Source: https://www.ebglaw.com/michael-d-thompson/news/the-ground-continues-to-shift-in-wage-and-hour-law/
Timestamp: 2019-04-25 17:46:48+00:00

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The current status of the overtime rule is but one of several prominent issues to reckon with as wage and hour issues, investigations, and litigation remain as prevalent as they have ever been.
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It appears that the Obama-era white-collar overtime rules may soon be off the books, barring further surprises from the federal courts. In their place, employers can expect a new regulation implementing a salary threshold for the executive, administrative, and professional exemptions under the Fair Labor Standards Act (“FLSA”) somewhere in the neighborhood of $33,000 per year.
automatically adjusted these levels every three years.
By the DOL’s own estimate, the Final Rule would have immediately rendered 4.2 million previously exempt employees eligible for overtime pay if their employers took no action.
Twenty-one states and dozens of private business associations filed two separate lawsuits challenging the Final Rule. The state plaintiffs sought a preliminary injunction, while the business associations pursued summary judgment.
Just nine days ahead of the December 1, 2016, effective date of the regulations, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction barring the DOL from “implementing and enforcing” the key provisions of the Final Rule. The ruling suggested that the Department lacks the authority to require any salary threshold for the exemptions.
The DOL appealed to the U.S. Court of Appeals for the Fifth Circuit, initially taking the position in its opening brief that the Final Rule is valid in all respects. After the change of administrations, the Department filed its reply brief, expressly disavowing the salary level set in the Final Rule, but asking the Fifth Circuit to confirm the DOL’s authority under the FLSA to require some salary threshold.
The Fifth Circuit scheduled oral argument for October 3, 2017.
In July 2017, the DOL issued a Request for Information (“RFI”) seeking public input on a variety of topics relating to what the appropriate salary threshold(s), if any, would be for the white-collar exemptions, including whether there should be variations based on such factors as employer size, census division, or state. The comment period for the RFI closed on September 25, 2017.
On August 31, 2017, Judge Mazzant issued a ruling granting the pending motion for summary judgment, concluding that (i) the Final Rule is contrary to the FLSA and (ii) the Department has the authority to implement a salary threshold, just not one this high.
Five days later, the DOL sought to drop its appeal in the Fifth Circuit in light of the district court’s ruling, which the circuit court dismissed on September 6, 2017.
The DOL may appeal the summary judgment ruling. If it does, the goal would be to delay any final ruling until the Department can issue new overtime regulations, as well as maintain a friendly forum to resolve the issue presented in the Chipotle case, if need be.
The wild card is the lawsuit against Chipotle. Although the case seems unlikely to gain traction, it is possible that the district court or the Third Circuit could breathe new life into the Final Rule through that litigation.
Employers that made changes in anticipation of the implementation of the 2016 Final Rule will probably find that their best path forward is to maintain that practice, not least because of the employee relations concerns with changing classifications or pay.
Employers that did not change their practices, or that initially changed practices but then reverted to their prior state after the preliminary injunction, may take some additional encouragement from recent developments, despite the fluidity and continued uncertainty surrounding the Final Rule.
Of course, employers will want to look out for the DOL’s next overtime rule, which is likely coming in the next several months. Based on Secretary of Labor Alexander Acosta’s testimony during his confirmation hearing, the expectation is that the next salary threshold will be “around $33,000,” though the Department may elect to go in a different direction based on the comments received in response to the RFI.
May employers maintain full control over the distribution of customers’ tips to employees?
Until recently, the DOL has unequivocally said that they may not. However, the DOL’s regulation restricting tip pooling and distribution is apparently on the chopping block. And, to further complicate matters, a circuit split on this issue may result in review by the U.S. Supreme Court.
Under the FLSA, as well as many state wage and hour laws, an employer may pay tip-earning employees a reduced, subminimum hourly wage as long as they receive sufficient tips that, when combined with the subminimum wage, meet or exceed the prevailing minimum wage. In addition to tips that employees receive directly, the FLSA allows an employer to claim the credit for tips distributed from a tip pool in which participation is limited to employees who customarily and regularly receive tips, such as servers and bartenders in the restaurant industry. Participation in a tip pool by non-tip-earning employees, such as cooks and dishwashers, invalidates its use for the tip credit.
More controversial, however, is that the DOL expanded its regulation of tip pools, maintaining that it may do so regardless of whether an employer takes a tip credit against the wages of employees participating in a tip pool. The controversy stems from the fact that the courts did not initially interpret the rules regulating tip pooling to apply to employers that did not take a tip credit against employees’ wages.
Thus, in Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010), the Ninth Circuit held that the FLSA did not bar an employer from distributing pooled tips to “back of the house” employees where the employer did not take a tip credit against its employees’ wages. In response to the Woody Woo decision, the DOL issued a regulation explicitly barring distribution to non-tipped employees even when a tip credit is not taken.
