On October 13, 2022, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM), seeking to revise the standard for determining whether a worker is an employee or “independent contractor” under the Fair Labor Standards Act (FLSA). The NPRM proposes to withdraw the current regulations, issued during the last days of the previous administration, and essentially replace them with the standards that existed prior to those regulations.

In the NPRM, the DOL originally set a deadline of November 28, 2022, for the public to submit comments regarding the proposed regulations. Now, in response to complaints from several business groups and others that the 45-day comment period was too short to meaningfully analyze the proposed regulations, the DOL has extended the comment deadline by 15 days, until December 13, 2022. The lack of a “meaningful” review period was an issue that contributed to a federal court’s invalidation of the Department’s first effort to withdraw the current regulations.

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 encourages affected companies to comment on the NPRM and its attorneys are available to help evaluate the impact of the proposed regulations on an employer’s business operations.

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

On October 12, 2022, the Supreme Court held oral argument to address the decision of the U.S. Court of Appeals for the Fifth Circuit in Hewitt v. Helix Energy Sols. Group, Inc., 15 F.4th 289 (5th Cir. 2021), cert. granted, No. 21-984 (U.S. May 2, 2022), and a corresponding split among the circuit courts of appeal regarding the application of Fair Labor Standards Act (FLSA) regulations for the “highly compensated employee” (HCE) exemption from overtime.

In Hewitt, the Fifth Circuit held that the employer’s day-rate pay structure did not satisfy the “salary basis” component of the “white collar” exemptions under the FLSA, even though the employee at issue unquestionably met the salary-level and duties requirements of the HCE variation of those exemptions. The Fifth Circuit further concluded that the employee did not meet a separate exemption requirement, namely, that there be a reasonable relationship between the employee’s total weekly pay and any weekly minimum salary he received.

Background

In Hewitt, the plaintiff worked month-long hitches on an oil rig and was paid $963 for every day that he worked. He admittedly earned over $200,000 per year and supervised about a dozen other employees. On its face, this would satisfy the FLSA’s “highly compensated employee” (HCE) exemption from overtime, which requires a relaxed duties test and, at the time, annual compensation of at least $100,000 (now, $107,432).

However, the plaintiff argued that his “day rate” pay did not satisfy Department of Labor (DOL) regulations which, to satisfy the HCE exemption, require an employee’s pay to be calculated on a “salary basis,” generally defined as the regular receipt of a “predetermined” amount of pay “on a weekly, or less frequent basis,” the amount of which cannot be reduced due to “variations in the quality or quantity of work performed.” Further, the plaintiff relied on a DOL regulation indicating that an exempt employee’s guaranteed salary must bear a “reasonable relationship” to any additional pay received on a daily or hourly basis. He asserted that his “day rate” pay system was incompatible with these regulations.

In a sharply divided en banc proceeding, the Fifth Circuit concluded the plaintiff did not qualify for the HCE exemption because, even though his day rate pay was well above the $455 (now, $684) per week minimum salary required by the exemption, the pay structure failed to satisfy the regulatory requirement that an employee be paid a guaranteed weekly salary that complied with the “reasonable relationship” test found in Section 541.604(b) of the regulations.

In dicta, the Sixth and Eighth Circuit Courts of Appeal previously had reached the same conclusion regarding the exemption’s requirements. However, the First and Second Circuits previously had determined that the “reasonable relationship test” does not apply to highly compensated employees, at least for those paid a minimum guaranteed weekly salary. The Supreme Court granted certiorari to resolve these potentially conflicting interpretations of the regulations.

Supreme Court Oral Argument

During oral argument, questioning by the Justices appeared to demonstrate the convoluted nature of the salary basis regulations applicable to the executive, administrative, and professional (“EAP”) exemptions (also known as the “white collar” exemptions). This confusion becomes even more pronounced when dealing with the pay structures that have developed for highly compensated employees in the energy industry, such as the plaintiff in Hewitt.

