 2022-245, mirrors nearly all tip-related aspects of the federal Fair Labor Standards Act (FLSA) and its regulations. The law became effective on June 28, 2022.

Under the law, tips are the sole property of the tipped employee. A “tipped employee,” just as under the FLSA, is one who regularly and customarily receives at least $30 in tips per month. Employers and employees are prohibited from entering into any agreement that would allow the employer to keep any portion of an employee’s tips.

Nevertheless, employers may implement a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips. To this end, employers must notify their employees of the amount of any required tip pool contribution amount, may take a tip credit only for the amount of tips each employee ultimately receives, and may not retain any of the employees’ tips except as required for distribution to a valid tip pool or to offset the actual charges assessed by a third-party credit card company (discussed further below).

If an employer does not take a tip credit and instead pays its employees full minimum wage, it may allow non-tipped, non-exempt employees to participate in a tip pool. Exempt employees, as defined under Part 541 of the FLSA regulations, may not participate in a tip pool whether a tip credit is taken or not.  The FLSA in this regard is a bit broader, as the FLSA would exclude non-exempt “managers” or “supervisors” from participating in a tip pool (although the FLSA itself would do so for most employers), whereas Rhode Island law is limited to exempt employees only.

Sums assessed to customers as service charges and distributed to employees may not be counted as tips (either for establishing an employee’s eligibility as a tipped employee or for determining application of the tip credit) but, just as under the FLSA, may be used to satisfy the employer’s minimum wage and overtime requirements.

If an employer must pay a credit card company a percentage of each credit card sale and that sale includes tips, the employer may deduct that percentage from the employee’s tips. The employer must notify the employee that it is taking this deduction and any such deduction may not reduce the employee’s wage below the applicable minimum wage. Furthermore, the employer must pay the employee all amounts due no later than the next regular payday and may not withhold any amount while awaiting reimbursement from the credit card company.

If you have any additional questions or concerns about Public Law 2022-245 or tip law in general, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Employees whose job it was to investigate and determine the likely cause of damage to the equipment of broadband service providers were misclassified as exempt by their employer, the Eleventh Circuit Court of Appeals recently held. Therefore, the employees’ overtime claims under the Fair Labor Standards Act (FLSA) were improperly dismissed by the trial court. Fowler v. OSP Prevention Group, Inc., 2022 U.S. App. LEXIS 17679  (11th Cir. June 27, 2022). The Eleventh Circuit has jurisdiction over the federal courts in Alabama, Georgia, and Florida.

The FLSA generally requires that employees be paid no less than minimum wage for all hours worked and overtime at one-and-a-half times their “regular rate” for all work in excess of 40 hours per workweek. However, the FLSA also includes a number of exemptions from overtime, including what is commonly referred to as the “administrative” exemption. To qualify for that exemption, an employee must earn at least $684 per week ($35,568 per year) and their primary duty must be “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers” and include “the exercise of discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541.200(a).

In this case, the plaintiffs were employed by OSP Prevention Group (OSP) as property damage investigators, who were assigned to investigate and determine the likely cause (e.g., backhoe digging, rodent infestation, fallen tree branch) and cost of damage to property or equipment (such as fiber optic lines, overhead wires, and cable housings) belonging to broadband service providers. The investigators were not responsible for notifying the party liable for the damage (if any) about possible subrogation or for attempting to settle with that party, as those responsibilities were handled by other OSP employees. OSP billed the broadband service providers by the hour for the plaintiffs’ work but classified them as overtime-exempt under the FLSA’s administrative exemption.

The plaintiffs sued OSP, claiming they were improperly classified as exempt and therefore were entitled to overtime wages, liquidated damages, prejudgment interest, attorney’s fees, and costs. Following discovery, OSP moved for summary judgment, asserting that the plaintiffs were in fact administrative employees. The district court agreed with OSP that the plaintiffs were administrative employees and granted summary judgment to the company. The plaintiffs appealed and the Eleventh Circuit reversed.

The Court of Appeals concluded that the plaintiffs did not satisfy the first element of the FLSA’s administrative exemption because, “for all practical purposes[,] the liability determination was akin to plugging data into a formula. OSP’s Area Manager and Supervisor of Damage Investigators in Georgia testified that if a thousand different investigators each investigated the same damage, they should all reach the same conclusions and have roughly the same measurements, even though they might arrive at their answers by slightly different methods.” Moreover, the investigators used a cost sheet furnished by the broadband service provider to calculate the monetary value of the damages and had no discretion to determine how much a repair might cost.

