Federal Wage & Hour Laws and Policy

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I have blogged many times about the rash of intern cases that have popped up over the last few years. Now maybe there will be a consistent, uniform test for determining whether interns are really statutory “employees.” The US Department of Labor has endorsed such a test. The agency is approving the so-called “primary beneficiary” standard.

Students/interns sitting at a table with laptops talking
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The agency has endorsed a seven-part test for determining intern status. This was set forth in the Second Circuit decision in the 2015 ruling in Glatt v. Fox Searchlight Pictures Inc. That test analyzes the “economic reality” of interns’ relationship with the putative employer to ascertain who is the primary beneficiary of the relationship. This test has been applied in a number of cases and industries of industries, where courts have found that, as the primary beneficiaries of these internships, the individuals are not employees under the FLSA and therefore cannot file claims for misclassification and wage violations.

The agency noted that four federal appellate courts have rejected the six-part DOL test set forth almost a decade ago. The agency issued a statement asserting that the “Department of Labor today clarified that going forward, the department will conform to these appellate court rulings by using the same ‘primary beneficiary’ test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.”

Under the “old” test, an intern is an employee unless all of the six factors were satisfied. These included whether the intern displaced a regular employee and whether the employer derived any “immediate advantage” from the intern’s work. The updated test now restates the seven non-exhaustive factors that constituted the Glatt test. Those include: 1) whether there’ exists a clear understanding that no expectation of compensation exists; 2) whether interns receive training similar to what they would receive in an educational environment; and, 3) to what extent the internship is tied to a formal education program. The agency specifically noted that the primary beneficiary standard is “flexible,” and that determinations on intern-employee status hinge upon the unique circumstances of each case.

The Takeaway

I believe this is a better, fairer, more realistic test. Is it, as I postulated, “definitive guidance?”We will see…

There has not been much litigation over the HCE, the so-called Highly Compensated Employee exemption under the FLSA. Recently, an interesting case explored the issue of whether commission payments can form the entirety of the required salary. In Pierce v. Wyndham Vacation Resorts, Inc., a federal court interpreted this exemption to determine this issue. The case was filed in federal court in the Eastern District of Tennessee.

Dollar signs
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The court observed that the regulation allowed a highly compensated employee to be paid on a salary or a fee basis. The Court looked at related regulations and found that the highly compensated administrative or professional employees could be compensated on a salary or fee basis to comply with the exemption, but held that a highly compensated executive had to be paid on a salary basis, as the fee type of compensation did not apply to the executive exemption. Thus, the Court held that an exempt executive had to receive a salary of $455 per week, but that other forms of compensation could help satisfy the requirements of the highly compensated employee exemption.

The Court went on to explicate that even if the fee form of compensation applied to exempt executives, the Court held that the commissions paid to the plaintiffs were not a fee basis type of compensation. The Court stated explicitly that the Company’s argument was “illogical.” In that regard, the Court reasoned that if a commission could be considered a “fee basis,” “there would be no need for the Department of Labor to include the work ‘commission’ in the second sentence of the regulation” as an acceptable form of additional compensation to reach the $100,000 annual threshold.” Moreover, there was no showing that the commission paid to the plaintiffs were akin to a fee, as the commissions were founded on sales made and were linked to the results of the job.

The Court then examined a USDOL Opinion Letter in which employees were paid commissions but they also received a guaranteed salary. In this case, the employees did not receive any salary but were paid entirely by commissions. Therefore, they failed to satisfy the requirements of the highly compensated employee exemption.

The Takeaway

This is an unusual case but with a very valuable lesson. When deciding whether to classify an employee as exempt under the HCE exemption, a component of the aggregate compensation paid must be “pure” salary.  Even if that salary is the statutory minimum of $455 per week. The failure of the employer to do so in this case means that these employees, some making hundreds of thousands of dollars per year, will be entitled to overtime!

How is that for the law of unintended consequences?

I recently blogged about this possibility and now it has come to fruition. The House of Representatives has passed a proposal to walk back the Obama USDOL initiative to expand the doctrine of joint employer status/liability for violations of labor law. The vote was 242-181 and followed (mostly) party lines. The new law would amend the National Labor Relations Act and the Fair Labor Standards Act to state that one entity would be jointly liable for another entity’s labor law violations if that first entity had “direct control” of the second entity’s employees.

