DOL Extends Comment Periods for Proposed Joint Employer and Regular Rate Regulations

Citing the interest expressed by “law firms, unions, and advocacy organizations, among others,” the U.S. Department of Labor (DOL) has extended the period for public comment on recently-issued Notices of Proposed Rulemaking (NPRM) regarding amendments to the regulations concerning determination of the “regular rate” of pay under the Fair Labor Standards Act (FLSA) and to amendments clarifying what constitutes a “joint employer” under the Act.

The NPRM regarding the regular rate was published on March 29, 2019 and the NPRM regarding joint employers was published on April 9, 2019, both with 60-day public comment periods. With the just-announced extensions, the new deadline for submitting comments regarding the proposed regular rate rulemaking will be June 12, 2019 and the deadline for comments regarding the proposed joint employer regulations will be June 25, 2019.

An in-depth discussion of both proposed rulemaking efforts may be found on the Jackson Lewis website, here (Regular Rate) and here (Joint Employer).

Notably, the DOL has not announced a similar extension of the comment period for the NPRM it recently issue on a proposed increase in the salary level requirements for the white collar exemptions. That comment period currently is scheduled to expire on May 21, 2019.

If you have any questions about these proposed regulatory changes or any other wage and hour questions, please contact the Jackson Lewis attorney(s) with whom you regularly work.

California’s “ABC” Test for Independent Contractor Analysis to be Applied Retroactively, Ninth Circuit Holds

The U.S. Court of Appeals for the Ninth Circuit has dealt California employers another setback when responding to claims of misclassification of independent contractor status for violations of the Industrial Welfare Commission Wage Order (“IWC Wage Orders”), holding that the State’s recently-adopted “ABC” test must be applied retroactively. Vazquez v. Jan-Pro Franchising Int’l, Inc., 2019 U.S. App. LEXIS 13237 (9th Cir. May 2, 2019).   Almost exactly a year earlier, the California Supreme Court, in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, 416 P.3d 1 (Cal. 2018), broadened the definition of “employee” in the context of the IWC Wage Orders when undertaking the employee-versus-independent contractor analysis, by adopting what commonly is known as the ABC test. Under that standard, to establish that an individual is in fact an independent contractor, an employer must prove that:

A: The work must be free from the control and direction of the company in connection with the performance of the work, both under the contract for performance of the work and in fact;

B: The worker performs work that is outside the usual course of the company’s business; and,

C: The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

With the retroactive application of the more employee-friendly ABC test, the Dynamex decision will have an even more  significant impact on companies throughout California that rely on workforce configurations using independent contractors.

A detailed discussion of the Ninth Circuit’s decision in Vazquez may be found here,

while a discussion of last year’s Dynamex decision may be found here:

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

Wisconsin Supreme Court Holds State Law Precludes Pay for Normal Commute Time in Employer-Provided Vehicles

Reversing a decision of the lower appellate court, the Wisconsin Supreme Court has held that state law does not require employers to pay employees for routine commute time driving company-provided vehicles between the employees’ homes and their assigned jobsites. Kieninger v. Crown Equipment Corp., 2019 WI 27 , 2019 Wisc. LEXIS 123 (Mar. 20, 2019).  The Supreme Court held that its conclusion was based on a reasonable interpretation of the regulations governing Wisconsin’s wage and hour laws. This is particularly notable because the Wisconsin legislature has not adopted the language of the Employee Commuting Flexibility Act (EFCA), which in 1996 established that normal commute time, even when driving an employer-provided vehicle, is not compensable under the federal Fair Labor Standards Act (FLSA).

Specifically, under the applicable regulations, “wages accrue when employees are engaged in ‘physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer’s business.’”  Noted the Supreme Court (citing Wis. Admin. Code § DWD 272.12(1)(a)1). Moreover, “[t]hese exertions take place within a ‘workday,’ which comprises [] the period between the time on any particular workday at which such employee commences their principal activity or activities and the time on any particular workday at which they cease such principal activity or activities’” and “the ‘principal activities’ of which a workday consists ‘include[] all activities which are an integral part of a principal activity.’” (citing Wis. Admin. Code § DWD 272.12(2)(e)1). To that end, “[t]asks ‘integral’ to a principal activity encompass ‘those closely related activities which are indispensable to its performance.’” (citing Wis. Admin. Code § DWD 272.12(2)(e)1.c).