During oral argument, several Justices pressed counsel appearing on behalf of the appellant-employer Helix Energy, on whether “salary” should be defined as a “stable” or “predictable” amount received each week. Appellant’s counsel asserted that the language of the regulations clearly specifies that the “salary basis” requirement simply establishes the minimum compensation that the employee must be paid each week; that the compensation does not vary based on the quantity or quality of work; and that an employee may receive more than that minimum and still be paid on a salary basis.

For example, he noted, Section 541.602 specifically provides that an employee is paid “on a salary basis” if the employee receives a predetermined amount that constitutes “all or part” of the employee’s compensation. The HCE exemption set forth in Section 541.601 specifically provides that the total compensation paid must only “include” $455, paid on a salary basis (the equivalent of about $24,000 annually), and thus the regulation appears to contemplate that the remainder of the $100,000 annual compensation requirement may be paid on a daily, hourly, or other basis. And importantly, appellant’s counsel argued, Section 541.601 is the most pertinent regulation because it specifically applies to the class of highly compensated employees such as the plaintiff. Consequently, appellant’s counsel argued, the separate “weekly, or less frequent” requirement of Section 541.602 and the “reasonable relationship” requirement of Section 541.604(b) should be inapplicable, irrespective of the day-rate structure of an employee’s pay.

Justices Kavanaugh and Gorsuch questioned whether the regulations are inconsistent with the statutory language of the FLSA, which does not address salary requirements at all, with Justice Kavanaugh even commenting that this would be a “strong argument.” However, both appellant’s counsel and the Justices acknowledged during the questioning that this argument was not squarely presented in the instant case.

Conversely, counsel for the plaintiff-appellee focused his oral argument on the common understanding of what it means to be a salaried employee and how the FLSA regulations purportedly capture that understanding. Because a “day rate” employee’s pay is calculated on a “daily basis,” and no set weekly amount of the compensation was guaranteed, such an employee can never meet the “salary basis” requirements of the regulations, he asserted.

The Takeaway

It is unclear how the Court will resolve the dispute over regulatory interpretation, yet its decision is certain to affect the pay practices of many oil, gas, and utility companies, given the prevalence of day rates and hybrid salaried/hourly pay structures in the energy industry.

Further, the Justices’ inquiries regarding inconsistencies between the salary regulations and the statutory text of the EAP exemptions may spark a new wave of litigation challenging the validity of the salary requirements. Their inquiries may suggest a belief that the salary regulations are outside the scope of the DOL’s regulatory authority under the “major questions” doctrine, invoked by the Court earlier this year in overturning an Environmental Protection Act regulation. That doctrine provides that Congress cannot defer significant issues of national policy to an administrative agency unless there is a clear expression of such intent.

Since the Court’s recent application of the major questions doctrine, a lawsuit challenging the DOL’s recent Tipped Regulations Final Rule has cited it as a basis for overturning the regulations. Thus, it is not inconceivable that the doctrine ultimately may come into play with respect to any or all of the salary regulations applicable to the EAP exemptions. Furthermore, when a federal district court enjoined, and ultimately invalidated, the DOL’s 2016 overtime final rule establishing a significant increase in the salary threshold for the “white collar” exemptions, that court relied on the plain language of the statute and the Chevron doctrine to conclude that “Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary.” Nevada v. DOL, 218 F. Supp. 3d 520, 530 (E.D. Tex. 2016); Nevada v. DOL, 275 F. Supp. 3d 795 (E.D. Tex. 2017) (invalidating the 2016 overtime final rule). Although the DOL changed course by implementing new salary requirement regulations in 2020, only time will tell whether new challenges to the validity of the salary regulations, inspired by the Justices’ comments, will gain traction in the courts.

Jackson Lewis will continue to provide updates on this case but, in the meantime if you have any questions about exemptions under the FLSA or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Washington State’s Department of Labor and Industries recently released a draft administrative policy with updated guidance on the modified pay transparency requirements beginning January 1, 2023. This draft policy aims to clarify issues raised by stakeholders in the feedback process for the development of the final administrative policy. The draft policy gives some new insight on several important topics.

