The USDOL has proposed a new cut-down (watered down?) test for determining when entities are a joint employer.  Such a finding leads to the aggregating of employee hours which are worked at both places as well as rendering the entities jointly liable for wage-hour (e.g. overtime) violations.

The focus of the new proposal is a four-factor test to determine whether two (or more) businesses qualify as a joint employer: The power to hire and fire, the ability to control work schedules; the determination of rates of pay; and, the maintenance of employment records (e.g. time sheets, payroll) are the crucial factors.  The test emanates from a three-decade old federal California decision where these factors (save for hiring and firing) were first enunciated.

One commentator, Ryan Glasgow, opines that “the new four-factor test contained in the proposed rule is intended to limit joint-employer status to those situations where the putative joint employer acts directly or indirectly in the interest of the employer in relation to the employee.”

Advocates on both sides attacked or vigorously supported the new proposal.  For example, a spokesman at the International Franchise Association stated that the DOL can now “undo one of the most harmful economic regulations from the past administration and replace it with a rule that creates certainty” for all franchise businesses.  An employee advocate lamented that the new rule would allow larger entities to escape liability merely by contracting out work to “smaller and poorly capitalized” businesses.

There is also the possibility, according to a plaintiff side attorney, that the new rule might cause businesses to contract with other entities and pressure those contractors not to comply with all labor laws, e.g. overtime.  This lawyer, Michael Rubin, stated that “the consequence if a company can’t be held liable for violations that occur, say, at a contractor’s workplace is that there’ll be more contracting out, more violations committed by undercapitalized contractors or franchisees because the company that pulls the economic strings recognizes that it can cut labor costs by not only contracting out the direct employment, but contracting out legal liability.

The Takeaway

Yes, there is a chance that some employers might contract out their obligations for FLSA compliance.  Frankly, I do not believe that is the big danger plaintiff side lawyers might be crying about.  I have found, over thirty years of practicing labor and employment law, that the vast majority of employers are good faith, well-intentioned entities who want to comply with the law but there is a lot of gray in the provisions of the FLSA, especially on the doctrine of what is/is not a joint employer.

Maybe this new proposal is a ray of sunlight into this dark cavern…

Even the most well-intentioned employer who wants to comply with the FLSA will have trouble, as there are many gray, nuanced provisions and regulations in this law, especially on overtime computation.  One of these is the requirement to include non-discretionary bonuses in the overtime calculation of non-exempt workers.  That may now be changing as the USDOL has issued a notice of proposed rulemaking, one proposal of which states that employers do not have to include these bonuses or other quasi-monetary benefits they receive from their employers.

The agency has stated that the new rules are intended curb the “fears” that prevent employers “from offering more perks to their employees as it may be unclear whether those perks must be included in the calculation of an employees’ regular rate of pay.”  The agency also wants to update these rules as the proposals would clarify the meaning of the term “regular rate” in the modern world of work.

First, there must be a notice of proposed rulemaking.  The comment period has opened and will close on May 28.  Now, the FLSA mandates that employers include, in employee regular rates for purposes of overtime computation, “all remuneration for employment paid to, or on behalf of, the employee.”  There are currently some exclusions but now there would be more.

The new rule would exclude from regular rate calculations any cash outs of unused PTO time.  The rule also would exclude the cash amounts given for perks such as onsite health treatment by chiropractors and massage therapists, employer-provided gym memberships, employee discounts on purchases of company products and amounts given for tuition reimbursement.  Most significantly, the rule provides for the exclusions of some sums given as “bonuses.”  The rule would take out of the includible amounts such sums paid for being the employee of the month honors or a sum given for “unique or extraordinary efforts.”

The Takeaway

The proposal probably can be fairly characterized as pro-employer.  Exclusion of these items in the regular rate will result in lower overtime calculations.  On the other hand, some of these items (e.g. gym memberships) were likely never intended by the drafters of the regulations to be included.

I think it’s progress…

I continue to blog about working time cases because these are the kind of lawsuits that can sneak up on an employer who does not realize that a certain pre-shift activity may in fact constitute working time under the Fair Labor Standards Act.  This is again illustrated by a trucking company case where the Company will pay $3.8 million dollars to settle a FLSA collective action alleging non-payment for orientation and training time.  The case is entitled Cormier et al. v. Western Express Inc. and was filed in federal court in the Middle District of Tennessee.

This was a major case, with more than four thousand drivers opting in to the case.  The plaintiffs have requested that the Court approve the settlement, filing an unopposed motion, which stated that the agreement was a “fair compromise of the claims asserted.”  Each opt-in will receive an average of $450.  The motion papers asserted that “the settlement was not the result of a backdoor agreement but instead the result of the parties and their counsel fully evaluating the risks of continued litigation and the benefits of settlement under the auspices of an experienced class action, employment law mediator.”

