Reviving a security guard’s claim for overtime pay, the Eleventh Circuit Court of Appeals recently reiterated that employers may not pay employees an artificially low regular rate of pay to avoid paying the proper amount of overtime. Thompson v. Regions Sec. Servs., Inc., 67 F.4th 1301 (11th Cir. 2023). The Eleventh Circuit oversees the federal courts in Alabama, Georgia, and Florida.

Background

Plaintiff David Thompson worked as a security guard for Regions Security Services, Inc. (“Regions”). At the beginning of his employment, Thompson typically worked 40 hours per week at a rate of $13.00 per hour. However, beginning in early 2019, Regions began scheduling him for about 20 additional hours per week. For the first six to seven months of this new schedule, Regions continued to pay his regular rate of $13.00 per hour which, for the additional hours beyond 40 per week, corresponded to an overtime rate of $19.50, as required under the Fair Labor Standards Act (FLSA) (i.e., 1.5 times the regular rate for each hour worked beyond forty in a workweek).

However, in mid-July 2019, Regions inexplicably reduced Thompson’s regular hourly rate to $11.15, with a corresponding hourly overtime rate of $16.73. For the next eleven or so months, Thompson worked between 55 and 75 hours a week at this reduced hourly rate. Regions then returned him to a 40-hour per week schedule and increased his regular rate to its original $13.00 per hour.

Thompson subsequently filed suit against Regions, alleging that the reduction in his hourly rate was an attempt to avoid paying him the full amount of overtime he was due during the majority of the time his overtime hours were significantly increased, in violation of the FLSA. On motion by Regions, the district court dismissed Thompson’s lawsuit on the pleadings.

The Eleventh Circuit Decision

Thompson appealed and the Eleventh Circuit reversed. First, the Court of Appeals noted that the outcome turned on the meaning of the term “regular rate” which, under the FLSA, is the hourly rate for all non-excludable compensation that an employee receives for a 40-hour workweek. Here, arguably, Thompson had two different hourly rates – $13.00 and $11.15 – that could qualify as his regular rate.

The Eleventh Circuit then turned to the Department of Labor (DOL)’s FLSA regulations for further guidance. Most pertinently, Section 778.500 provides that an employee’s regular rate cannot “vary from week to week inversely with the length of the workweek.” Citing to an opinion from a sister circuit court, the Court of Appeals noted that an “‘agreement, practice, or device that lowers the hourly rate during statutory  overtime hours or weeks when statutory overtime is worked is expressly prohibited under’ the Department’s interpretive regulations” (quoting Brunozzi v. Cable Commns, Inc., 851 F.3d 990, 997 (9th Cir. 2017)). The Eleventh Circuit added that this prohibition prevents an employer from indiscriminately manipulating an employee’s hours and pay rate to effectively avoid paying time-and-a-half for overtime.

Here, it appeared that Thompson’s regular rate consistently remained at $13.00 per hour until, several months after he began working substantial overtime hours, the Company suddenly reduced his hourly rate with no obvious explanation. Although Regions asserted that it changed Thompson’s regular rate to accommodate his requested scheduling modifications, Thompson plausibly had suggested that instead the Company did so to avoid paying as much overtime during the eleven-month period when he worked significant overtime hours. Because a district court, when reviewing a motion for judgment on the pleadings, must accept the facts alleged in the complaint as true and view them in the light most favorable to the plaintiff, an issue of material fact remained as to the real reason for the reduction in Thompson’s hourly rate. Thus, the grant of dismissal was reversed and the case remanded.

The Takeaway

As the Eleventh Circuit’s decision highlights, an employer may not artificially manipulate an employee’s regular rate in an effort to reduce or eliminate overtime pay, without running afoul of the FLSA (or comparable state law).

If you have any questions about this decision or any other wage and hour questions, please contact a Jackson Lewis attorney.

In 2018, the Michigan legislature adopted, and then within the same legislative session amended, two voter-approved ballot initiatives, one to significantly raised Michigan’s minimum wage and the other to expand employer obligations to provide paid sick leave. In 2022, the Michigan Court of Claims held that the legislature’s actions violated the Michigan Constitution and ordered reinstatement of the ballot initiatives as originally presented.