Employers Covered

The guidance clarifies that the 15-employee threshold “includes employers that do not have a physical presence in Washington, if the employer has one or more Washington-based employees.”  Covered employers sponsoring foreign national employees for legal permanent residence (“green cards”) through the PERM process will have to comply with these requirements when conducting PERM recruitments.

Job Posting Defined

Job postings include openings for internal transfers as well as remote jobs, according to the new guidance. Stating in a posting that the employer will not accept Washington applicants does not excuse compliance with this law.  

Information Required

Each posting must include “the wage scale or salary range and a general description of all the benefits and other compensation for a specific available position to be offered to the hired applicant.” The new guidance provides detailed examples of information that should and should not be included. For example, the wage scale/salary range should have a low and high number, rather than open-ended descriptions, such as  “up to $29/hr” or “$60k and up.” Any starting pay or range should be specified. If there are multiple levels for a job, the pay scale for each level should be provided. If the employer offers a different job than what the applicant applied for, the employer should provide the postings for both jobs.

Postings also must include a general description of all benefits and other compensation. Benefits include items such as health care benefits, retirement benefits, any benefits permitting paid days off (including more generous paid sick leave accruals than the minimum required by law, parental leave, and paid time off or vacation benefits), and any other benefits that must be reported for federal tax purposes, such as fringe benefits. The guidance explains that “other compensation” can be discretionary bonuses, stock options, travel allowance, relocation assistance, profit-sharing, or other forms of compensation that would be offered to the hired applicant along with their established salary range or wage scale. Employers need not include monetary values but providing them does not excuse the requirement of the general description.

The guidance states that employers should update postings as this information changes.

The guidance also addresses how to use links regarding benefits and other compensation. The posting must have the “general description” of the benefits and other compensation, but employers can choose to link to more details, which must remain updated. If the benefits and other compensation information is available on the original or subsequent web pages, then the information needs to only be listed at least once. According to the Department, “[i]t is the employer’s responsibility to assure continuous compliance with functionality of links, up to-date information, and information that applies to the specific job posting, regardless of any use of third-party administrators.”

If you have any questions about the draft guidance, the upcoming pay transparency requirements, or any other wage and hour question, please contact a Jackson Lewis attorney.

Although the plaintiff cable technicians, who were paid by the completed job and not by the hour, were covered employees under the Fair Labor Standards Act (FLSA), they nonetheless were bona fide commissioned employees and therefore exempt from the overtime requirements of Act, the Fifth Circuit Court of Appeals recently ruled. Accordingly, the district court’s grant of summary judgment to the plaintiffs’ employer was affirmed. Taylor v. HD & Assocs., 2022 U.S. App. LEXIS 22762 (5th Cir. Aug. 16, 2022). The Fifth Circuit has jurisdiction over the federal courts in Louisiana, Mississippi, and Texas.

HD & Associates (HDA), a subcontractor for a major cable communications corporation, installs and repairs cable and telephone equipment for the cable corporation’s residential customers in Louisiana. HDA is located in Louisiana and all of the relevant work that HDA performed for the cable corporation was in Louisiana. The cable corporation creates daily work orders for customer service requests in a digital platform, bundles them, and creates and assigns routes for the technicians, with arrival times for each work order assigned based on the time estimate for that type of work order. Both the cable corporation and HDA use the digital platform to track the location of each technician and their completed assignments, and to update routes and assignments as needed. Each work order is allocated a point value based on the complexity of the assignment and the point value determines how much the technician is paid for that assignment.

Plaintiff Byron Taylor, on behalf of himself and other similarly situated technicians, filed a lawsuit against HDA, alleging that they worked in excess of 40 hours per week but were not paid overtime, in violation of the FLSA. Following a grant of conditional certification, HDA moved for summary judgment, asserting that the company was not covered by the FLSA and even if it was, the technicians were bona fide commissioned employees exempt from the FLSA’s overtime requirements. The district court agreed with both contentions, and further concluded that the technicians were exempt under the FLSA’s Motor Carrier Act exemption. Thus, the district court granted summary judgment to HDA and dismissed the case. The plaintiffs appealed and the Court of Appeals affirmed the grant of summary judgment.