The lawyers will receive more than one million dollars in fees.  The seven named plaintiffs will also receive so-called incentive awards of up to $7,500 and those opt-ins who were deposed will also receive these incentive awards.

The drivers claimed that they were not paid, at least the minimum wage, for their time spent in orientation and the Company training program.  The Company also paid drivers based on miles driven, which, the drivers alleged, caused them not to receive the minimum wage when the compensation was averaged out over the week.  The Company denied liability and asserted the damages claimed were inflated when it agreed to settle the case.

The Takeaway

The key here is that wherever there is an element, any element, of employer compulsion, like mandated orientation or mandated training, the odds are very good that this will be found to be compensable work time.  I am sure this employer was not aware of that and this is the real problem facing employers, i.e. not knowing when certain activities are compensable.  Now, this employer has learned a lesson.

An expensive one…

What scares me the most about a USDOL audit or a FLSA lawsuit is the threat of liquidated damages. These damages, which double the wages due, are imposed almost routinely in court cases and are being imposed more and more by the administrative agency.  Well, sometimes the pendulum swings the other way, as illustrated by a recent case.  Although the Sixth Circuit affirmed the fact that the employer did not pay overtime properly, it denied the government’s request for liquidated damages.  The case is entitled Acosta v. Min & Kim, Inc. et al., and issued from the Court of Appeals for the Sixth Circuit.

The workers, sushi chefs and servers, did not receive overtime.  They worked 52 hours every week but received only a set lump sum of money, without regard to the number of hours worked and without any overtime.  With that said, the Court would not award liquidated damages, concluding that the employer acted in “good faith” and was not seeking to evade the law.

The lower court Judge had granted summary judgment for the agency on the overtime liability issue.  The Judge ordered the Company to pay more than $112,000 in back due wages.  The Company appealed but the appellate Court upheld the wage portion of the holding.  The Court found that it did not matter if employees were fairly or even generously paid, an employer was “not free to select which parts of the act with which to comply.”

The Takeaway

Maybe the Court did not award liquidated damages because the workers here were very well compensated, which demonstrated that the Company was not out to nickel and dime its employees.  A showing of good faith is necessary to even think about avoiding liquidated damages but, to me, it is hard to envision how a wholesale failure to pay overtime could be considered “good faith.”

But, with that said, don’t look a gift horse in the mouth…

What do I always say? If an employer is sued in a FLSA action, collective or otherwise, and is unionized, always look for a National Labor Relations Act/Labor Management Relations Act preemption defense.  Well, it has happened again!  A federal judge has dismissed a collective action alleging that a rehabilitation center did not pay nurses their correct overtime.  The Court held that matter required interpretation of the labor contract and thus had to go to arbitration.  The case is entitled Freeman v. River Manor Corp. and was filed in federal court in the Eastern District of New York.

The Judge noted that when putative FLSA claims are “‘substantially dependent on or ‘inextricably intertwined’” with the provisions of the labor agreement, that “will govern the procedural trajectory of those statutory claims.”

The Judge determined that the issues involved an initial focus on whether the plaintiff exceeded the thirty-five hour work week of the contract, before the determination could be made whether the forty-hour FLSA work week was impacted.  The contract is between Local 1199, SEIU and the Greater New York Health Care Facilities Association Inc.

The Judge observed that “even if plaintiff worked over 40 hours per work week and is entitled to FLSA overtime wages, his FLSA claim is nevertheless precluded by Section 301 [of the Labor Management Relations Act] because attempting to reach plaintiff’s FLSA overtime claim out of sequence with his contractual overtime claim for hours worked under 40 per week would be impractical, unworkable and would go against the judiciary’s preference for arbitration.”

The action commenced in August 2017 when a Licensed Practical Nurse filed this potential collective action.  He alleged that he worked in excess of the seven hour days mandated by the contract and did not receive overtime pay for those hours.  He also claimed that he was compelled to work through lunch breaks, although those hours were deducted from his paycheck.

The Company defended by asserting that these extra hours were not authorized by the Company, as the labor contract required.

The Takeaway

Sometimes these initiatives do not pay off because there is a strong body of law that protects the “independence” and separateness of FLSA, statutory, claims as opposed to labor contract claims.  With that said, an enterprising and thoughtful defense lawyer should look hard at provisions in the contract that bear on the claim at issue and which need to be “interpreted.”

The gold at the end of this rainbow is a dismissal of the case….