“Distilling this guidance into a workable framework,” noted the Supreme Court, “tells us that an employee’s activity is compensable if it takes place during a workday (that is, it is part of the employee’s principal activities, or is closely related and indispensable to them), it involves physical or mental exertion controlled or required by the employer, and it is necessarily and primarily done for the benefit of the employer’s business.” The regulations themselves clearly establish that normal commuting from home to work and back in an employee’s vehicle is not compensable, and “[w]hether the employee is in a personal or a company vehicle, he is doing the exact same thing, and no one disputes that the time at issue would not be compensable if [the plaintiff] had driven his own automobile.”

Moreover, the mere fact that the employee may be carrying tools in the employer-provided vehicle necessary to perform his principal job activities is an insufficient basis to convert the commute time into compensable work time, as such circumstances would “transform[] virtually every commute into a wage-earning event.” If that were the case, the mere fact that the employee is transporting himself to work would qualify as compensable time because “conveying an employee’s physical and mental resources to the office is integral and indispensable to a principal activity, to wit, whatever they were hired to do.” The Supreme Court distinguished this employee’s situation (direct travel from home to worksite) from cases in which an employee is required to make a two-leg journey, first from home to an employer-designated meeting place to pick up tools and then from the meeting place to the job site. The applicable regulations require that the second leg of that journey is compensable. The Supreme Court noted that those regulations describe the circumstances of employees who do not commute in an employer-owned vehicle, which is the opposite of the situation the employee in this case was faced with. Thus, held the Supreme Court, “[w]e cannot conclude that conveying company tools from an employee’s home to his jobsite, without more, makes his travel time ‘an integral part of a principal activity’ . . . or a ‘closely related’ activity that is ‘indispensable to its performance’ within the meaning of [the applicable regulations]” and such commute time is, therefore, non-compensable.

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

Supreme Court Holds Availability of Class Claims Must be Expressly Declared in Arbitration Agreements

Class action arbitration is such a departure from ordinary, bilateral arbitration of individual disputes that courts may compel class action arbitration only where the parties expressly declare their intention to be bound by such actions in their arbitration agreement, the U.S. Supreme Court has ruled in a 5-4 decision. Lamps Plus, Inc. v. Varela, No. 17-988 (Apr. 24, 2019). “Courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis,” held the Court.

As with last year’s holding in Epic Systems Corp. v. Lewis (discussed here), in which the Court upheld the validity of class and collective action waivers in arbitration agreements, today’s ruling provides further protection for employers intending to resolve employment-related disputes on an individual basis.

A full discussion of the Varela case and the Court’s holding may be found on the Jackson Lewis website, here.

When an FLSA Blended Rate Improperly Acts as a Regular Rate: A Case in Point

The Fair Labor Standards Act (FLSA) generally requires employers to pay non-exempt employees overtime pay at one and one-half times their “regular rate” of pay for all hours worked over 40 in a given workweek. The regular rate is the result of a math equation: The employee’s total compensation (with a few defined exceptions) paid by the employer during the workweek in question, divided by the total number of hours worked during that week.

The FLSA was designed specifically so that overtime hours are more costly to the employer than the first 40 hours in a week. The Act was passed in the midst of the Great Depression, when unemployment was high, so by increasing the cost of overtime hours, Congress intended to give employers a financial incentive to hire more employees and spread the work around. Thus, the FLSA is intentionally hostile to non-traditional compensation systems that attempt to blur the lines between straight time and overtime hours.

So, what happens when an employer tries to arrange it so that all hours effectively cost the same? In other words, may an employer satisfy the FLSA’s overtime obligation by blending the non-overtime rate with the overtime rate and paying that rate for all hours worked during the week? “No,” the Fourth Circuit Court of Appeals recently reaffirmed. U.S. Dep’t of Labor v. Fire & Safety Investigation Consulting Servs., LLC, 915 F.3d 277 (4th Cir. 2019).

In Fire & Safety, the employer provides on-site fire investigation consultants to its clients in the oil and gas industry. The consultants were regularly scheduled to work a “hitch” of 12 hours per day for two full calendar weeks, followed by two full calendar weeks off. Thus, over the course of a full hitch, the employee worked 168 hours in two workweeks, or 84 hours per week. Initially, for a given workweek consultants were paid a regular rate for the first 40 hours of the week and one and one-half times that rate for all hours over 40. Then, for about a two year period, the company used a different pay system, based on a blended “hitch rate.” Under that system, if a consultant worked a full two-week hitch, he or she was paid a fixed sum, purportedly comprised of a regular rate for the first 40 hours of each week and an overtime rate of one and one-half times the regular rate for the next 44 hours of each week.