However, in January 2023, prior to the ordered reinstatement date, the Michigan Court of Appeals reversed that decision, concluding that the legislature did in fact possess such authority. The Michigan Supreme Court has now agreed to hear the matter and decide which version of the law is valid and, in doing so, whether the legislature has the authority under the Michigan Constitution to adopt and amend voter-approved ballot initiatives within the same legislative session. Mothering Justice et al. v. Attorney General and State of Michigan, Appeal No. 165325 (Mich. June 21, 2023).

Background

In the summer of 2018, the Michigan legislature was presented with two ballot initiatives, one to increase the minimum wage and the other to require employers to provide paid sick leave to their employees. Under the Michigan Constitution as interpreted and applied for many decades prior, the legislature had three options for each initiative:

(1) Reject the initiative, in which case it would be placed on the November 2018 ballot for the voters to either approve or disapprove;

(2) Adopt and enact it without any modifications; or

(3) Propose an alternative, which would then be placed on the ballot alongside the initiative, with the option receiving the most votes becoming law.

Instead, the legislature enacted both initiatives and then immediately amended them, revising key provisions in the process. In so doing, the legislature eliminated the ability of the voters to decide on either the original ballot initiatives or the amended versions passed by the legislature. In July 2022, the court of claims held that the legislature’s actions violated the Michigan Constitution. As result, the court voided the amended laws adopted by the legislature and ordered reinstatement of the ballot initiatives as originally presented. (For further details on the events leading to the court of claims decision and the decision itself, see our articles, Michigan Court Voids State’s Minimum Wage and Paid Medical Leave Acts, Creating Compliance LimboOrder Issuing Changes to Michigan Minimum Wage and Paid Sick Leave Law Stayed Until February 2023; and Michigan Minimum Wage and Paid Leave Update: Agency Guidance and the Mothering Justice Appeal.)

In anticipation of an appeal, the court of claims issued a temporary stay of the reinstatement. In January 2023, prior to the expiration of the stay, the Michigan Court of Appeals reversed the decision of the court of claims, holding that the legislature was within its authority to amend the 2018 ballot initiatives. (For further details of that decision, see our article, (Mothering) Justice Denied: Legislative Amendments to Minimum Wage and Paid Sick Leave Upheld).

The Michigan Supreme Court has now granted plaintiff Mothering Justice’s application for leave to appeal the decision of the Court of Appeals. The Supreme Court’s grant orders the parties to address (1) whether the legislature violated Article 2, Section 9 of the Michigan Constitution when it enacted the voter initiatives into law and then amended those laws in the same legislative session, and (2) if so, whether the voter initiatives remain in effect. A number of third parties already have filed amicus briefs and the Supreme Court’s order allows for additional parties to request filing of such briefs.

The Takeaway

As long as Michigan employers are in compliance with the current versions of Michigan’s minimum wage laws and Paid Medical Leave Act (PMLA), no further action is required unless and until the Michigan Supreme Court rules otherwise. Thus, for now the minimum wage remains at $10.10 per hour and the tipped employee minimum wage remains at $3.84 per hour. Similarly, under the current paid sick leave law, employers with more than fifty (50) employees must provide eligible employees with a maximum of 40 hours of paid sick time, with such employees accruing one hour of sick leave for every 35 hours worked.

Jackson Lewis attorneys will continue to monitor and report on related developments. In the meantime, please contact a Jackson Lewis attorney if you have any questions.

According to the latest report from the U.S Department of Labor (DOL) regarding its regulatory agenda, released this week, the DOL has now set the publication of the new proposed Overtime Rule for August 2023. However, given the current status of the President’s nominees for both the Secretary of Labor and the Wage and Hour Division (WHD) Administrator, further pushback of this date certainly seems possible.

More than two years ago, in testimony before the House Education and Labor Committee, then Secretary of Labor Marty Walsh stated that the current minimum salary necessary to qualify for the Executive, Professional, and Administrative exemptions from overtime – a.k.a. the “white collar” exemptions – under the Fair Labor Standards Act (FLSA) was “definitely too low.” Since the beginning of 2020, that annual salary level has been $35,568 ($684 per week), while the minimum annual salary required to satisfy the “Highly Compensated Employee” (HCE) exemption is $107,432.

In the Fall of 2021, the DOL first formally listed the publication of a new Overtime Final Rule in its regulatory agenda. The WHD then spent several months holding virtual “town halls” with employees and employers to gather initial input for the anticipated rule, with an expected publication date of Spring 2022 for its Notice of Proposed Rulemaking (NPRM).