To satisfy the administrative exemption, noted the Eleventh Circuit, in addition to meeting the salary requirement (undisputed in this case), OSP was required to demonstrate that the investigator’s “work directly related to [the company’s] management or general business operations” and (2) “include[d] the exercise of discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541.200(a). “To meet [the first] requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.” Id. at § 541.201(a). Examples of what the applicable Department of Labor (DOL) regulations consider to be such administrative support work include areas such as accounting, human resources, safety and health, and information technology.

“By contrast,” the Court of Appeals stated, “investigative duties primarily involve investigation (of course) and factfinding, compiling reports, and making calculations and recommendations about liability according to prescribed criteria.” Employees who perform such duties fall among the categories of jobs the DOL regulations cite as not qualifying for the administrative exemption — categories such as “[o]rdinary inspection work” using “well-established techniques and procedures” often derived from manuals, 29 C.F.R. § 541.203(g), and “inspectors or investigators of various types” whose work involves using “skills and technical abilities in gathering factual information.” Individuals performing these jobs typically are considered “production” employees because they “help the business run by following the standards that have been set for them,” as opposed to the administrative employees who develop those standards.

Here, the plaintiffs were performing one of the core products that the company sells: property damage investigation. The Eleventh Circuit concluded that the case involving insurance claims adjusters, on which the district court heavily relied in its summary judgment ruling, was inapposite because those employees had “significant, policy-infused, decision-making authority, including evaluating and making recommendations about coverage for claims, negotiating settlements, and making recommendations about litigation.” By contrast, the plaintiffs in this case only undertook factfinding and left decisions regarding the outcomes of their investigations to others. Thus, the plaintiffs were more akin to the insurance fraud investigators in Calderon v. GEICO General Insurance Co., 809 F.3d 111 (4th Cir. 2015), where the Fourth Circuit concluded that the investigators did not meet the requirements of the administrative exemption. (For further discussion of Calderon, see the Jackson Lewis article, Fourth Circuit Holds Insurance Fraud Investigators are Not Exempt from Overtime Pay, Creating Circuit Split).

Accordingly, the Eleventh Circuit concluded that the summary judgment ruling should be vacated and the case remanded to the district court. Because OSP could not establish the first “duties” element of the administrative exemption, the Court of Appeals elected not to address the second element, that is, whether the plaintiffs’ duties “include[ed] the exercise of discretion and independent judgment with respect to matters of significance.”

If you have any questions about the administrative exemption, other exemptions under the FLSA or state law, or any other wage and hour question, please contact a Jackson Lewis attorney.

As previously reported in this blog, Connecticut’s minimum wage will increase $1.00, to $14.00 per hour, beginning tomorrow, July 1. It is the penultimate step of a 2019 law enacting a series of tiered minimum wage increases that will reach the law’s goal of $15.00 per hour in June 2023.

Beginning in January 2024, the State’s minimum wage will be adjusted by the percent change in the federal Employment Cost Index (ECI) for all civilian workers’ salaries and wages for the one-year period ending on June 30 of the previous year.

In addition to enactment of the minimum wage increases, the 2019 law froze, at the then-current levels of $6.38 per hour for hotel and restaurant staff and $8.23 per hour for bartenders, the sub-minimum hourly cash wage that hospitality employers must pay employees who customarily receive tips. Any shortfall, between the standard hourly minimum wage rate and what these employees make in a combination of tips plus the sub-minimum hourly rates, must be borne by the employer. The law also eliminated a lower “training wage” that employers previously could pay for learners and beginners, while retaining a “youth wage,” of no less than 85% of the standard minimum wage, for the first 90 days of employment for unemancipated minors.

Jackson Lewis will continue to monitor this and other wage and hour developments. If you have any questions, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Citing poverty concerns in, and the economic effects of the COVID-19 pandemic on, the Aloha State, Hawaii Governor David Ige has signed House Bill 2510, gradually raising the State’s minimum wage to $18.00 per hour on January 1, 2028. Although, given HB 2510’s nearly six-year phase-in period, other states may reach that mark first, Hawaii nevertheless becomes the first state to officially enact an $18 minimum wage.

Under the Act the minimum wage, which was last increased to $10.10 in 2018, will increase to $12.00 per hour on October 1, 2022; to $14.00 per hour on January 1, 2024; to $16.00 per hour on January 1, 2026; and finally to $18.00 per hour on January 1, 2028.

In addition, the tip credit an employer may take for traditionally tipped employees will increase from its current level of 75 cents per hour to $1.00 per hour on October 1, 2022; to $1.25 per hour on January 1, 2024; and to $1.50 per hour on January 1, 2028. As already is the law in Hawaii, the employer may take the tip credit only if the combined amount the employee receives from the employer and in tips is at least $7.00 more than the applicable minimum wage.