So far, so good.  However, if a consultant worked less than a full 168-hour hitch – even one involving less than 40 hours during one or both weeks – the company reduced their pay based on a “blended rate.” The company calculated the “blended rate” by dividing the individual’s fixed, full-hitch pay by 168 and then multiplying that rate by the number of hours actually worked during the two-week period. For each hour less than 168 that they worked in a hitch, the consultant’s compensation was reduced by the hourly “blended rate.” In other words, the employer’s blended rate was calculated in the same manner as the FLSA requires the regular rate to be calculated, even if an employee worked no overtime hours. Following an anonymous complaint filed by one of the consultants, the U.S. Department of Labor brought suit alleging failure to properly pay overtime.

More than 70 years ago, the U.S. Supreme Court held that this kind of compensation method likely fails to comply with the overtime requirements of the FLSA, because it blurs the lines between overtime and non-overtime hours. “The payment of ‘overtime’ compensation for non-overtime work raises strong doubt as to the integrity of the hourly rate upon the basis of which the ‘overtime’ compensation is calculated,” and is “evidence of an attempt to pay a pro-rata share of the weekly wage.” 149 Madison Ave. Corp. v. Asselta, 331 U.S. 199, 205 (1947). Although such systems may appear to pay greater compensation for non-overtime hours worked, in reality they “fail to account for the actual number of regular and overtime hours that an employee works [and] are impermissible replacements for traditional overtime pay rates under the FLSA.” Fire & Safety, 915 F.3d at 282 (citing Lopez v. Genter’s Detailing, Inc., 511 Fed. Appx. 374, 375 (5th Cir. 2013)).

The example posed in the Fourth Circuit’s opinion demonstrates the potential flaw in applying such a blended rate. One consultant’s regular hourly rate was $23.58. If he worked a full hitch, his compensation could be determined by adding his regular rate of $23.58 per hour times the 80 non-overtime hours of the hitch, to his overtime rate of $35.37 per hour (i.e. $23.58 x 1.5) for the 88 overtime hours of the hitch, for a rounded total “hitch rate” of $5,000. His blended rate was then calculated by dividing the $5,000 hitch rate by 168 hours, or $29.76.

When the consultant worked less than a full hitch, he was paid his blended rate times the number of hours actually worked. In the Fourth Circuit’s example, during one pay period the consultant worked only six 12-hour days (72 hours total) during the two-week hitch period. If his regular rate legitimately was $23.58 per hour and, as set forth in Asselta, his pay was supposed to reflect 40 hours at the regular rate and 32 hours at the overtime rate, he should have been paid ($23.58)(40) + ($35.37)(32) = $2,075.04. But because the blended rate was used, he was paid ($29.76)(72) = $2,142.86. So, if it appears he was paid more than required by the law, why is that a problem?

Because that appearance is illusory. If an employee works a fixed number of overtime hours each week, the FLSA regulations do allow paying that employee for all non-overtime hours plus a fixed sum for overtime (calculated by multiplying the overtime rate by the number of overtime hours regularly worked). 29 C.F.R. § 778.309. This regulation is not an exception to the overtime rule, but is instead merely recognition of the mathematical fact that multiplying the same fixed number of overtime hours by the same regular rate will always yield the same result. Not surprisingly, this provision does not apply when an employee works a varying number of overtime hours. In the latter case, Asselta mandates that the regular rate is based on the number of hours actually worked in a workweek and that the overtime rate is 1.5 times the regular rate.

Thus, because the consultants here did not work a fixed number of overtime hours, the employer was improperly substituting its blended rate for the regular rate. Using the above example, the consultant’s actual regular rate was ($2,142.86 ÷ 72) = $29.76 per hour, the same rate the company used as a blended rate. Therefore, his non-overtime pay should have been ($29.76)(40) = $1,190.48, and his overtime pay should have been ($29.76)(1.5)(32) = $1,428.57, for a total of $2,619.05. Instead, he was paid nearly $500 less for that pay period. As a result of the employer’s miscalculation of overtime pay due, the Fourth Circuit upheld the trial court’s award of more than $1.5 million to the DOL.

