DOL Eliminates Employer-Plaguing “80/20” Tip Credit Rule

The Department of Labor (“DOL”) today rescinded its prior guidance that made the tip credit unavailable for tipped employees who spend more than 20% of their time performing allegedly non-tip generating duties. The 20% limitation, contained in an internal DOL Field Operations Handbook, spawned numerous so-called “80/20” lawsuits, claiming servers spent too much time performing allegedly non-tipped work. The DOL rescinded the rule by reissuing Opinion Letter FLSA2009-23, which was first promulgated during the waning days of the George W. Bush administration and which had eliminated the rule. That opinion letter, withdrawn by the Obama administration, has been reissued as Opinion Letter FLSA2018-27. In so doing, the Wage and Hour Division has rendered invalid the Eighth Circuit Court of Appeals decision upholding the Obama-era rule in Fast v. Applebee’s International, Inc., 638 F.3d 872 (8th Cir. 2011), and the recent Ninth Circuit decision in Marsh v. J. Alexander’s LLC, 905 F.3d 610 (9th Cir. 2018). Those decisions were grounded in giving deference to the Obama-era DOL guidance that the DOL has now abandoned.

When an employee is “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips,” the employer may pay a reduced cash wage (currently $2.13) and claim a “tip credit” to make up the difference between the reduced cash wage and the $7.25 hourly minimum. See 29 U.S.C. § 203(m). Such individuals are referred to as “tipped employees.” Since 2011, the DOL had taken the enforcement position that if a tipped employee spends more than 20% of his or her time on non-tip-producing tasks (even if those tasks were directly related to tip-producing duties), the employee’s time spent on those non-tip-producing tasks must be paid at minimum wage rather than at the sub-minimum “tip credit” rate. As a result, plaintiffs’ attorneys have used the DOL’s enforcement position as the basis for lawsuits – often, collective actions – alleging that the tipped employees in question engage in non-tipped work for more than 20% of their work time and therefore are entitled to the full minimum wage for their work.

“We do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met,” the reissued Opinion Letter notes. The DOL’s newly-announced position is consistent with that taken by Jackson Lewis in private litigation for clients and against the DOL.

A more thorough discussion of this significant agency action will be addressed in a forthcoming Jackson Lewis web article. In the meantime, if you have any questions about this development or any other wage and hour question, please consult the Jackson Lewis attorney(s) with whom you regularly work.

U.S. Department of Labor Announces Creation of New Wage and Hour Compliance Outreach Office

Focusing on education to ensure compliance with the Fair Labor Standards Act, on August 28, 2018 Secretary of Labor Alexander Acosta announced the creation of the DOL’s new Office of Compliance Initiatives (OCI). That office has launched two new websites, one to provide employers with resources to assess wage and hour compliance, and the other to provide employees with information regarding their rights and responsibilities under federal wage and hour law. Those websites are named, aptly, and, respectively.

The stated purpose of the OCI, according to the DOL’s website, is to “promote greater understanding of federal labor laws and regulations, allowing job creators to prevent violations and protect Americans’ wages, workplace safety and health, retirement security, and other rights and benefits. As part of its work, OCI will work with the enforcement agencies to refine their metrics to ensure the efficacy of the [DOL’s] compliance assistance activities.”

Jackson Lewis will continue to monitor the OCI’s actions. 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 Additional FLSA Opinion Letters, Acknowledges New “Fair Reading” Standard for Overtime Exemptions

In furtherance of a practice reinstituted earlier this year, on August 28, 2018 the DOL’s Wage Hour Division (WHD) issued four new opinion letters covering FLSA topics. The current administration began that practice when, in January of this year, it reinstated seventeen opinion letters originally issued during the George W. Bush administration but subsequently withdrawn during the Obama administration. The WHD then issued three new letters in April, prior to last week’s issuance. “Opinion letters help provide greater clarity for American job creators and employees,” commented Acting Wage and Hour Division Administrator Bryan Jarrett, and “show the ongoing efforts of the Department to provide the tools employers need to comply with the law and protect workers.”

The most recent opinion letters address (with links to the letters themselves):

FLSA 2018-20: Whether time spent by employees voluntarily attending benefit fairs and undertaking wellness activities such as biometric screening, weight-loss programs and use of an employer-provided gym, are considered compensable working time (it is not).