Jackson Lewis will continue to monitor minimum wage changes and other wage and hour issues.  If you have any questions, please contact the Jackson Lewis attorney(s) with whom you regularly work.

A forensic photographer who enrolled in a county training program was an intern and not an employee, a three-judge panel of the Eleventh Circuit Court of Appeals has held in a divided opinion. As a result, her minimum wage and overtime claims under the Fair Labor Standards Act (FLSA) were properly dismissed by the trial court. McKay v. Miami-Dade County, 2022 U.S. App. LEXIS 15910 (11th Cir. June 9, 2022). The Eleventh Circuit has jurisdiction over the federal courts in Alabama, Georgia, and Florida.

Plaintiff Brandi McKay was enrolled in a 6-month, unpaid program sponsored by Miami-Dade County, Florida to train photographers in forensic imaging (taking photos of deceased individuals during autopsies, at crime scenes, etc.). The plaintiff elected to enroll in this program rather than undertake the time and expense to obtain a four-year undergraduate degree that would have provided comparable training. She understood that she would work full-time, uncompensated, five days a week and sometimes on the weekend. After the first two months of the program, she and other trainees often would work unsupervised during their weekend assignments.

The plaintiff resigned from the program about a month before completing it and, a few months later, filed a lawsuit in federal court, asserting that during her time in the training program she was a county employee and therefore was due minimum wage and overtime pay. The County responded that the plaintiff was an intern, or alternatively that she was a volunteer, as those terms have been defined under the FLSA, and was not entitled to any pay. Both parties subsequently filed motions for summary judgment. Although it rejected the County’s assertion that the plaintiff was a volunteer, the trial court agreed that she was categorized correctly as an intern and dismissed her claims.

The plaintiff appealed and the Eleventh Circuit affirmed the lower court’s summary judgment ruling in favor of Miami-Dade County. First, the Court of Appeals agreed with the trial court that the plaintiff did not meet the definition of a volunteer of a public agency. The FLSA excludes from the definition of employee “any individual who volunteers to perform services for a public agency . . . if (i) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered; and (ii) such services are not the same type of services which the individual is employed to perform for such public agency.” 29 U.S.C. § 203(e)(4)(A). However, the FLSA does not further define “volunteer,” leaving that determination instead to the U.S. Department of Labor (DOL). The DOL in turn has defined volunteer as “an individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered.”

In this case, both parties had stipulated before the trial court that the plaintiff did not participate in the training program for civic, charitable, or humanitarian reasons, and the Eleventh Circuit rejected the County’s argument that the DOL’s definition was unreasonable and ambiguous. On the contrary, applying the Chevron standard, the Court of Appeals noted that they were bound to follow the DOL’s regulation unless it is “procedurally defective, arbitrary or capricious in substance, or manifestly contrary to the statute.” The County had not demonstrated that any of these conditions existed, the Eleventh Circuit concluded.

However, the Court of Appeals agreed that the plaintiff was properly characterized as an intern. Under the law of the Eleventh Circuit (and all other courts of appeal), whether an individual is an intern or an employee depends on who the primary beneficiary is of the relationship, the individual or the employer. Although the courts and the DOL have developed somewhat differing tests to make this determination, all apply a number of similar factors. In the case of the Eleventh Circuit, those non-exclusive factors are:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation;
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

No one factor is dispositive and, as was the case here given that the plaintiff was participating in a program that did not involve formal academic training, not all factors necessarily will apply.

Applying the factors, the Eleventh Circuit agreed with the trial court that the plaintiff was the primary beneficiary of her relationship with the County’s training program. First, the parties agreed that the plaintiff understood there was no promise or expectation of compensation for her participation in the program. Second, her participation in the program provided her with valuable training similar to what she would have received in a formal forensic degree program. The seventh factor also weighed heavily in the County’s favor, as the plaintiff did not expect a job with it following completion of the program.

The trial court properly excluded consideration of the third and fourth factors, the Court of Appeals noted, because the plaintiff was not participating in a formal academic program, and further properly determined that the fifth factor at most “very weakly” favored the plaintiff because, while the program arguably may have been longer than necessary, it was not so long as to be “ grossly excessive in comparison to the period of beneficial learning.” The trial court also correctly determined that the sixth factor “weakly” weighed in the plaintiff’s favor, given that the work she did on weekends sometimes displaced that of the County’s staff photographers, but noted that both parties benefited from this work. Thus, considering all of the relevant factors, the plaintiff was properly deemed to be an intern and her minimum wage and overtime claims were due to be dismissed.