The Fourth Circuit’s opinion is in line with the holdings of similar cases from the Second and Fifth Circuits applying Asselta, see Lopez, 511 Fed. Appx. 374; Adams v. Department of Juvenile Justice, 143 F.3d 61 (2d Cir. 1998), and demonstrates the risks employers assume when undertaking “blended” or other non-traditional compensation schemes. If you have any questions about the proper calculation of overtime under the FLSA, or any other wage and hour questions, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Comment Period Now Underway for New DOL Overtime Rule

Earlier this month, the U.S. Department of Labor (DOL) issued a new proposed rule that intends to raise the annual minimum salary requirements for the FLSA’s “white collar” (executive, administrative, and professional) overtime exemptions to $35,308 ($679 per week), up from the current annual minimum of $23,660 ($455 per week).  A full discussion of this and other aspects of the new proposed rule can be found here.

On March 21, 2019, the proposed rule was formally published in the Federal Register, signaling the beginning of a 60-day period (ending May 21, 2019) during which employers, employee representatives and others in the public may submit comments on the rule.  Following the commentary period, a final rule will be published and, based on statements set forth in the proposed rule, the DOL anticipates that the final rule will become effective on January 1, 2020.

Jackson Lewis will continue to monitor developments concerning the new overtime rule.  In the meantime, if you have any questions about the forthcoming rule, including how to navigate through the available options for employees affected by the proposed salary increase, please contact the Jackson Lewis attorney(s) with whom you regularly work.

“Catalyst” Test Applicable to Awarding Attorney’s Fees for State Wage and Hour Claims, Massachusetts Supreme Judicial Court Holds

Rejecting the federal standard for determining whether a party has “prevailed” on his or her claim under the Massachusetts Wage Act, Mass. Gen. Laws ch. 149, §§ 148 & 150, the Massachusetts Supreme Judicial Court has held instead that the less-stringent “catalyst” test applies. As a result, plaintiffs who received $20,500 in a settlement under the Act were entitled to an award of attorney’s fees. Ferman v. Sturgis Cleaners, Inc., 481 Mass. 488, 2019 Mass. LEXIS 96 (Feb. 19, 2019).

Nearly twenty years ago, the U.S. Supreme Court held that to be considered a “prevailing” party in a private settlement of a lawsuit, a plaintiff would have to obtain judicial approval, or “imprimatur,” of the settlement. Buckhannon Bd. & Care Home, Inc. v. West Virginia Dep‘t of Health & Human Resources, 532 U.S. 598 (2001). In so holding, the Court rejected application of the “catalyst” test, which requires a plaintiff only to show that his or her lawsuit was a necessary and important factor in causing the defendant to grant a material portion of the plaintiff’s requested relief.

In the instant case, the plaintiffs originally sought approximately $28,000 in regular and overtime wages, plus treble damages and attorney’s fees and costs, under the Massachusetts Wage Act. Following a two-year period of discovery and pretrial motions, the parties mediated the case and agreed to settle for $20,500, leaving the issue of attorney’s fees for the court. Applying the catalyst test, the trial court awarded about $16,000 in fees to the plaintiffs, finding that a recovery in settlement of nearly 70% of the actual damages sought sufficiently satisfied that test so as to render the plaintiffs prevailing parties.

On appeal, the Massachusetts Supreme Judicial Court agreed that the catalyst test was the proper test to be used with respect to the State’s Wage Act, finding that it better promotes the purposes of the Act – creating a powerful disincentive against unlawful conduct and establishing an incentive for plaintiff’s attorneys to undertake cases they might not otherwise deem financially prudent – than does the judicial imprimatur test set forth in Buckhannon. The Supreme Judicial Court added that the catalyst test also promotes prompt settlements, as it removes an incentive to employers to engage in protracted litigation as a tactic, when the amount of actual damages sought might be readily ascertainable and discrete, and prolonging litigation would result in nothing more than additional legal fees. Given that the Wage Act itself includes fee-shifting provisions – “deemed necessary ‘to prevent the unreasonable detention of wages’ by ‘unscrupulous employers,’” the Supreme Judicial Court found no difficulty in concluding that the catalyst test was the appropriate standard under the Wage Act.

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

Minnesota Appeals Court Upholds Minneapolis Minimum Wage Ordinance

The Court of Appeals of Minnesota, the state’s intermediate appellate court, has upheld a minimum wage ordinance enacted by the City of Minneapolis in 2017, providing for a higher minimum wage than that provided by state law. Graco, Inc. v. City of Minneapolis, 2019 Minn. App. LEXIS 84 (Minn. Ct. App. Mar. 4, 2019).