Challenges to the DOL regulation initially succeeded in two federal district court cases: Oregon Restaurant and Wynn Las Vegas.
However, in a consolidated decision on appeal, the Ninth Circuit—which previously decided Cumbie—upheld the DOL’s regulation as a proper exercise of its discretion.
The Tenth Circuit disagreed, however. In Marlow v. The New Food Guy, Inc., 861 F.3d 1157 (10th Cir. 2017), the Tenth Circuit explicitly rejected the Oregon Restaurant decision, finding that (i) the FLSA does not state that tips are always the property of employees and, if the tip credit is not taken, tips may be distributed by employers at will, and (ii) the DOL was not vested with such rulemaking authority in this instance.
Further complicating the issue, on July 20, 2017, the DOL announced its plan to rescind this controversial regulation (although to date it has not done so). The DOL also indicated that it would not enforce the regulation, suggesting that it may either decline to defend the regulation before the Supreme Court or argue that a review is not necessary because the regulation is not being enforced and will soon be rescinded.
Even if the DOL does not enforce the regulation, employees can still pursue private lawsuits in connection with invalid tip-pool claims and, more generally, claims concerning tip redistribution from tip pools. Accordingly, employers should continue to proceed with caution in this area and consider applicable state laws.
For example, in California, all tips must be distributed to employees, including the full value of credit card tips. And Minnesota and New Hampshire require all tips to be distributed to employees and bar mandatory tip pools.
3. Mandatory Class Action Waivers in Employment Agreements: Is a Final Answer Forthcoming?
The history of wage and hour class and collective actions has followed a fairly distinct path. First came claims alleging that employees had been misclassified as exempt under the FLSA and/or state law. Next came claims alleging employees had not been paid for all time worked or, in state actions, that employees had not received required meal and rest periods.
Many have wondered what the next wave of class actions might be. That question appears to have been answered—time-rounding claims.
Why, one might ask, would plaintiffs bring claims regarding time rounding when the law is clear that time rounding is lawful?
The answer is not as straightforward as one might suspect.
It is true, of course, that regulations and court decisions have confirmed that employers may use evenhanded time-rounding policies—that is, policies that round employees’ time either up or down to the nearest five-, six-, or 15-minute increment are lawful on their face.
But what about in practice? Is the impact of time rounding evenhanded as it is actually applied to employees?
And that is the basis of the time-rounding claims brought by employees, which appear to be the beginning of the next wave of class and collective actions.
In these cases, plaintiffs typically allege that while time-rounding policies may be neutral on their face, they are not neutral in practice. Specifically, plaintiffs argue that their time and payroll records reveal that they and other employees are regularly disadvantaged by time rounding to the financial benefit of their employers—and that the total amounts underpaid to all employees are enormous.
In connection with that argument, plaintiffs also often argue that time-rounding policies must be read in connection with their employers’ other policies, such as attendance and tardiness policies. They argue that if employees face discipline for being late to work, or for being late returning from a meal period, it is more likely that employees will arrive at work early or return to work early—meaning that time rounding is more likely to disadvantage employees.
On first glance, these theories appear to be supported by logic. On second glance, however, they may fall apart. While it is true that an employee might be more likely to report to work early than late because of the employer’s attendance policy, time rounding could still benefit the employee.
For example, if an employer has a policy by which employees’ punch times are rounded to the nearest 15 minutes, an employee who shows up three minutes early to avoid discipline will be disadvantaged. But an employee who reports to work eight minutes early will have his or her time rounded to the nearest 15 minutes such that he or she would actually gain seven minutes. And even the employee who reports to work seven minutes or less early such that the start time is rounded up could still benefit from time rounding depending on when he or she leaves work at the end of the day. For instance, while an employee who reports to work three minutes early might lose three minutes of time to time rounding at the start of the day, if he or she left work eight minutes late, he or she would gain more time at the end of the day such that the total impact of rounding benefited him or her for that day.
There is another problem with many time-rounding claims brought by plaintiffs. Specifically, plaintiffs and their counsel often ask the courts to assume that all time that an employee is “on the clock” is compensable. However, there is valid argument that employees are not entitled to be paid for time engaged in personal activities after they punch in at the start of the day but before they commence work. For instance, an employee who arrives at work early and punches in, then sits in the break room reading a newspaper and drinking coffee for 10 minutes, arguably is not entitled to be paid for that time. And that non-compensable, pre-shift time could be the difference between whether an employer’s time-rounding policy is neutral in practice or not.
Ultimately, with more and more time-rounding class actions and collective actions being filed, employers should ask themselves a critical question: Do we really want a time-rounding policy and, if so, why?
There are, of course, entirely legitimate reasons for an employer to maintain time-rounding policies. While the argument that time-rounding policies make cutting paychecks easier administratively may not be as sound as it once was given the ease with which compensation can be calculated electronically, the desire to have a healthy work environment where employees do not feel hounded to commence work immediately upon punching in is a very reasonable one. So, too, are issues dealing with the location of time clocks or lines to punch in and out.