If you have any questions about the volunteer or intern analysis, or any other wage and hour question, please contact a Jackson Lewis attorney.

The U.S. Department of Labor (DOL) has announced its intention to issue a new final rule regarding the employee-vs.-independent contractor analysis under the Fair Labor Standards Act (FLSA). That announcement came by way of a June 3, 2022, blog post from Jessica Looman, Acting Director of the DOL’s Wage and Hour Division. The current Independent Contractor (IC) Final Rule, issued during the previous administration and set to go into effect in March 2021, initially was delayed and then ultimately was withdrawn by the DOL in May 2021. However, in March 2022, a federal court in Texas held that the DOL’s delay and withdrawal was unlawful, and that the current Final Rule has been in effect since its original March 2021 date. The DOL recently appealed that ruling, and the appeal is pending in the U.S. Court of Appeals for the Fifth Circuit.

Over the years, both the courts and the DOL had developed similar, yet somewhat varying, standards for determining whether an individual is an employee or an independent contractor, most of which focused on the “economic reality” of the relationship between the employer and the individual. Those standards were derived from six, non-exclusive factors originally presented by the Supreme Court in two cases decided on the same day, United States v. Silk, 331 U.S. 704 (1947), and Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947). The factors are:

  • The employer’s versus the individual’s degree of control over the work;
  • The individual’s opportunity for profit or loss;
  • The individual’s investment in facilities and equipment;
  • The permanency of the relationship between the parties;
  • The skill or expertise required by the individual; and
  • Whether the work is “part of an integrated unit of production.”

Rather than treat the analytical factors as unweighted or affording them equal weight, the IC Final Rule elevates the comparative value of two “core” factors: “the nature and degree of the individual’s control over the work” and “the individual’s opportunity for profit or loss.” According to the IC Final Rule, when both of these factors support, or contradict, the existence of an independent contractor relationship, courts routinely have relied on them as controlling the determination. The IC Final Rule states that these factors are the “most probative” and therefore should be “afforded greater weight.” However, if these two factors are inconclusive, then three other factors should be considered: the skill or expertise required by the individual; the permanency of the relationship between the parties; and whether the work is “part of an integrated unit of production.”

The current DOL concluded that the IC Final Rule’s assignment of greater weight to two of the factors was inconsistent with the purposes and text of the FLSA and sought, ultimately unsuccessfully, to withdraw the Final Rule. Now, stating that it “remain[s] committed to ensuring that employees are recognized correctly when they are, in fact, employees so that they receive the protections the FLSA provides[,]” while “recogniz[ing] the important role legitimate independent contractors play in our economy,” the DOL has announced public forums in late June 2022 for both employers and employees to express their views on the independent contractor analysis, prior to the Department proceeding with the formal rulemaking process.

However, should the DOL eventually publish a new final rule, it would apply only to the analysis under federal law and would not affect how states (e.g., California) determine who qualifies as an independent contractor under their statutes. Moreover, just as with the current IC Final Rule, a new final rule would not redefine who qualifies as an independent contractor under the Internal Revenue Code, the National Labor Relations Act, or other federal laws.

Jackson Lewis attorneys will continue to keep you informed of further developments. In the meantime, if you have any questions about the current Independent Contractor Final Rule, the independent contractor analysis, or any other wage and hour issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.

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 that 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 full Fifth Circuit subsequently heard the case and, in a 12-6 opinion, reached the same conclusion. Hewitt v. Helix Energy Sols. Group, Inc., 15 F.4th 289 (5th Cir. 2021), cert. granted, No. 21-984 (U.S. May 2, 2022). The Sixth and Eighth Circuit Courts of Appeal previously had arrived at the same conclusion. The U.S. Supreme Court has now granted certiorari and, presumably during next Fall’s term, will determine whether the analysis of Fifth, Sixth, and Eighth Circuits regarding the FLSA’s salary-basis requirement was sound.

The FLSA Regulation

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

[A]n 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). Furthermore,

[a]n 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. The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.

29 C.F.R. § 541.604(b) (emphasis added).

The Lawsuit

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 for each week in which he worked (the minimum salary required for exempt status under the FLSA 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.

Citing the DOL’s regulations, the en banc Fifth Circuit concluded that “respect for text forbids us from ignoring text. As a matter of plain text, we hold that, when it comes to daily-rate employees like Hewitt, Helix must comply with § 541.604(b).” Because the Company admitted that it paid the plaintiff strictly on a day-rate basis without a weekly guarantee, it failed to satisfy the “salary basis” requirement of the FLSA’s overtime exemption provisions. The Court of Appeals added that Helix easily could have complied with this requirement by guaranteeing the plaintiff $4,000 or so weekly, which reasonably would have equated to the $963 daily rate it actually paid. The Fifth Circuit noted that the Sixth and Eighth Circuit Courts of Appeal, as well as the U.S. Department of Labor and most federal district courts, likewise have concluded that Section 541.604(b)’s weekly guarantee must be satisfied, even for highly paid employees like the plaintiff.