And then we waited. And waited, as the expected release date of the proposed rule continued to be pushed back, undoubtedly due in part because the Senate has confirmed neither Julie Su, President Biden’s nominee to replace Walsh as Secretary of Labor, nor Jessica Looman, his nominee to lead the WHD. DOL also may be waiting for a ruling on pending summary judgment motions in a lawsuit challenging the Department’s authority to make the prior increase. See our Special Report, Fifth Circuit Reverses Denial of Preliminary Injunction to Invalidate DOL Tipped Dual Jobs Rule.

So the wait continues. 

Jackson Lewis will continue to monitor and report any updates on this development. If you have any questions about the current overtime regulations or any other wage and hour question, please contact the Jackson Lewis attorney(s) with whom you regularly work.

A named plaintiff who files a collective action for overtime pay under the Fair Labor Standards Act (FLSA), and whose individual claims are dismissed without prejudice because the district court lacks jurisdiction over the plaintiff’s former employer, is not entitled to tolling of the statute of limitations of those claims. Therefore, when the plaintiff subsequently refiled those claims in the proper district court after the maximum limitations period had expired, those claims were rightly dismissed with prejudice by the second court. Wright v. Waste Pro USA, Inc., 2023 U.S. App. LEXIS 14692 (11th Cir. June 13, 2023).

The Eleventh Circuit has jurisdiction over the federal courts in Alabama, Florida, and Georgia.

Background

Plaintiff Anthony Wright worked as a driver for Waste Pro Florida, a subsidiary of parent company Waste Pro USA, from September 2014 to November 2015. In October 2017, he and two other drivers filed both individual claims and a putative collective action in the U.S. District Court for South Carolina, against the parent company and several of its subsidiaries under the FLSA, claiming violations of the Act’s overtime provisions.

In December 2017, the parent company and Waste Pro Florida moved to dismiss Wright’s claims against them, on the basis that the South Carolina court lacked personal jurisdiction over them. In July 2019, the district court granted the defendants’ motions and dismissed Wright’s individual claims without prejudice.

In August 2019, Wright refiled his claims in the U.S. District for the Southern District of Florida. However, because the FLSA provides for a two-year statute of limitations, or at most a three-year limitations period for “willful” claims, and because Wright last worked for Waste Pro in November 2015, the parties agreed that all of Wright’s claims would be untimely unless the Florida court concluded that the limitations period was tolled. The Florida court concluded that his claims were not tolled during the pendency of his claims in South Carolina and further that no basis existed for equitable tolling of the limitations period on his claims. Therefore, the court dismissed his claims with prejudice.

The Eleventh Circuit Decision

Wright appealed and the Eleventh Circuit affirmed the dismissal. As to Wright’s first argument, the Court of Appeals held that his claims were not tolled during the pendency of the South Carolina case because that case and his subsequent lawsuit in Florida were separate cases. “For purposes of a limitations period, an action that is dismissed without prejudice is ordinarily treated as never filed,” noted the Eleventh Circuit, and “[s]uits under the [FLSA] are not an exception to that rule.” Therefore, Wright was obligated to file his claims in Florida within the maximum three-year limitations period if they were to have a chance of survival. The court of appeals distinguished Wright, as a named plaintiff in the South Carolina lawsuit, from those who joined the lawsuit only as “opt-ins” to the collective action.

As to equitable tolling, that extraordinary remedy potentially might have been available only if Wright had no adequate remedy at law. Here, however, Wright had two such legal options: He could have filed a “placeholder” complaint in Florida to preserve his claims during the limitations period while the South Carolina case proceeded, or he could have filed an appeal of the South Carolina court’s dismissal order. He did neither. Thus, his claims were properly dismissed.

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

In a June 9, 2023 filing with the U.S. Court of Appeals for the Fifth Circuit, the U.S. Department of Labor (DOL) stated that its Independent Contractor (IC) Final Rule, addressing the standard for determining whether a worker is an employee or “independent contractor” under the Fair Labor Standards Act (FLSA), will not be ready for publication until October 2023, five months later than the Department previously had asserted.

A Notice of Proposed Rulemaking (NPRM) for the new IC rule was issued in October 2022, following a March 2022 decision by a Texas federal court that the DOL’s actions were unlawful in delaying and withdrawing an IC final rule issued during the waning days of the Trump administration (the “Trump IC Rule”). As a result of the court’s ruling, the Trump IC Rule went into effect, retroactive to its intended effective date in March 2021. The DOL appealed that ruling to the Fifth Circuit, but subsequently asked the Court of Appeals to stay proceedings while it went through the formal process of both withdrawing the Trump IC Rule and issuing a new IC Final Rule.

