Second Circuit Makes it Official (Again): FLSA Claims are Subject to Arbitration

Stating unequivocally what it previously had assumed, the Court of Appeals for the Second Circuit recently held that FLSA claims are arbitrable, notwithstanding the requirement that FLSA litigation settlements be “supervised.”  Rodriguez-Depena v. Parts Authority Inc., 2017 U.S. App. LEXIS 24995 (2nd Cir. Dec. 12, 2017).  The Second Circuit had in recent years addressed various issues surrounding the arbitrability of FLSA claims, such as whether a class (collective) action waiver in an arbitration provision rendered the provision unenforceable as a matter of law (to which this Court of Appeals responded “no,” but which issue currently is pending before the U.S. Supreme Court due to a circuit split), implicitly confirming that FLSA claims could be subject to arbitration agreements.  However, the Second Circuit had neither formally, expressly held that FLSA claims are arbitrable, nor expressly rejected the position that the its decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2nd Cir. 2015), requiring judicial scrutiny of FLSA settlements, impacted the arbitrability of such claims.  Until now.

Among the arguments made by the plaintiff in Rodriguez-Depena, in asserting that his FLSA claims were not subject to arbitration, was the contention that the Second Circuit’s recent decision in Cheeks, requiring judicial oversight and approval of litigation settlements involving FLSA claims, implied that the supervision requirement was intended to override forum selection clauses such as arbitration agreements.  Quickly rejecting that assertion, the Court of Appeals noted that “[t]he rationale of Cheeks . . . is assurance of the fairness of a settlement of a claim filed in court, not a guarantee of a judicial forum.”  Thus, with respect to individual FLSA claims, and at least until the Supreme Court’s decision is rendered with respect to collective action claims, employers in the Second Circuit who have implemented, or contemplate implementing, an arbitration provision for their employees may rest assured that, generally speaking, such a provision will be enforceable as to FLSA claims.

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

Governor Cuomo Contemplating Elimination of Tip Credit

Employers in New York currently are permitted to pay tipped workers a direct cash wage that is below the State minimum wage and take a “credit” for some of the tips received by employees to satisfy the difference between the cash wage paid and the full minimum wage.  For example, in New York City beginning in 2018, servers for large employers (those with 11 or more employees) may pay servers a direct wage of $8.65 per hour and take a $4.35 per hour credit for tips received by employees (so long as the employees receive at least $4.35 per hour in tips).  Combining the two equals the 2018 NYC minimum wage rate for large employers, $13.00.  But all of that may be coming to an end if New York Governor Andrew Cuomo gets his way.  Today, Governor Cuomo announced that, as part of his upcoming State of the State address, he plans to direct the New York Department of Labor (NYDOL) to schedule public hearings to evaluate the possibility of ending minimum wage tip credits in the State.  This is not the first such challenge to the continued use of the tip credit.

If this change is made, tipped workers will have a big boost to their income and employers a big blow to their bottom line. Employers will be required to pay servers and other tipped employees the full minimum wage and such “front of the house” workers also will be entitled to keep the tips they receive on top of the direct wage.  Such a move will widen the already large gap between the front of the house workers (e.g. servers) and “back of the house” employees (e.g. cooks) who, under New York law, do not and cannot receive any tips.  Notably, the federal DOL has issued proposed regulations that would permit employers who do not take tip credit to share tips with employees in the kitchen to address the income inequality.  But without some other change to NY law expanding the group of employees permitted to share tips, service staff would get to keep it all, on top of their proposed wage increase, as the elimination of the credit is, in effect, a substantial wage increase.

In reaction to the increased labor costs imposed on business by the rising minimum wage and shrinking tip credits, some restaurants have eliminated tipping altogether, a trend that might accelerate if tip credits are eliminated.  Those who oppose tip credits argue that tips no longer serve as a bonus for good service, but instead often only bring the workers’ wages up to the legal minimum.  Governor Cuomo’s announcement also points to studies that show African-American employees often are tipped less than their white co-workers and that workplaces using the tip credit have a higher rate of sexual harassment.