U.S. Capitol Building
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The National Labor Relations Board applied this direct control standard until 2015, when it changed the law in the now famous (or infamous) Browning-Ferris Industries decision. That case held that entities are joint employers under the NLRA when one of them has “indirect or potential control” over the other company’s workers. The USDOL issued guidance that tracked this decision (although the new Labor Secretary rescinded it a few months ago). The D.C. Circuit is now reviewing that case.

The main criticism of the Obama policies and case law was that companies would not enter into agreements with other entities or businesses due to concern over liability. Rep. Bradley Byrne, R-Ala., the bill’s sponsor, stated that these Obama policies have caused “deep uncertainty among job creators.” He asked “what does it mean to have ‘indirect or potential control’ over an employee?” I practiced labor and employment law for decades and I do not know what that means, so I can only imagine the confusion Main Street businesses have faced.”

The fact that the DOL has rescinded its guidance does not change the fact that the tenets in it are still being used and applied. There has been a dramatic increase in the number of lawsuits where joint employer allegations are raised. One management side attorney observes, “every time I’m faced with a wage and hour lawsuit where there’s a temporary agency involved, it’s a sure bet it’s not only going to be the temp agency that’s named as a defendant.”

The opposition takes the view that this law would allow large companies such as franchisors to shield themselves from liability for labor law violations. Representative Mark Takano, D-California, stated “workers and local businesses are on the losing end of today’s vote. The winners are the large corporations and their lobbyists and trade associations who already enjoy outsized power over the economy and the workplace, and whose contributions line the campaign coffers of the House members who voted for this bill.”

The Takeaway

This is a far tougher standard for an agency, whether NLRB or USDOL, to meet, in order to establish a joint employer relationship. I have myself seen, in many cases; these agencies take a very expansive view of this doctrine. This puts tremendous pressure on the entities involved to either litigate to the hilt or settle perhaps on unfavorable terms.

This is one body of law that could do with a little coming back to the middle…

I remember with fondness the Sonny & Cher song, “The Beat Goes On.” That song could be easily applied to the saga of the USDOL overtime rule, which continues. Although the proposed rule has been shot down by the Fifth Circuit, the USDOL will now request that the Fifth Circuit reverse a Texas federal court order blocking the new rule. That new rule would have doubled the salary threshold for employees to be exempt.

The DOL has stated that it would request that the appellate court hold the appeal in abeyance “while the Department of Labor undertakes further rulemaking to determine what the salary level should be.” The agency, however, gave no details at all in the simple appeal notice. The cases are entitled State of Nevada et al. v. U.S. Department of Labor and Plano Chamber of Commerce et al v. R. Alexander Acosta, both filed in federal court in the Eastern District of Texas.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There is another case on this issue pending. The Fifth Circuit is simultaneously considering the government’s appeal of a preliminary injunction Judge Mazzant issued in November 2016, which stopped the rule from taking effect, but a few days before it would have been implemented. The Obama DOL appealed the ruling before the new Administration took over.

The District Court Judge, Amos Mazzant, had concluded that the USDOL exceeded its authority when it doubled the salary requirement for exempt status. The Judge stated that the DOL “exceeded its authority” by “creat[ing] a final rule that makes overtime status depend predominantly on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.” The Obama DOL immediately appealed and although the Trump DOL initially followed up on the appeal, with the goal of having the Fifth Circuit affirm its power to set salary levels, the agency then requested that the Fifth Circuit dismiss the appeal prior to the grant of summary judgment.

One commentator observed “the appeal] is less about appealing Judge Mazzant’s decision to strike down the overtime regulations that had been proposed under President Obama’s administration and more about preserving the concept that the Department of Labor has the authority to modify the overtime rule to begin with.”

There is an expectation that the DOL will propose lifting the salary level to $30-35,000 per year. This would be what the 2004 level would now be, considering inflation. The Labor Secretary has given no indication of what the agency will do. He has, however, in the past, stated he might want to raise the salary level in that area.

The DOL issued a request for information in the summer, asking for public opinions on the manner in which the rule should be changed. Approximately 165,000 comments were submitted on different elements of any salary test, e.g. what level to set salary, whether geography should play a role.