On appeal, the Fifth Circuit first addressed whether the technicians or HDA (or both) are covered by the FLSA, noting that there are two methods for establishing FLSA coverage: individual and enterprise-wide. An individual employee is covered by the FLSA if they “engage[] in commerce or in the production of goods for commerce.” In this respect, “[t]here is no de minimis requirement,” so “[a]ny regular contact with commerce, no matter how small, will result in coverage.” The fact that the technicians “work directly on the instrumentalities of interstate commerce, including phone and internet service,” is sufficient for them to fall under the FLSA’s individual coverage prong. Thus, even if the company was not covered under the enterprise prong – which the district court mistakenly had analyzed by relying on individual-coverage precedent – the plaintiffs were subject to the FLSA.

Regardless, the technicians were in fact bona fide commissioned employees and therefore exempt from the FLSA’s overtime requirements. The commissioned employee exemption, set forth in 29 U.S.C. § 207(i), applies to (1) employees of retail or service establishments; (2) whose regular rate of pay is in excess of one and one-half times the applicable minimum hourly rate; and (3) more than half of whose compensation represents commissions on goods or services. Here, neither party disputed the first two elements of the exemption, so the only issue was whether the technicians’ pay constituted commissions. Noting that whether a payment is a commission depends on how it works in practice rather than its name, the Fifth Circuit adopted the definition of a commission frequently used by other courts and involving several, non-dispositive factors:

(1) whether the commission is a “percentage or proportion of the ultimate price passed on to the consumer;” (2) whether the commission is “decoupled from actual time worked, so that there is an incentive for the employee to work more efficiently and effectively;” (3) the type of work is such that its “peculiar nature” does not lend itself to a standard eight-hour work day; and (4) whether the commission system “offend[s] the purposes of the FLSA.”

In this case, the “commission” paid to the technicians is a percentage of the ultimate price passed onto the cable corporation’s customers and the amount earned is tied to customer demand, not to the number of hours the technicians work. Moreover, concluded the Court of Appeals, “given the nature of cable repairs, the work does not lend itself to a standard workday” and, given that the payment system is widely used in the cable technician industry, it “does not offend the purposes of the FLSA.” On the contrary, as the Fifth Circuit had noted in a previous case, “where a system of pay is industry-wide, it is persuasive that the whole industry is not violating FLSA overtime provisions.”

Most importantly, the amount of income technicians can earn is based on how hard they work and how skilled they are, rather than how long they spend on a given assignment. Thus, a technician given a five-point job earns the same amount whether the assignment takes one hour or three to complete it, thereby incentivizing them to work faster and more efficiently. Moreover, because technicians are paid only for services they actually provide and cannot “stock” their services as, for example, a garment worker can sew items that can then be placed into inventory if not immediately needed, the points system is not a “piece rate” compensation method. In sum, the points-based compensation method is a commission system and the technicians were properly deemed to be overtime-exempt under the FLSA. In light of this determination, the Court of Appeals elected not to address the district court’s further conclusion that the Motor Carrier Act exemption also applied.

If you have any questions about the commissioned salesperson exemption or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

The mere fact that the plaintiff was building livestock enclosures on farms did not necessarily preclude his entitlement to overtime pay under the agricultural exemption of the Fair Labor Standards Act (FLSA), the Seventh Circuit Court of Appeals has held. Therefore, the district court improperly dismissed the plaintiff’s complaint. Vanegas v. Signet Builders, Inc., 2022 U.S. App. LEXIS 23206 (7th Cir. Aug. 19, 2022). The Seventh Circuit has jurisdiction over the federal courts in Illinois, Indiana, and Wisconsin.

The Agricultural Exemption

One of the lesser-known overtime exemptions to the FLSA is the “agricultural” exemption. That exemption, found in 29 U.S.C. § 213(b)(12), applies to “any employee employed in agriculture” and includes primary and secondary definitions. The primary definition of agriculture involves what people typically envision as farming: “the cultivation and tillage of the soil, dairying, the production, cultivation, growing, and harvesting of any agricultural or horticultural commodities . . . , [and] the raising of livestock, bees, fur-bearing animals, or poultry[.]” Id. § 203(f).