As it recently did with respect to predictive scheduling, the NYDOL will hold public hearings to solicit input from workers, businesses and other interested parties, and likely will receive testimony from pro-employee and pro-employer groups.  An eventual decision by the NYDOL to eliminate the tip credit would have a significant impact on those industries where employees rely heavily on tips.

Please contact Jackson Lewis with any questions about tip credits or any other wage and hour compliance issue.

Toll Road Ahead: Fourth Circuit Rules Mixed-Fleet Interstate Truck Drivers May Be Entitled to Overtime Pay

Despite the overtime exemption provided by the Motor Carrier Act, interstate trucking employers who operate “mixed fleets” – those with vehicles both over and under 10,000 pounds – may owe overtime pay to drivers of the smaller vehicles, the Fourth Circuit Court of Appeals recently ruled.  Schilling v. Schmidt Baking Co., 2017 U.S. App. LEXIS 23257 (4th Cir. Nov. 17, 2017).  The Fourth Circuit has jurisdiction over Maryland, North Carolina, South Carolina, Virginia and West Virginia.

Generally, the Motor Carrier Act (“MCA”) exemption excludes from the FLSA’s overtime pay obligations any employee over whom the Secretary of Transportation has the power to establish qualifications and maximum hours of service.  In 2008 Congress enacted the Technical Corrections Act (“TCA”), excepting from the MCA exemption (i.e. making eligible for overtime pay) most individuals employed by a motor carrier or motor private carrier whose work “in whole or in part” affects the safe operation of motor vehicles weighing 10,000 pounds or less on public highways in interstate commerce.  However, Congress did not define the phrase “in whole or in part” and over the ensuing years trial courts generally fell into two camps when applying the phrase:  (1)  if the driver spends more than a “de minimis” amount of time driving smaller vehicles, then the TCA exception applies and the driver is entitled to overtime pay; or (2) if the driver spends any meaningful amount of time driving larger vehicles, then the TCA exception does not apply and the driver is exempt from overtime pay.  The DOL has taken an even more employee-friendly position, issuing guidance stating that a driver is entitled to overtime for any week in which he spends any time driving a vehicle weighing 10,000 or less pounds.

In 2015, the Third Circuit Court of Appeals (with jurisdiction over Pennsylvania, New Jersey, Delaware and the Virgin Islands) addressed the issue head-on in McMasters v. Eastern Armored Services, Inc., 780 F.3d 167 (3rd Cir. 2015).  In that case the Third Circuit, while noting the fact that Congress failed to define “in whole or in part,” concluded that regardless of what the phrase means at its minimum, it certainly includes drivers who spend half of their time driving the smaller vehicles (which essentially was the case in McMasters).  Agreeing that this was the proper analysis, in Schilling the Fourth Circuit reversed the trial court’s dismissal of the plaintiffs’ overtime claims under the MCA exemption, similarly concluding that where, as was the case here, the drivers allegedly spent 70% to 90% of their time driving smaller vehicles, the TCA exception would apply and the drivers would be entitled to overtime.

In light of Schilling and McMasters, interstate trucking employers who operate mixed fleets must be careful not to assume that the MCA exemption will automatically preclude their drivers from eligibility for overtime and consider whether there are practical ways to minimize their risk of overtime claims.  Moreover, such employers must consider any applicable state law, as not all states have adopted the MCA exemption (or the TCA exception in those that have).

If you have any questions about the MCA or other exemptions under the FLSA, or any other wage and hour issues, please contact the Jackson Lewis attorney with whom you work.

Refinery Workers’ Pre-Shift Wait Time Not Compensable, Fifth Circuit Holds

Concluding that the unstructured time spent by the plaintiffs between arriving at the oil refinery and the beginning of their shifts was not “integral and indispensable” to their duties erecting scaffolds at the refinery, the Fifth Circuit held that this time was not compensable under the FLSA.  Bridges v. Empire Scaffold, LLC, 2017 U.S. App. LEXIS 22520 (5th Cir. Nov. 9, 2017).