The Takeaway

I believe the DOL has the authority to set salary levels, as it has done many times through the decades. The level that the agency chose, however, was unreasonable and would have been bad for business. I am also intrigued by the concept of making allowances for differences in salary level based on geography.

I think that makes good sense…

There have been so many cases involving employees in the financial services industries and their exempt status or lack thereof. In another variation on this theme, Provident Savings Bank is seeking review by the US Supreme Court of a Ninth Circuit decision that gave new life to allegations that its mortgage underwriters are non-exempt and entitled to overtime. The bank asserts that these employees are exempt under USDOL regulations, i.e. the administrative regulations. The case is entitled Provident Savings Bank, FSB v. Gina McKeen-Chaplin, et al. and has been submitted to the U.S. Supreme Court.

Banking and Financial Services
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The bank had defended the lawsuit by asserting that these workers did qualify as exempt administrative employees because their duties involved the “servicing” and “running” of the bank’s business by analyzing and evaluating whether the bank should risk money by rendering loans to certain borrowers. The petition states “nothing in the FLSA’s text or purpose justifies interpreting the ‘administrative’ exemption with a heavy thumb on the scale against the employer. Perhaps for that reason, this court has pointedly refused to apply the canon in recent FLSA cases.”

The Ninth Circuit concluded that the job functions of these workers, i.e. reviewing loan applications using guidelines set down by the bank and investors, were not the back office functions relating to management or general business operations that the exemption requires. The named plaintiff had appealed a lower court decision that granted summary judgment to the Bank.

The district court had first granted conditional certification but then threw the case out because it concluded that the underwriters fit within the administrative employee exemption because major, primary functions included “quality control.”  That is one of the functions enumerated in the regulations as work related to the management or general business operations of the bank.

The Takeaway

This case highlights the confusion in the regulations concerning the financial services industry. If these workers are “simply” using established guidelines and standards to make decisions, well, that is not “discretion and independent judgment.” Although quality control is certainly a back-office type business function, this particular exemption still requires employees to use discretion.

That is where these kinds of cases usually go south for the employer.

Well, it finally happened. A Texas federal judge struck down the Obama Administration’s proposed changes to the FLSA overtime regulations, which would have made millions of more people eligible for overtime. The Court’s theory was that the U.S. Department of Labor used a salary level test that was excessive in determining whether workers should be exempt from overtime. The case is entitled State of Nevada et al. v. U.S. Department of Labor et al. and was filed in federal court in the Eastern District of Texas.

The Judge granted summary judgment to the Plano Chamber of Commerce and more than 55 other business groups. These entities had fought the proposed 2016 rule that highly elevated the minimum salary threshold necessary to be deemed exempt under the FLSA “white collar” exemptions, executive, administrative, and professional. The new level would have been more than $47,000 per year ($913 per week). The highly compensated exemption (HCE) would have gone from $100,000 to approximately $134,000.

The Judge opined that the “significant increase” would negate or totally undermine duties test, which is a critical component of the exemption analysis. The Judge stated that, “the department has exceeded its authority and gone too far with the final rule. The department creates a final rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There is another case on this issue pending. The Fifth Circuit is simultaneously considering the government’s appeal of a preliminary injunction Judge Mazzant issued in November 2016, which stopped the rule from taking effect, but a few days before it would have been implemented. The Obama DOL appealed the ruling before the new Administration took over.

The judge noted that if the DOL proposal went through, then more than four million workers currently not eligible for overtime would automatically be eligible under the final rule, although their job duties had not changed. The Judge noted, “because the final rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress’ unambiguous intent.” The Judge cautioned that he was not making any determination on the issue of the DOL’s authority to set a salary threshold.

The new Secretary of Labor, Alex Acosta, has advised lawmakers that the DOL wanted to revise the overtime rule, establishing the salary level somewhere between the “old” level and the very high level set in the Obama-DOL rule. Mr. Acosta stated that level was too harsh on businesses.

The Takeaway

In principle, I agree with the concept that the duties portion of the test is as important as the salary component and raising this salary in this extreme manner was too much for business to bear. I had clients make changes back in November 2016, in anticipation of the rule, and now they are living with (and paying for) those changes because they do not want to penalize their employees. With that said, I do believe the salary level will (ultimately) be raised.