FLSA 2018-21: Whether 29 U.S.C. § 207(i), the commissioned sales employee overtime exemption, applies to a company’s sales force that sells an internet payment software platform (under the facts presented, it does). Notably, this opinion letter is the first acknowledgement by the DOL of the Supreme Court’s recent holding in Encino Motorcars LLC v. Navarro, 138 S. Ct. 1134 (2018), that FLSA exemptions are to be given a “fair reading,” rather than a “narrow construction” as previously applied by the Department and many courts.

FLSA 2018-22: Whether members of a non-profit organization who serve as credentialing examination graders for one to two weeks per year, and who are not paid for their services but are reimbursed for their expenses, may properly be treated as volunteers rather than employees (under the facts presented, they may).

FLSA 2018-23: Whether 29 U.S.C. § 213(b)(27), exempting from overtime employees who work at a movie theater establishment, likewise applies to those employees who work at dining services operated by, and accessible only within, the theater (it does).

If you have any questions about the contents or application of the issues set forth in the opinion letters, or any other wage and hour issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.

Just as with the NLRA, the FLSA Does Not Preclude Collective Action Waivers in Arbitration Agreements, Sixth Circuit Holds

In a natural extension of the Supreme Court’s recent conclusion that the NLRA does not preclude the use of class or collective action waivers in employment-related arbitration agreements, the Sixth Circuit Court of Appeals has confirmed that such waivers are likewise permitted under the FLSA. Gaffers v. Kelly Services, 2018 U.S. App. LEXIS 22613 (6th Cir. Aug. 15, 2018). In so holding, the Sixth Circuit followed the lead of the Supreme Court’s decision in Epic Systems Corporation v. Lewis, 138 S. Ct. 1612 (2018). The Sixth Circuit has jurisdiction over Kentucky, Michigan, Ohio, and Tennessee.

The plaintiff, a former Kelly Services employee, brought suit under the FLSA on behalf of himself and his co-workers, alleging that the Company failed to properly pay him for all time worked. Because about fifty percent of the putative class (collective action) members the plaintiff seeks to represent signed arbitration agreements, the Company moved to compel arbitration. Denying the motion, the district court concluded that the NLRA and the FLSA rendered the agreements unenforceable and denied the motion.

On appeal, the Sixth Circuit easily dispensed with the lower court’s determination regarding the NLRA, in light of the Supreme Court’s interim decision in Epic Systems that the NLRA does not in fact preclude enforcement of class or collective actions waivers in employment-based arbitration agreements. Moving on, the Court of Appeals first noted that the plaintiff “faces a stout uphill climb” in his contention that the Arbitration Act and the FLSA’s collective action provision cannot be reconciled.  Noting the Supreme Court’s direction in Epic Systems, “that a federal statute does not displace the Arbitration Act unless it includes a ‘clear and manifest’ congressional intent to make individual arbitration agreements unenforceable,” and that the right to engage in collective action alone does not satisfy this standard, the Sixth Circuit concluded that the FLSA contained no express language precluding the use of arbitration. On the contrary, the FLSA’s collective action provision “gives employees the option to bring their claims together [but] . . . does not require employees to vindicate their rights in a collective action.” Thus, “employees who do not sign individual arbitration agreements are free to sue collectively, and those who do sign individual arbitration agreements are not.” Notably, the Court of Appeals added, long ago the Supreme Court held that the Age Discrimination in Employment Act (ADEA), which contains exactly the same collective action language as (and is patterned on) the FLSA, does not displace the Arbitration Act, and thus there is no reason that such a provision should not be equally enforceable under the latter Act.

Finally, the Sixth Circuit rejected the plaintiff’s argument that the collective action waiver should be deemed unenforceable for public policy reasons, noting that such a basis would be the province of Congress, not the courts, as well as the plaintiff’s argument that the Arbitration Act’s “savings clause” should preclude enforceability of the waiver provision. As the Supreme Court made clear in Epic Systems, the savings clause – which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract” (e.g. fraud or duress) – cannot be used when the defense applies only to arbitration agreements, as opposed to all contracts in general, or when the defense would “interfere with the ‘fundamental attributes of arbitration,’” including the common attribute of individualized proceedings.

For more information about collective/class action waivers (in the wage-and-hour context or otherwise), please contact the Jackson Lewis attorney(s) with whom you regularly work.

Taco Bell’s Prohibition on Discounted Employee 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.