As part of a major expansion of the Port Arthur oil refinery, Empire Scaffold was hired to erect scaffolding at the refinery for a period of about 18 months.  To control traffic and maintain security at the refinery, each morning Empire’s employees were required to ride buses from a remote parking lot to inside the refinery grounds and were dropped off a few hundred yards from the location of their scaffolding duties.  Based on the run times of the buses, employees would arrive on the grounds anywhere from 15 to 90 minutes before their shift began at 7:00 a.m.  Other than signing in upon arrival, the employees were free to do whatever they chose between arrival at the site and the beginning of the shift.  In fact, the plaintiffs testified that they typically would spend this time smoking, socializing with co-workers or simply doing nothing.  The plaintiffs undisputedly were paid for all of their time once the shift commenced but filed suit claiming, among other things, that their pre-shift wait time likewise was compensable.  The district court granted summary judgment to Empire on this claim and the employees appealed.

Affirming the trial court’s determination, the Fifth Circuit noted that, since enactment of the Portal to Portal Act of 1947, two primary groups of activities are considered exempt from pay claims under the FLSA:  (1) walking, riding or traveling to and from the actual place of performance of an employee’s principal activity or activities; and (2) activities which are “preliminary to or postliminary to” such principal activities.  “Principal activities,” added the Court of Appeals, includes those that are an “integral and indispensable part” of those activities (quoting Integrity Staffing Solutions, Inc. v. Busk, 135 S. Ct. 513, 516-17 (2014).   In this case, the principal activities of the employees were erecting and dismantling scaffolding and these activities, as well as those activities “integral and indispensable” to these tasks.  The Court held the time spent waiting was not compensable because it was neither “tied to nor necessary to the erection and dismantling of scaffolding – the work that the [plaintiffs] were employed to perform.”

If you have any questions about what constitutes compensable work time or any other wage and hour issues, please contact the Jackson Lewis attorney with whom you work.

Staffing Firms Benefit from Sixth Circuit Administrative Exemption Ruling

Staffing firms may have something extra to be thankful for this holiday season:  Finding that certain account managers exercised discretion and independent judgment when matching candidates with temporary positions, the Sixth Circuit Court of Appeals recently held that these temporary staffing firm employees fell within the FLSA’s administrative exemption.  Perry v. Randstad Gen. Partner (US) LLC, 2017 U.S App. LEXIS 23297 (6th Cir. Nov. 20, 2017).  The Sixth Circuit has jurisdiction over Michigan, Ohio, Kentucky and Tennessee.

Examining the duties of the account manager, the Sixth Circuit concluded that writing job descriptions, recommending employees for assignment, collaborating with clients to determine wage rates and determining the method to post available positions demonstrated that these managers exercised sufficient discretion and independent judgment to qualify for the administrative exemption.  Vital to the Court of Appeals’ determination, the account managers used subjective criteria, such as the candidate’s personality and the client’s corporate culture, as opposed to merely applying objective criteria when placing candidates in suitable positions.  Further, the Sixth Circuit found that drafting job descriptions, deciding which recruitment tools to use, negotiating employee wage and client billing rates, and counseling or disciplining employees also required the account managers to exercise independent judgment.

By contrast, the Court of Appeals held that material issues of fact existed as to whether the employer’s staffing consultants qualified for the exemption.  The staffing consultants had far less independence and discretion than account managers and were required to follow established techniques and procedures to perform their job duties.  Finally, the Court of Appeals held that the company failed to prove that it acted in “good faith” in applying the exemption to the staffing consultants, finding insufficient its reliance on opinion letters from the Wage and Hour Division because aspects of the staffing consultant duties were distinct from those analyzed in the WHD letters.  In addition, the Sixth Circuit held that because the company knew that its staffing consultants devoted varying, and sometimes insufficient, time to the duties that might have sufficed for the exemption, the company should have inquired further before applying the exemption.