The secondary definition pulls in in a broad variety of activities related to the primary farming activities, if they are “performed by a farmer or on a farm as an incident to or in conjunction with [primary] farming operations, including preparation for market [and] delivery to storage or to market or to carriers for transportation to market.” Id. This secondary definition contains language that became the focus of the lawsuit at issue, that is, did the plaintiff’s judicial complaint plead facts unequivocally demonstrating that his work was “incident to or in conjunction with” the primary farming operations where he built the enclosures, such that the exemption clearly applied?

The Lawsuit

Plaintiff Luna Vanegas, a Mexican citizen, was hired by defendant Signet Builders on an H-2A guestworker visa to build livestock enclosures on farms in Wisconsin and Indiana. Although Vanegas worked on land belonging to farms, he never had any contact with livestock. Vanegas filed a complaint on behalf of himself and his construction co-workers, alleging that they routinely worked more than 40 hours per week but were not paid overtime, in violation of the FLSA. In response, Signet filed a motion to dismiss under Federal Rule of Civil Procedure (FRCP) 12(b)(6), raising the affirmative defense that Vanegas and the putative plaintiffs are overtime-exempt under the FLSA’s agricultural exemption. Citing to Department of Labor (DOL) regulation 29 C.F.R. § 780.136, which provides that “[e]mployees engaged in the erection of silos and granaries” are “examples of the types of employees of independent contractors who may be considered employed in practices performed ‘on a farm,’” the district court agreed with Signet that Vanegas’s work qualified as agricultural labor, and dismissed the complaint.

The Court of Appeals Decision

Vanegas appealed and the Seventh Circuit reversed. As an initial matter, the Court of Appeals noted that, in this case, a motion to dismiss under Rule 12(b)(6) was inappropriate, as the FLSA exemption on which the defendant based its motion – and on which the district court based its dismissal – is not one of the affirmative defenses listed in Rule 12(b), and this is not “one of the rare [cases] in which the plaintiff had pleaded himself out of court by including ‘facts that establish an impenetrable defense to its claims’ in the complaint” (quoting Tamayo v. Blagojevich, 526 F.3d 1074, 1086 (7th Cir. 2008)). Rather, the defendant should have included the FLSA exemption defense in its answer, and then filed a motion to dismiss under Rule 8(c) after the pleadings had closed. Regardless, concluded the Seventh Circuit, questions of material fact remained unanswered that precluded dismissal of the lawsuit solely on the plaintiff’s complaint.

Looking to guidance from the DOL, the Court of Appeals cited to an interpretive rule explaining that three conditions must be met for work to fall within the agricultural exemption: (1) it must constitute an established part of agriculture; (2) it must be subordinate to the farming operations involved; and (3) it must not amount to an independent business. 29 C.F.R. § 780.144. Focusing on the third condition as dispositive of the appeal, the Seventh Circuit noted that DOL regulations establish a “fact-driven, totality-of-the-circumstances test” to determine whether the defendant’s construction business amounts to an independent business apart from agriculture. 29 C.F.R. § 780.145. Thus, the defendant’s (and the district court’s) reliance entirely on the “erection of silos and granaries” example ignored the remainder of that regulation, which clarifies that whether such construction workers are engaged in agriculture “depends, of course, on whether the practices are performed as an incident to or in conjunction with the farming operations on the particular farm[.]”

To that end, stated the Seventh Circuit, the “nuanced, fact-intensive inquiry” required to determine whether the construction work is incident to or in conjunction with the farming operations, or conversely is an independent business, “is ill-suited for resolution based only on the allegations of a complaint,” particularly given that “[w]ork that once was routinely performed by farmers” – for example, the production of fertilizer that is now routinely mass-created in factories – “can evolve into something separately organized as an independent productive activity.” Similarly, if the work at issue is routinely subcontracted by farmers rather than performed by the farmers themselves, that would be a “‘significant indication’” that the work is not agricultural. 29 C.F.R. § 780.146. In the case at hand, “[n]othing in the complaint addresses whether farmers in the modern agricultural economy ordinarily build their own large livestock enclosures or hire separately organized construction companies to do so – facts relevant only to the affirmative defense.”