Now that the new $35,000 per annum overtime rule has been proposed, the commentators have been commenting on the implications.  I have read these with great interest.  For example, Alexander Passantino, former DOL Wage Hour Division chief, stated that “it just struck me as funny that it’s within $5 per week of the exact midpoint between the $23,660 and the $47,476.  It is as close to the middle as you can get without making it totally in the middle.”

The figure is where it was expected to be by most commentators.  This is in spite of worker advocates urging that the number be set much higher.  Congressman Bobby Scott, D-Va., stated that although the new salary level provides overtime to some workers, it “would exclude millions … who would have benefited under the 2016 Obama administration rule.”

There are also no automatic updates or escalators.  In lieu of such increases, there will be potential increases every four years but there will first be a notice and comment period.  Mr. Passantino stated that the DOL was trying to walk a fine line between business and employee interests.  He stated that “I think the automatic update strikes me as an attempt to go down the middle again.  They’re going to get comments that say there should be automatic updates, and they’re going to get comments that say there shouldn’t be.  I can’t imagine there are going to be very many comments that say there shouldn’t be, but you should totally think about it every four years.”

What has surprised many observers is that the salary level for highly compensated employees, the HCE exemption, was raised higher than even the Obama proposal had set it.  The new level of $147,000 is almost $50,000 higher than the 2004 level ($100,000) and $13,000 more than the 2016 Obama proposal.  Lee Schreter, a wage-hour attorney, stated that “I think the biggest impact of the rule will not be the minimum salary. I think the place where the impact is going to be felt most and where I think you’re going to see some employer push back is on the increase in the highly compensated.”

The issue had come up early on whether there would be different salary levels for each white collar exemption — executive, administrative and professional.  There was also the possibility of effecting geographic/regional salary level. These possible modifications did not make it into the final proposal.

The Takeaway

Interesting tidbits…

We have been waiting for the United States Department of Labor to announce its plan for toning down the overtime rule revisions implemented in the last administration, but stayed by federal courts, and to announce its own proposal. Now, that momentous event has happened—the agency announced yesterday it will set the salary threshold at $35,308 per annum.  The new level will go into effect in January 2020.  This amounts to a weekly salary of $679 per week.

The agency also announced that the Highly Compensated Exemption (HCE), now set at $100,000, will rise to approximately $147,000.  This figure is actually almost $13,000 higher than the Obama-administration proposal.

Significantly, there are no proposed changes to the duties test. Of equal significance is the fact that employers may utilize certain nondiscretionary bonuses and commissions to meet 10% of the new salary requirement.  The rule also proposed updating the salary level every four years but only after notice-and-comment periods that precede the increases.

The Takeaway

I think this is a reasonable compromise. The truth is that a salary of $700 per week is not a dramatic increase and the $455 per week threshold was too low.  This is fair and I believe that employers will not “go crazy” over the new salary level.

But, we will see…

There is no industry that is immune to wage hour or FLSA actions, including amateur sports leagues.  In an interesting case, a federal Judge has granted conditional class certification to a class of members of an amateur football league who worked as referees and who were, they claim, compelled to perform the work of refereeing other teams’ games for free.  The case is entitled Ernst et al. v. ZogSports Holdings LLC, and was filed in federal court in the Central District of California.

What is even more interesting is that the Court held that the individuals did not have to establish that they were statutory employees before they could send opt-in notices out to other potential class members.  The class that is sought is nationwide.  The employer organizes adult amateur leagues in different sports, e.g. flag football; the players pay to participate, whether as part of a team or individually.  The allegations are that the Company mandates that for each game played, a team must supply a “volunteer referee” to ref at another game.

The plaintiffs claim that their work was integral to the Company’s business and because they performed work identical to that done by paid, “true” employees, they should be deemed employees and eligible for compensation.  The class certification motion asserts that “even if the volunteer referees were truly intending to volunteer, they would still be covered employees under the FLSA.  The FLSA requires payment of minimum wage to workers and generally precludes them from volunteering to work for for-profit enterprises.”

The Company defended by asserting these people were not employees.  The Company also contended the volunteering was like that done by members of all sorts of clubs and organizations. The Judge noted that plaintiffs in other cases had been granted conditional certification where the issue of employee status was still undecided.  The Judge observed that “the parties agree this case is in the notice stage. Plaintiffs therefore need only satisfy the more lenient standard of showing they are similarly situated to other potential collective members, which is met with substantial allegations that potential opt-in collective members were the victims of a single decision, policy, or plan.”