As a case of first impression in the Sixth Circuit, Randstad clarifies the analytical framework for employers applying the administrative exemption to employees in the temporary staffing industry.  In particular, staffing firms that rely upon the administrative exemption for their account managers should ensure that the job duties and responsibilities of the position require sufficient discretion and independent judgment to qualify for the exemption, and that these managers do not simply follow prescribed procedures and a predetermined set of objective criteria. As always, state law requirements should also be reviewed.

If you have any questions about exemptions under the FLSA or any other wage and hour issues, please contact the Jackson Lewis attorney with whom you work.

Ninth Circuit Concurs that Workweek, Not Individual Hour, is Relevant Timeframe for Determination of Minimum Wage Compliance

In an issue of first impression, the Ninth Circuit joined the Second, Fourth, Eighth and D.C. Circuits (and the position adopted by the Department of Labor) that, in determining whether an employer has complied with the minimum wage provisions of the Fair Labor Standards Act (“FLSA”), the proper inquiry is whether the total compensation for a given workweek divided by the total hours for that week meets or exceeds the minimum wage. Douglas v. Xerox Business Servs., LLC, 2017 U.S. App. LEXIS 22967 (9th Cir. Nov. 15, 2017). Employers should be aware that this case addresses only federal, and not state, wage and hour law in the Ninth Circuit.

In Douglas, Xerox paid an hourly wage (at or above the minimum wage) for some activities of its call center employees (e.g. training) but for other activities, such as customer service calls, paid a rate that varied depending on both qualitative (e.g. customer satisfaction) and quantitative (e.g. call duration) factors, and could be an hourly rate that fell below the minimum wage for that hour. Each week an employee’s total compensation was determined and then divided by the number of hours worked. If the employee’s per-hour average for the week did not meet or exceed minimum wage, the employee was paid a subsidy that raised his hourly average to the legal minimum. Thus, while all employees were paid at least minimum wage for every hour of the week when calculating the average hourly rate over the course of the week, an employee might receive less than minimum wage for some hours of the week and more than minimum wage for others. The plaintiffs argued that this violated the FLSA because they were not paid at least minimum wage “for all hours worked.” The district court rejected the argument but certified the issue for interlocutory appeal.

Upon examination of the “test, structure and purpose” of the FLSA, the Ninth Circuit concluded that the Act itself does not specify whether the minimum wage calculation must, or even may, be determined on a per-hour, per-week or other basis. Shortly after the FLSA’s implementation nearly 80 years ago, however, the DOL adopted the workweek “as the standard period of time over which wages may be averaged to determine whether the employer has paid the equivalent of” the minimum wage. The Court of Appeals noted that since the DOL’s adoption of the workweek-based minimum wage compliance computation, every court of appeals addressing the issue has accepted the DOL’s position as a reasonable and enforceable interpretation of the Act. The Ninth Circuit joined those courts.

If you have any questions about minimum wage compliance or any other wage and hour issues, please contact the Jackson Lewis attorney with whom you work.

National Appliance and Electronics Retailer’s Sales Commission Policy Was Lawful – For the Most Part, Sixth Circuit Rules

In what may be viewed as a pyrrhic victory, now-defunct[1] “big box” electronics, appliance and furniture retailer hhgregg’s commission-with-draws compensation program generally was lawful under the FLSA, the Sixth Circuit Court of Appeals has held. However, its policy holding employees liable for any unearned draw payments upon termination of employment would violate the Act. Stein v. hhgregg, Inc., 2017 U.S. App. LEXIS 19908 (3rd Cir. Oct. 12, 2017). The Sixth Circuit has jurisdiction over Kentucky, Michigan, Ohio and Tennessee.