Following its review of a socioeconomic study it commissioned in 2016 and a period of public comment, listening sessions and a survey, in June 2017 the Minneapolis City Council enacted that Municipal Minimum Wage Ordinance, providing for higher minimum wage rates for hours worked by employees within the City’s geographic boundaries. Currently under the Ordinance, the minimum wage for “large” employers (those with more than 100 employees) is $11.25 per hour, while the minimum wage for “small” employers (those with 100 or fewer employees) is $10.25 per hour. By contrast, the Minnesota Fair Labor Standards Act (MFLSA) establishes statewide minimum wage rates based on an employer’s annual gross volume of business. Currently under that Act, the minimum wage for large employers (those with an annual gross volume of sales or business of $500,000 or more) is $9.86 per hour, while the minimum wage for small employers (less than $500,000 in business) is $8.04.

In November 2017, Graco and others sued the City, asserting that the Ordinance is preempted by state law and should be enjoined. The district court denied the injunction and ultimately ruled that the Ordinance neither conflicts with, nor is preempted by, the MFLSA. The plaintiffs appealed and the Court of Appeals affirmed the lower court’s decision.

First, the Court of Appeals concluded that the MFLSA merely prohibits employers from paying less than the minimum wage established by the statute, rather than permitting them to pay the state minimum wage. The Court of Appeals added that the Minnesota legislature explicitly recognized the possibility of a local minimum wage in a 2015 statute defining “non-competitive work” and that to the extent the MFLSA was ambiguous as to whether it provided a minimum wage floor or ceiling, “well-established rules of statutory construction” required it to read that Act in alignment with other related statutes. In short, the Minneapolis Ordinance could not be voided based on an express preemption by state law.

The Court of Appeals then addressed the plaintiffs’ contention that the MFLSA impliedly preempted the Ordinance by entirely occupying the field of minimum wage regulation in Minnesota. Likewise rejecting this argument, the Court concluded that the “MFLSA does not expressly prohibit a municipality from setting higher minimum wages, and it does not give the [state] commissioner exclusive authority to safeguard the state minimum-wage rates; it merely permits the commissioner to do so.” Thus, despite the fact that the legislature had amended the MFLSA formula nine times since its enactment in 1973, and has set forth the procedures for establishing any future rate increases, the Court of Appeals was “not persuaded that this constitutes the all-encompassing regulations that Minnesota appellate courts have found to preempt local regulations.” Further rejecting the additional factors to be considered when analyzing a statute for implied preemption, the Court ultimately found that the Minneapolis ordinance does not conflict with, and is not preempted by, the MFLSA.

Therefore, the Minneapolis Ordinance and its higher minimum wage rates remain in effect, unless and until the Supreme Court of Minnesota concludes otherwise. To that end, we will continue to follow any further developments with respect to the Ordinance. If you have any question about this development or any other wage and hour issues, please contact the Jackson Lewis attorney(s) with whom you regularly work.

DOL Issues New Proposed Overtime Rule

The U.S. Department of Labor (DOL) has issued a new proposed rule raising the salary level requirements for the white collar exemptions.  A full article discussing the proposed rule will be published later but here is what you need to know now:

  • The new standard salary level will be $35,308 annually ($679 per week).  This is an increase from the current level of $455 per week, but less than the now-invalid Obama-era rule, which was $913 per week.
  • The DOL will permit employers to satisfy the new salary level requirement by using nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary level test.  This would be an addition to the current regulations but a similar provision was included in the Obama rule.
  • The new salary level for the Highly Compensated Employees (HCE) will be $147,414, which is higher than under the Obama-era rule.  The current level is $100,000 and the level under the Obama-era rule was $134,004.
  • There are no changes to the duties requirements.
  • There are no automatic increases, but the DOL proposes that the salary level will be revisited every four years.
  • The new salary level does not apply to employers in Puerto Rico, the Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands; the current salary level of $455 will continue to apply.

DOL expects that the new rule will be effective January 2020.  Comments will be received for 60 days after it is published in the Federal Register.

Illinois Governor Signs $15 Minimum Wage Law

As anticipated, today Governor J.B. Pritzker signed the “Lifting Up Illinois Working Families Act,” under which the state’s minimum wage will increase to $15.00 per hour over the next six years. Under the law, the hourly minimum wage will increase to $9.25 on January 1, 2020; to $10.00 on July 1, 2020; to $11.00 on January 1, 2021; and an additional $1.00 per hour each January 1st thereafter, until reaching $15.00 on January 1, 2025.

More details about the new Illinois minimum wage law may be found here.

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