For a full discussion of the NPRM and the history of the independent contractor analysis under the FLSA, see our article, What’s Old is New Again: Labor Department Flip-Flops on Independent Contractor Analysis.

Jackson Lewis will continue to keep you updated on further developments. In the meantime, if you have any questions about the proposed rule, the independent contractor analysis, or any other wage and hour issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.

By an 11-10 vote, Labor Secretary nominee Julie Su barely garnered the approval of the Senate Committee on Health, Education, Labor, and Pensions, but her chances of success before the full Senate remain unknown.

Recently, we reported that a number of Republican members of the Committee had questioned whether she was qualified for the position. During questioning by the Committee, Su plainly stated that she has no intention of advocating for the employee-friendly “ABC” test for determining independent contractor status. Nevertheless, her time as California’s Labor Secretary – where she enforced such a test – has some Republican Senators and business owners concerned. Notably, neither Senator Joe Manchin (D-WV) nor former Democratic Senator Kyrsten Sinema (I-NV) have declared whether they will support Su’s nomination, and failure to obtain their votes will hamper her chances of approval.

Su now waits alongside Jessica Looman, Biden’s nominee as head of the Wage and Hour Division of the DOL, for the full Senate to vote on her nomination. In the meantime, if you have any questions about this development or any other wage and hour issues, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Labor Secretary nominee Julie Su continues to face close scrutiny by Republican members of the Senate Committee on Health, Education, Labor, and Pensions, at least some of whom believe she is not qualified for the position. Notably, however, during the Committee hearing on her nomination, Su plainly stated that , in her view, the DOL has no intention of seeking to implement the “ABC” test for determining independent contractor status, or of issuing a new joint employer rule.

The “ABC” test currently is used by a handful of states, most notably California, to determine whether an individual is properly classified as an employee or an independent contractor, and is a considerably stricter test for establishing independent contractor status than that currently applied under the FLSA. During the Committee hearings, Su noted that any change to the independent contractor analysis currently adopted by the DOL would require Congress to implement. Notably, the DOL issued a Notice of Proposed Rulemaking in 2022 to both withdraw a Trump-era Final Rule regarding the independent contractor analysis and to publish a new rule. The proposed rule, which has yet to be finalized, would return to the multi-factor analysis used by the Department for decades and which, in some variation or another, has been used by the federal courts throughout that time.

Similarly, Su testified that currently the DOL has no intention of issuing a new joint employer rule. The DOL likewise withdrew a Trump-era rule on the issue (subsequently vacated in large part by a New York federal court) and Su stated that the analysis is “fact-specific test” that will continue to “stand [ ] based on case law that has been developed over several decades.”

In addition to the pending nomination of Su as Secretary of Labor, Biden’s nominee for the head of the DOL’s Wage and Hour Division, Jessica Looman, remains to be confirmed by the full Senate, having been favorably reported out of the Committee.

Jackson Lewis will continue to monitor and report any updates on these DOL developments. In the meantime, if you have any questions about these or any other wage and hour issues, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Beginning May 1, 2023, the hourly minimum wage for tipped employees in the District of Columbia will increase from $5.35 to $6.00. This increase is the first step in the eventual elimination of the tip credit altogether in the District.

The next phase will occur on July 1, 2023, when the base hourly minimum wage for tipped employees will increase from $6.00 to $8.00. That increase will coincide with an increase in the District’s full hourly minimum wage, from $16.10 to $17.00, for all workers regardless of the size of the employer. If, averaged weekly, a tipped employee’s combination of tips and their base minimum wage do not equal the District’s full minimum wage, the employer must pay the difference.

During the November 2022 elections, the D.C. Council passed the Tip Credit Elimination Act. Under previous District law, employers of tipped workers were permitted to take a credit against tipped wages received by workers to satisfy the minimum wage guaranteed to all workers under the law. The Tip Credit Elimination Act gradually will reduce the tip credit until, in 2027, the tip credit is eliminated altogether and the base wage for tipped workers will match the District’s full minimum wage.