There have been many investigations of gas stations by the US Department of Labor. Like other retail industries, these businesses sometimes work their employees long hours for a set salary or lump sum of money. The problem is that in these scenarios, the employer is likely not paying proper overtime.

Gas stationIt has happened again, in New Jersey. A chain of six southern New Jersey gas stations will pay twenty-seven (27) workers almost $500,000 in back pay and liquidated damages in an audit emanating from a USDOL investigation into violations of the Fair Labor Standards Act,

The latest violator, R & R Store Inc., operating as USA Gas, had paid these workers a flat monthly salary ranging from $2,200-2,400; the employees worked approximately seventy (70) hours per week, but were not paid overtime. A DOL spokeswoman stated that “not paying employees the wages they’ve earned seriously impacts low-wage employees, such as gas station attendants, causing them hardships as they try to support themselves and their families.”

Significantly, the agency also assessed liquidated damages, which doubled the wages due, for an aggregate total of $463,453.52.  Liquidated damages are often now the rule, even in administrative investigations and audits. Interestingly, gas stations in New Jersey and Oregon are the only states that prevent motorists from pumping their own gas, so they need to employ workers, many of them full-time, to pump the gas and provide customer assistance and services.

In sum, the government took a hard line. Its spokesperson stated that the “U.S. Department of Labor remains focused on New Jersey’s gas stations to determine if FLSA violations exist. If violations are found, we will vigorously pursue corrective action to ensure accountability, deter future violations and prevent violators from gaining a competitive advantage.”

The Takeaway

These wage hour problems/issues are rampant in this industry (and in many other retail industries). Employees are paid a lump sum of cash for hours far exceeding the statutory threshold for overtime, i.e. 40 but they never receive appropriate time and one-half overtime. There are ways, however, legal ways, to build in the overtime to employee lump sums (whether cash or otherwise). The employer’s labor costs need not rise in this scenario and, most importantly, the DOL problems go away and never come back.

It can happen…

The joint employer possibility is a dangerous one for employers, as two related (or semi-related) entities may be held liable for overtime monies if the hours worked by employees at the two (or more) entities exceed 40. Now, Republicans in the House of Representatives have introduced a bill to narrow the definition of joint employment under federal wage-hour and labor law. This would provide businesses clear and bright lines for how they structure deals with contractors, but employee advocates take the opposite view and fear that this act would allow companies that outsource labor to avoid liability for workplace violations.

U.S. Capitol Building
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The proposed legislation, entitled the Save Local Business Act (introduced by Rep. Bradley Byrne, R-Alabama) would amend the National Labor Relations Act and the Fair Labor Standards Act to specify that a business may be branded as a joint employer only if it exercises direct, actual and immediate “significant control” over the essential terms and conditions of certain workers. These essential terms and conditions include hiring and firing/discipline, setting of employee rates of pay and benefits, daily supervision of employees, assignment of individual work schedules and assignment of jobs and job duties.

The proposed standard is stricter (i.e. more pro-employer) than the concepts outlined for joint employment in the controversial NLRB decision in Browning-Ferris Industries of California. The proposed law could result in some finality, in that it will place one body of guiding principles in place under both the NLRA and FLSA so that employers will gain some consistency. One practitioner has stated that, “it provides everybody with a clear definition for who will be liable under both laws.”

A pro-employee advocate from the National Employment Law Project stated that this statute could have serious and adverse effects on lower paid workers, who work, for example, in agriculture or janitorial services. The advocate warned that if the bill becomes law, it would be easier for businesses to place buffers between themselves and their workers, e.g. temporary agencies, staffing service providers, which would facilitate the avoidance of liability. Another employee advocate expressed a dimmer, more radical view, stating that the law would “undermine the concept of joint employment” and “set a high threshold to hold an employer who contracts or outsources work” liable for workplace law violations.

The Takeaway

In FLSA cases involving joint employment, there is varying law between federal circuits, but as regards labor law, the NLRB’s interpretation of the statute is given broad deference by courts on joint employment issues. If, however, Congress adopts a specific test, that test will then likely be given considerable deference by courts in future cases. Long story short—this bill is geared towards a considerable narrowing of the definition of joint employment.

At last!

I have blogged often on these new OT regulations and now it seems the game is continuing, with opposition (not unexpected) from the current administration. The USDOL has released its request for information (RFI) on the revision of the white-collar overtime exemption rules. This has engendered, and will continue to engender, a great deal of controversy. The Obama administration-authored changes to the rules would double the salary level for workers to qualify as overtime-exempt.