For decades, many retail companies have compensated their sales employees primarily through commissions, supplemented by “draw” payments in weeks where an employee’s commissions failed to provide sufficient compensation for the employee to earn minimum wage. Typically, under these plans the amount of the draw is then deducted from future earnings in weeks when the employee’s commissions exceed the applicable minimum wage.   For years, such draw-on-commission policies routinely have been recognized and accepted by the Department of Labor as a method of compensation for retail sales employees.  Specifically, Section 7(i) of the FLSA excludes retail or service employees from additional overtime pay if (a) the regular rate of pay of such employee is in excess of one and one-half times the applicable minimum wage rate and (b) more than half of the employee’s compensation is earned through commissions.  At issue was whether hhgregg’s draw-on-commission policies complied with DOL regulations.

Plaintiffs argued that by reducing future paychecks to recoup prior draw payments, hhgregg’s compensation policy was an unlawful “kickback” scheme because, in requiring such repayment, the company failed to deliver wages to the employees “free and clear,” as required under DOL regulations. The Sixth Circuit rejected this argument, noting that the “free and clear” requirement only pertained to wages that already had been delivered to the employee but, as a result of coercion or through a prior secret agreement, were immediately repaid to the employer.  Here, however, the recoupment comes from future commissions, that is, wages that have not yet been delivered.  This interpretation, and in general the validity of a draw-against commission pay system, has long been recognized by the DOL in its Field Operations handbook and several opinion letters, noted the Court of Appeals.

On the other hand, the company’s policy stating that upon termination of employment for any reason, an employee must “immediately pay [the company] any unpaid [draw balance]” could, if enforced as written, violate the FLSA, concluded the Sixth Circuit. Because, in theory, an employee could be required to repay commissions already delivered to him or her, those wages would not have been paid “free and clear” as required under the Act, particularly where, for example, the employee might owe thousands of dollars in draw payments.  The Court of Appeals noted that the aforementioned DOL opinion letters, on which it relied to validate the company’s regular draw-on-commission policy, explicitly noted that the no repayment of draws was expected on separation of employment.  Thus, on this basis, as well as on allegations that management tacitly, if not explicitly, approved off-the-clock work, the case was reversed in part and remanded.

If you have any questions about proper commission-based pay policies or any other wage and hour issues, please contact the Jackson Lewis attorney with whom you work.

[1]   hhgregg announced in April 2017 that it would be declaring bankruptcy and closing all of its brick-and-mortar stores.  However, it does appear that some version of the company has resumed operations solely through online sales.

California to Hold Direct Contractors Jointly Liable for Subcontractor’s Unpaid Wages and Fringe Benefits

Beginning with contracts entered into on or after January 1, 2018, direct (general) contractors in California will be held jointly liable for their subcontractors’ unpaid employee wages, fringe benefit or other benefit payments or contributions under Assembly Bill 1701, signed into law by Governor Jerry Brown on October 14th. This joint liability requirement is codified in Labor Code Section 218.7.

The law does not apply to individuals performing work under contracts with the State of California, special districts, municipalities or political subdivisions. Furthermore, the law does not provide a private right of action against the direct contractor.  Instead, the law may be enforced by the Labor Commissioner, joint labor-management cooperation committees or labor unions.  The Commissioner may recover unpaid wages and benefits through an administrative hearing, a citation or a civil suit, while joint labor-management cooperation committees and labor unions may recover damages solely through civil suits.  The latter two groups also may recover attorney’s fees and costs.  The statute of limitations for bringing a claim is one year, which begins to run when the completion of the direct contract is recorded, when cessation of work on the direct contract is recorded or when the actual work covered by the direct contract is completed, whichever is earlier.

As a means of providing some protection to direct contractors, the law implements record-production requirements to assist them in auditing their subcontractors’ wage and benefits compliance. At the request of a direct contractor, a subcontractor must produce payroll records with sufficient information to determine whether the subcontractor is fulfilling its obligation to pay employee wages, fringe benefits and other benefits.  Also upon request, the subcontractor must provide contract-specific information, such as the project name; the subcontractor’s name and address; identification of the entity for whom the subcontractor is directly working; the anticipated start date, duration and estimated journeymen and apprentice hours of the subcontract; and contact information for its own subcontractors on the project.  A subcontractor’s failure to provide the requested information does not eliminate the direct contractor’s joint liability but does entitle the direct contractor  to withhold payment of sums owed to the subcontractor as “disputed” until the requested information is provided.