That said, any employer that is looking to save labor costs through time rounding not only does not have a legitimate reason to maintain a policy but will have a difficult time explaining itself in litigation.
As time-rounding class actions become more prevalent, it will not be a surprise to see more and more employers abandon what was once considered a “best practice” simply to avoid the possibility of litigation and the risks and costs that follow. Those that stick with the policies will need to be prepared to defend them—and being able to show that employees spend a couple minutes getting coffee before commencing work could make the difference in defeating a class certification motion or in prevailing on the merits.
As part of the DOL’s Wage and Hour Division’s initiative to combat worker misclassification under President Obama, the Division’s Administrator issued Administrator’s Interpretation No. 2015-1 on July 15, 2015 (“Interpretation”). The Interpretation advocated for a reading of the “economic realities test” that favored classifying most workers as employees rather than independent contractors under the FLSA.
The Interpretation pointed out that, to determine whether a worker should be classified as either an employee or an independent contractor under the FLSA, courts rely on the following six factors comprising the “economic realities test”: (i) the extent to which the work performed is an integral part of the employer’s business, (ii) the worker’s opportunity for profit or loss, (iii) the nature and extent of the worker’s investment in his or her business, (iv) whether the work performed requires special skill and initiative, (v) the permanency of the relationship, and (vi) the degree of control exercised or retained by the employer. The Interpretation advocated for interpretations of these factors that have not been universally applied by courts and would result in more workers being classified as employees rather than independent contractors.
Significantly, the Interpretation rejected courts’ historical emphasis on the “control” factor, and focused instead on workers’ entrepreneurial activities. Regarding the worker’s opportunity for profit or loss, the Interpretation argued that this factor should focus on not only the opportunity for profit or loss but also whether the worker has the ability to make decisions and use his or her managerial skill and initiative to affect opportunity for profit or loss. As to the nature and extent of a worker’s investment, the Interpretation stated that the worker’s investment must be substantial when compared to the putative employer’s investment for the worker to be engaged in an independent business.
On June 7, 2017, Secretary Acosta announced that the DOL was withdrawing the Interpretation. It appears that the DOL has chosen to reject the previous administration’s interpretation of the “economic realities test,” which disfavored the independent contractor classification. If this is true, employers may anticipate seeing (i) less of an emphasis on workers’ entrepreneurial activities in DOL enforcement proceedings and (ii) a return to a focus on the degree of control exerted by the putative employer over workers.
In a move that may signal a further shift from the DOL’s policies under President Obama, on September 6, 2017, President Trump announced that he was nominating Cheryl Stanton, a former shareholder at a management-side employment firm, as Administrator of the Wage and Hour Division.
Congress will consider the Save Local Business Act while simultaneously weighing other options. On September 6, 2017, the House Committee on Education and the Workforce held a hearing on the sharing economy and the protections that may be needed to protect the workers of companies such as Uber and Homejoy, who are typically classified as independent contractors.
Prior to its withdrawal, the Interpretation appears to have had minimal influence on how courts apply the “economic realities test” in misclassification cases. Likewise, the withdrawal of the Interpretation will likely have little effect on how courts apply the test. A legislative response to this confusion is a strong possibility, but for the time being, federal courts will continue to analyze whether a worker is an employee or independent contractor by applying their own versions of the “economic realities” test consistent with precedent.
 76 Fed. Reg. 18,831, 18,855 (April 5, 2011), amending 29 C.F.R. §531.52.
 Oregon Rest. & Lodging v. Solis, 948 F. Supp. 2d 1217 (D. Or. 2013).
 Cesarz v. Wynn Las Vegas, LLC, No. 2:13-cv-00109-RCJ-CWH, 2014 U.S. Dist. LEXIS 3094 (D. Nev. Jan. 10, 2014).
 Oregon Restaurant and Lodging v. Solis, 816 F.3d 1080 (9th Cir. 2016), pet. for reh’g en banc denied, 843 F.3d 355, pet. for cert. filed sub nom. Wynn Las Vegas, LLC v. Cesarz, No. 16-163 (Aug. 1, 2016), and sub nom. National Restaurant Assoc. v. U.S. Dept. of Labor, No. 16-920 (Jan. 19, 2017).
 29 C.F.R. § 785.48(b); Alonzo v. Maximus, Inc., 832 F. Supp. 1122 (C.D. Cal. 2011); Contini v. United Trophy Mtg., 2007 U.S. Dist. LEXIS 42510 (M.D. Fla. June 20, 2007); Harding v. Time Warner, Inc., 2009 U.S. Dist. LEXIS 72852 (S.D. Cal. Aug. 18, 2019); East v. Bullock’s, Inc., 34 F. Supp. 2d 1176 (D. Ariz. 1998).
 See, e.g., 29 C.F.R. § 785.48(a); Cal. Department of Labor Standards Enforcement Manual § 47.2.2.

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