The Takeaway

Because “day rate” pay is a longstanding common practice in the energy industry, the Supreme Court’s decision on this issue is particularly important. We will continue to provide updates on this case but 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.

Business development managers, whose job was to convince corporate customers to purchase General Motors vehicles for their corporate fleets, qualified for the administrative exemption from the overtime provisions of the Fair Labor Standards Act (FLSA), the Eleventh Circuit Court of Appeals recently held. Brown v. Nexus Bus. Solutions, LLC, 2022 U.S. App. LEXIS 8777 (11th Cir. Apr. 1, 2022). While not establishing new law, the decision nonetheless is an excellent primer on the FLSA’s administrative exemption. The Eleventh Circuit has jurisdiction over the federal trial courts in Alabama, Florida, and Georgia.

Background

The FLSA generally requires that employees be paid overtime, at a rate of at least one and a half times their regular rate of pay for all hours worked beyond 40 in a week. 29 U.S.C. § 207(a)(1). However, there are some exceptions to that general rule and one of those is the “administrative” exemption. The requirements of the administrative exemption are easy enough to recite but often difficult to apply. To qualify for the exemption, an employee must (1) be paid, on a salary basis, at least $684 per week; (2) perform office or non-manual work directly related to the employer’s general business operations; and (3) have as a primary duty “the exercise of discretion with respect to matters of significance.” 29 C.F.R. § 541.200(a).

The Lawsuit

In Brown, the business development managers did not actually sell vehicles – that was done by local dealerships – but were charged with connecting potential corporate buyers with the local dealers by generating leads and making sales presentations. A group of these managers filed a collective action under the FLSA, asserting that the company had misclassified them as exempt and therefore that they should have been paid overtime for the hours they worked in excess of 40 per week, which were considerable. The employer moved for summary judgment, contending that the business development managers were exempt under both the FLSA’s administrative exemption and its outside sales exemption. The trial court denied summary judgment with respect to the outside sales exemption but agreed that the managers qualified for the administrative exemption and granted summary judgment in favor of the company.

The Eleventh Circuit’s Decision

The employees appealed and the Eleventh Circuit affirmed the trial court’s dismissal. As is common in scenarios involving the administrative exemption, there was no dispute that the first two requirements were met, that is, that the managers were paid at least $684 a week on a salary basis and that they performed non-manual work related to the company’s general business operations. Thus, the focus of the appeal was whether the business development managers’ primary duties included the “exercise of discretion with respect to matters of significance.”

In concluding that the business development managers did, in fact, possess and exercise such discretion, the Court of Appeals looked to the regulations of the U.S. Department of Labor (DOL) for guidance. The DOL regulations provide when applying the administrative exemption, only those employees who engage in “the comparison and the evaluation of possible courses of conduct, and act[] or mak[e] a decision after the various possibilities have been considered,” qualify for the exemption. 29 C.F.R. § 541.202(a). Citing the DOL regulations, the Eleventh Circuit noted that the analysis is “ultimately a holistic determination, but several factors guide the inquiry,” including that:

  • the employee should have the “authority to make an independent choice, free from immediate direction or supervision,” even though their choices may still be subject to review, revision, or reversal;
  • the work must involve “more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources” and cannot be “mechanical, repetitive, recurrent or routine;” and
  • must relate to “matters of significance,” which “refers to the level of importance or consequence of the work performed.”

29 C.F.R. §§ 541.202(a) – (e).

Applying those principles here, the Court of Appeals concluded that the business development managers met the requirements for the administrative exemption because they “had a hand in choosing which leads to develop, performed customized research before meeting with selected leads, and delivered presentations that necessarily required some amount of customization.” Moreover, based on testimony from some of the managers, the Eleventh Circuit determined that the position’s primary role is to “develop business leads and opportunities for the dealerships,” with a focus on “developing those new relationships and bringing them to the dealer.” Unquestionably this was a matter of significance for the employer’s business, concluded the Court of Appeals, because the business depended on bringing in new customers for its financial success. Thus, in dismissing the case, the trial court had properly concluded that the administrative exemption applied.

If you have any questions about the administrative exemption or any other wage and hour question, please contact a Jackson Lewis attorney.