The first step in the reduction of the tip credit originally was scheduled to take effect on January 1, 2023, but was delayed due to the lengthy voting process to elect Representative Kevin McCarthy (R-Cal.) as speaker of the U.S. House of Representatives and its impact on the timeframe Congress is given to review approved D.C. voter initiatives or Council legislation.

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

In an issue of first impression, the U.S. Court of Appeals for the Third Circuit held that paid time off (“PTO”) is not a form of salary under the Fair Labor Standards Act (“FLSA”) and, therefore, deductions from a salaried employee’s PTO balance do not violate the Act. Higgins v. Bayada Home Health Care Inc., 2023 U.S. App. LEXIS 6124 (3d Cir. Mar. 15, 2023).

The Third Circuit has jurisdiction over the federal courts in Pennsylvania, New Jersey, and Delaware.

Background

Plaintiff Stephanie Higgins is a registered nurse who worked for defendant Bayada Home Health Care from 2012 to 2016 as a full-time, salaried employee. Higgins and all other full-time salaried healthcare employees at Bayada were required to meet weekly “productivity minimums.” These minimums are expressed in points, with each point equating to work tasks like patient visits (and thus to hours worked). When a healthcare worker (referred to by the company as Clinicians) exceeds their productivity minimum, they are paid more. Conversely, when a Clinician falls short of the weekly minimum, Bayada reduces their PTO balance based on expected-versus-actual points earned.

An employee may request an increase or decrease in their weekly productivity minimums, with a corresponding increase or decrease in salary, but the company does not deduct from an employee’s guaranteed base salary if they lack sufficient PTO to cover a productivity point deficit. On the contrary, an employee’s salary would only be reduced if they took a voluntary day off without sufficient PTO to cover it.

After her employment ended, Higgins filed a collective action against Bayada, asserting that the reductions in her PTO balance constituted an unlawful salary deduction in violation of the FLSA and the Pennsylvania Minimum Wage Act (PMWA), thereby converting her to an hourly employee entitled to unpaid overtime. The district court granted summary judgment for the company on these claims and certified the matter for immediate appeal to the Third Circuit.

Third Circuit Decision

On appeal, the Third Circuit affirmed the district court’s dismissal. Because the FLSA does not define the terms “salary” or “fringe benefits,” the court of appeals began with a close reading of the Act’s regulations. Those regulations provide that an employee is paid on a “salary basis” when they “regularly receive[] 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 U.S.C. § 541.602(a). Importantly, the 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. at § 541.602(a)(1), and repeated deductions based on the quality or quantity of an employee’s work may transform the employee’s pay from salary-based to hourly. Id. §§ 541.602(a)(2) & 603(a).

Based on these regulations, as well as dictionary definitions of the terms “salary” and “fringe benefits,” the Third Circuit concluded that PTO deductions do not violate the “salary basis” regulations because, “when an employer docks an employee’s PTO, but not her base pay, the predetermined amount that the employee receives at the end of a pay period does not change.” Contrary to the plaintiff’s assertion, there was no evidence that Bayada ever reduced the guaranteed salary of her or any other healthcare worker if their PTO was exhausted.

The Takeaway

While the Third Circuit’s holding clarifies the issue under federal law for the courts in its circuit, the plaintiff did not properly preserve on appeal her corresponding claim under the PMWA and therefore the issue remains undecided under Pennsylvania law, as well as under the law in other federal circuits. Thus, while employers now have guidance as to their options for PTO deductions under federal law in the Third Circuit, they should be cautious in assuming that the same guidance will apply under state law or in other circuits.

If you have any questions about this decision, the “salary basis” regulations, or any other wage and hour question, please contact a Jackson Lewis attorney.

In the wake of the recently-announced and imminent departure of Secretary of Labor Marty Walsh for the National Hockey League Players Association, President Biden is expected to nominate Deputy Secretary of Labor Julie Su as Walsh’s successor to head the Department of Labor (DOL). Su has been in her current position since July 2021, and previously led the California Labor and Workforce Development Agency. This latter experience could create opposition to her nomination from Republican members of Congress. Conversely, Su has received ringing endorsements from a number of employee rights groups.

Secretary Walsh’s pending departure will leave two significant openings at the Department of Labor, as Biden’s nominee for the head of the DOL’s Wage and Hour Division, Jessica Looman, has yet to be confirmed by the Senate.

Jackson Lewis will continue to monitor and report any updates on these DOL developments. 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.