The Takeaway

Individuals cannot waive their right to wages or overtime even if they are denominated as “volunteers.”  There have been many such volunteer cases of late and sometimes the line between volunteer and employee is hard to draw.  It is perhaps not surprising that the Judge allowed opt-in notices to be sent as the issue at the heart of the matter, i.e., employee status, will be decided at the correct time in the case.  The concern for the employer is that it has put all its eggs in the basket of non-employee status.

In for a dime, in for a dollar…

An interesting decision just issued involving an employer who attempted to use a blended compensation system to pay employees overtime.  A federal appellate court ruled, however, that this system did not comply with the Fair Labor Standards Act and allowed a million dollar judgment obtained by the USDOL to stand.  The case is entitled U.S. Department of Labor v. Fire & Safety Investigation Consulting Services LLC, and issued from the Court of Appeals for the Fourth Circuit.  The compensation system “mixed and matched” the employees’ regular hourly pay rate with their overtime rate.  Thus, the workers were basically paid a single uniform hourly rate for all hours worked and therefore their OT rate was not calculated properly.

As the Court aptly stated, “the FLSA shields employees from precisely the type of payment scheme utilized by Fire & Safety — one that appears to compensate employees for both non-overtime and overtime but in reality, uses a single rate for all hours worked, regardless of whether they are non-overtime or overtime hours.  Upholding such a scheme and accepting Fire & Safety’s retroactive justifications would undercut one of the fundamental purposes of the FLSA: ensuring that employees are adequately paid for all overtime hours.”

These workers, who investigated fires and provided security for oil-and-gas companies worked shifts of twelve hours for fourteen consecutive days, followed by fourteen days off.  The pay system involved the workers receiving a fixed amount for the entire 168 hours.  That supposedly included both the regular pay rate for the first eighty (80) hours worked and (allegedly) time-and-a-half for the additional eighty-eight (88) hours.  If the workers, however, did not work the full schedule, the Company then used the blended rate.  The Company did this by dividing the total number using a pre-set formula that was based on the compensation they would have earned if they worked the full 168 hours.

The Court provided a hypothetical example of this illegal system in operation: Any person who earned $10 an hour would receive $2,120 in regular pay/overtime for the fourteen days.  If the person was short of the 168 hours, the Company divided the full pay of $2,120 by 168 and multiplied that figure by the actual number of hours worked.  There was a complaint and the agency found it was illegal; the Company corrected the practice but would not pay back pay.

The Fourth Circuit affirmed the lower court and used an actual example from the Company’s records.  The Court stated that “this series of calculations demonstrates that … Fire & Safety’s blended rate in fact served as the regular rate.  Otherwise, when consultants like those above worked less than a full hitch, their wages would have properly accounted for their non-overtime and overtime hours using their purported regular hourly rates, instead of their blended rates.”

The Takeaway

Interesting approach but ultimately doomed to failure.  There are very few ways to pay overtime when non-exempt people work more than forty hours.  If the overtime can (somehow) be built into the agreed-upon compensation, that would work but threading that needle can be tricky.

Tricky, but doable…

I often preach that, when dealing with a class action, the employer should try to pick off the named plaintiff, perhaps overpaying to do so (or maybe not).  In this interesting case, the parties settled (i.e. with the named plaintiff) right after the class had been decertified.  The plaintiff had argued that he was misclassified as an independent contractor.  The case is entitled Roberson et al. v. Restaurant Delivery Developers LLC et al., and was filed in federal court in the Middle District of Florida.

The settlement came after the Judge held that the named plaintiff had not shown that there was sufficient similarity between he and the other workers he wanted in the collective action.  Thus, the Court granted the employer’s motion to decertify the collective action due to this dissimilarity between the employees.

The suit began in March 2017, on the theory that the Company had misclassified the workers as independent contractors and was not paying overtime.  The Judge granted conditional certification in September 2017.  The Company defended by asserting that it never hired Roberson (or anyone else) and was a consulting company that assisted local restaurant delivery entities in getting off the ground and which would use the Doorstep Delivery in a manner similar to being a franchisee.  These new companies would then use delivery drivers who were deemed to be independent contractors.

Mr. Roberson contended that this company gave out a manual to its customers, the licensed restaurant delivery companies.  The Judge, however, concluded that did not mean that the discrete delivery companies had put the polices into operation.  The Judge also noted that the manual did not have any guidance for significant components of the job, such as whether they could face penalties for refusing deliveries.

Thus, the Court dismissed claims of the opt-in plaintiffs, but allowed Mr. Roberson to continue to pursue his own claims.

The Takeaway

This is an excellent result.  All the more better if it can be done sooner, rather than later, in the litigation “process.”

And a lot cheaper…