The request for information requests stakeholder input on the salary test for exemption under the Fair Labor Standards Act. The questions that the DOL has posed shows that the agency is weighing many options for the rule.  These include setting the salary threshold differently depending on geographical area or possibly eliminating any salary test at all and focusing only on employee job duties to determine if a white-collar exemption (executive, administrative, professional) applied.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
Alfred Robinson, a former WHD Administrator, and someone likely to know, has stated that. “I’ve seen offices that maybe pushed liquidated damages or things of that nature beforehand are not so adamant about it this year.”  He added that, “I read the tea leaves as suggesting that hopefully some reason is coming into some of the enforcement practices.”

In November 2016, an employer group sought and secured a nationwide injunction from a federal court in Texas against the proposed overtime rule.  The new Secretary of Labor has indicated that the new salary level should be set somewhere between the old level and the proposed one (approximately $47,000 per year), but, significantly, the RFI does not suggest the level where it should be set.  The DOL states that “concerns expressed by various stakeholders after publication of the 2016 final rule that the salary level would adversely impact low-wage regions and industries have further shown that additional rulemaking is appropriate.”

The exemption test is now tri-partite—employees must be salaried, must earn a certain minimum salary and must perform certain duties.  The exemption regulations are updated periodically; the last time was in 2004 when the salary level was raised from $250 per week to $455 per week and some changes were made to the duties components of the so-called white-collar exemptions.  The current proposal would not touch the duties tests but would raise the salary level to $913 per week.

The RFI does not trigger the formal rulemaking process that will rescind or modify the proposed (and currently enjoined rule) but the purpose is to secure data and feedback on an issue of concern. Significantly, the agency is on record as stating that it will not seek to revise the rule unless the Fifth Circuit affirms the DOL’s ability and right to establish a salary test.

The Takeaway

I find most interesting the concept that only duties should determine whether an employee is exempt or not.  That might make it easier for employers to maintain lower level supervisors as exempt, as for example, in the retail industry.  Maybe employers would like even better the reverse—if the employee makes a certain amount of salary, he/she is, by definition, exempt.

That seems simpler…

The President has not yet nominated an Administrator for the DOL Wage and Hour Division and the new Secretary of Labor, Alexander Acosta, has not named a political adviser to work with the Wage and Hour Division’s careerists. Thus, without new policy guidance, DOL field investigators seem to be enforcing minimum wage and overtime laws by adhering to and following policies that existed before January 20, 2017.

With that said, there are signs that some local DOL offices may be re-thinking their attitude toward businesses on their own, with their thinking being that the DOL will adopt, as an official stance, a more business-friendly enforcement policy. For example, there are signs that investigators are not keying in on joint employer relationships and may not be so quick to assess double damages (liquidated damages) on wage assessments made.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
Alfred Robinson, a former WHD Administrator, and someone likely to know, has stated that. “I’ve seen offices that maybe pushed liquidated damages or things of that nature beforehand are not so adamant about it this year.”  He added that, “I read the tea leaves as suggesting that hopefully some reason is coming into some of the enforcement practices.”

The agency has more than 1,000 investigators and the lack of leadership in the “main office” could make it harder for the agency to speak in a unified manner.  A long time ex-WHD official observed “until there’s political leadership in place below the Secretary, I think we’re going to see wage-and-hour on automatic pilot, and one of the consequences of that is that some of the district offices are left to their own devices.”

Some lawyers believe that the DOL is taking a more neutral enforcement stance thus far. In contrast, there are reports that some investigators are becoming more aggressive, as they set short time frames for the production of documents as a component of an investigation.

Under President Obama, the DOL significantly increased the number and kinds of cases on which it would assess liquidated damages. This is expected to slow down, as it is a big hammer for the agency, especially in an administrative context. As far as guidance issuing, the closest thing to the implementation of policies was the withdrawal of the two Administrator Interpretations on independent contractor status and what constitutes a joint employer relationship.

The Takeaway

 I expected the DOL to be more business friendly under this Administration, but if the agency does not get organized, there will be no clear direction. Maybe that is a good thing for the employer-defendant world.

Maybe not…