Second, courts should consider whether the construction contracts are “in competition with agricultural or with industrial operations.” 29 C.F.R. § 780.146. “If a business’s primary competitors are not farming operations, then work performed for that business is unlikely to fall within the agricultural exemption.” Nothing in the plaintiff’s complaint addressed this question, let alone unequivocally answered it.

Third, courts should look at “the division of labor and supervision between a contractor’s employees and those of the farmer.” If there is minimal (or non-existent) overlap between the work performed by the farm’s employees and that performed by the contractor’s workers, “the logical implication is that the contractor’s work does not fall within the [agricultural] exemption.” Again, nothing in the judicial complaint resolved this question in Signet’s favor. On the contrary, the complaint alleged that Vanegas and his co-workers were employed and paid exclusively by Signet.

The Court of Appeals further rejected Signet’s argument that Vanegas’s work necessarily was “agricultural” because his H-2A visa had been approved, noting that the definition of “agricultural” work is broader under the H-2A visa application program than it is under the FLSA. After rejecting a procedural argument asserted by the company, and after briefly reviewing some other factors cited by the DOL regulations and looking to several analogous cases, the Seventh Circuit was “convince[d] [] that the district court adopted too narrow a focus when it looked only at the work that [the plaintiff] performed as an employee, omitting consideration of questions such as whether his employer was engaged in a productive activity separately organized from farming.” Thus, while ultimately Signet might be able to prove that the agricultural exemption applies to the work performed by Vanegas and his co-workers, it had not carried its burden to establish the exemption at this early juncture. Therefore, the Seventh Circuit reversed the dismissal of the case and remanded it to the district court for more analysis on the exemption’s application.

The Takeaway

This case brings to the surface some important reminders for employers regarding use of the FLSA’s agricultural exemption. First, as the Seventh Circuit noted, qualification as an H-2A visa worker does not equate to a worker’s status as exempt from overtime under the FLSA. Many vendors and farm labor contractors have a fundamental misunderstanding about this and will pass that along to their clients, leading to a widespread misconception among H-2A employers that these workers are automatically exempt from overtime. Moreover, the agricultural exemption is one of the more nuanced and complicated FLSA exemptions, often entailing a complicated factual analysis. Where an employee works, the type of employer for whom the employee works, and the ownership and identity of the commodities or products an employee is working with are all important factors in the application of the exemption. Finally, a number of states have their own agricultural exemption from overtime and these laws must be assessed when considering use of the exemption.

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

Private-sector essential employees who worked in Connecticut during the pandemic may receive up to $1,000 in premium pay (i.e., “hero pay”), through a $30 million fund established under the state budget approved by the General Assembly and Governor Ned Lamont.

To be eligible, workers must have earned less than $150,000 annually; must have been unable to work from home (i.e., had to report to work on-site); and had to be employed in an essential, non-governmental job between March 10, 2020 and May 7, 2022. Generally, whether an employee held an “essential” job is based on those categorized as such by the federal Centers for Disease Control and Prevention (CDC). Specifically, workers from occupations listed in categories 1(a) and 1(b) of the CDC’s vaccination priority list as of February 20, 2021 are eligible although, according to the Connecticut Essential Worker Covid-19 Relief Program website, other positions may qualify. Workers employed in hospitals or other healthcare facilities, residential care facilities, funeral homes, cemeteries, educational facilities, grocery stores, first responder units, and some manufacturing facilities are among those that likely qualify for the funds.

Employees may apply through the Program’s website. The application deadline is October 1, 2022, with the funds scheduled to be distributed in early 2023. Employers are prohibited from disciplining, discharging, or discriminating against employees because they have filed an application for premium pay, as well as prohibited from deliberately misinforming or deliberately dissuading employees from filing an application for payment.

If you have any questions about the Connecticut essential worker pay program or any other questions about Connecticut wage and hour law, please contact a Jackson Lewis attorney.

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.