AB 1701 creates the potential for significant financial exposure to direct contractors, as it will require them to act as guarantors not only of their own employees’ wages and benefits, but those of their subcontractors’ employees, their sub-subcontractors’ employees, and so on. If you have any questions regarding compliance with this new law or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you work.

DOL Confirms New Overtime Rule Coming (Updated 10/31/2017)

The U.S. Department of Labor confirmed on October 30, 2017 that it intends to “undertake new rulemaking with regard to overtime.”  While the DOL simultaneously filed an appeal of the district court order holding the prior overtime rule invalid, the DOL stated it intends to request that the Fifth Circuit “hold the appeal in abeyance while the Department of Labor undertakes further rulemaking to determine what the salary level should be,” according to the statement made by the DOL.   The Obama-era rule set the salary level for the white collar exemptions at $47,476.  It is expected the new salary level will be in the low $30,000 range.   In July 2017, after the DOL published a Request for Information regarding a new overtime rule asking for public comment, more than 140,000 comments were received.  The next step is for the DOL to issue a proposed rule, and then then a final rule following a comment period.

In addition, the AFL-CIO has appealed the denial of its motion to intervene in the district court case, although its motive for doing so remains to be seen.  We will continue to report developments here.  Stay tuned…

DOL Confirms to OMB It Will Reverse Course on Yet Another Controversial Regulation, New Rule Will Reduce Restrictions on Tip Sharing

In recent years, one significant issue that has plagued industries employing tipped employees is whether the employers must ensure that tipped employees retain all of their tips even if the company is not using the employee’s tips to satisfy part of the minimum wage pursuant to the FLSA’s “tip credit” provision, 29 U.S.C. § 203(m). The provisions of Section 203(m) of the FLSA require, among other things, that tipped employees paid a tip credit rate retain all of their tips except for permissible tip pools.

In 2011, the DOL issued a regulation stating that, even if employers are not taking the tip credit with respect to tipped employees, those employers nevertheless must ensure that the tipped employees retain all of their tips. This interpretation prohibits, for example, the sharing of tips between front of the house employees and back of the house employees. The Ninth Circuit Court of Appeals upheld the DOL’s new regulation as consistent with Section 3(m) in Oregon Rest. and Lodging Ass’n v. Perez. Other courts across the country, however, had rejected the DOL’s 2011 regulation and held that employers do not have an obligation to ensure tipped employees retain all of their tips if the company is not taking a tip credit.  A circuit split ensued, and a petition for writ of certiorari is currently pending with the U.S. Supreme Court.

Earlier this year, the DOL announced that it planned to change course and rescind the 2011 regulation.  DOL took the first step this week. On October 24, 2017, DOL sent a proposed rule to to the Office of Management and Budget for review prior to issuing a formal proposed rule.  This regulation likely will now permit tip sharing between back of the house and front of the house employees, so long as a tip credit is not taken under Section 203(m). If a tip credit is taken, of course, then sharing of tips between tipped and non-tipped employees would still be prohibited.

A summary contained on the OMB website contained few details, stating only that the DOL’s current regulations “limit an employer’s ability to use an employee’s tips regardless of whether the employer takes a tip credit under Section 3(m)” and indicating that the DOL’s proposed rules “will propose to rescind the current restrictions on tip pooling by employers that pay tipped employees the full minimum wage directly.”

Keep in mind that, even if this regulation is adopted such that federal law would permit sharing of tips when the tip credit is not taken, state law could still nevertheless prohibit tip sharing even if a tip credit is not taken. Thus, it remains important, as always, to confirm compliance with state law before implementing any wage-and-hour practice, whether relating to tipped workers or otherwise. The law governing tip practices under the FLSA (as well as numerous state laws regulating gratuities) continues to develop, and employers of tipped workers in any industry permitting tipping must inform their business and employment practices by reference to current law in their jurisdictions.