Key Takeaways The New Jersey Supreme Court ruled that employers cannot evade state wage obligations based on a worker’s undocumented status in violation of federal immigration law. Employers who knowingly hire or retain undocumented workers must still comply with state wage obligations, regardless of conflicting federal law or alternative compensation agreements. The decision increases legal exposure for employers violating state wage laws based on immigration status. In Lopez v. Marimac LLC, the New Jersey Supreme Court closed the door on a long-debated defense in wage disputes: an employee’s undocumented status. On March 19, 2026, the Court clarified the relationship between immigration status and state wage-and-hour compliance, holding that employers cannot use undocumented status to avoid paying wages. The case arises from an undocumented worker hired in 2015 by the owner of a realty company. After learning of the worker’s immigration status, the employer stopped paying wages and instead offered rent-free housing, claiming that paying formal wages would be “against the law.” Tension Between Federal and State Law The IRCA prohibits employers from hiring or continuing to employ individuals not authorized to work in the United States. These prohibitions apply even after an employer becomes aware of a worker’s unauthorized status. Notably, the statute does not expressly prohibit paying wages for work already performed. The New Jersey Supreme Court’s ruling affirms an impactful proposition: immigration status does not excuse noncompliance with state wage laws. The Court focused on the plain language of the New Jersey Wage Payment Law (WPL) and Wage and Hour Law (WHL), neither of which expressly excludes undocumented workers from their purview. Instead, employers who violate the IRCA must still pay workers for work performed, regardless of immigration status or alternative barter agreements. The Court reasoned that finding otherwise—that federal law preempts state wage and hour protections—would “incentivize employers to hire undocumented immigrants and pay reduced wages.” Enabling this practice would undermine the IRCA’s core objective of preventing the hiring of undocumented immigrants. Expanding Worker Protections in New Jersey The decision aligns with New Jersey’s broader policy trend toward strengthening protections for immigrant workers. For example, New Jersey continues to actively enforce wage-and-hour laws through initiatives like its “Workplace Accountability in Labor List,” which publicly identifies employers with outstanding wage liabilities. Against this backdrop, the Court’s ruling aligns with a consistent policy direction: ensuring that all workers—regardless of status—are covered by baseline employment protections. Implications for Employers The decision underscores the risks of employing undocumented workers while failing to comply with state wage laws. Employers should note several practical implications of the decision, including: Increased Litigation Risk: Undocumented workers may be more likely to bring wage claims using the rationale of Lopez not only in New Jersey, but also in other states. Elimination of a Common Defense Strategy: Arguments that wage obligations do not apply due to a worker’s unauthorized status are unlikely to succeed in New Jersey courts. Compliance is Status-Neutral: Pay requirements, overtime calculations, and recordkeeping requirements apply to all employees, regardless of work authorization status in New Jersey. Heightened Enforcement Exposure: Violations involving undocumented workers may attract additional scrutiny from regulators. Next Steps for Employers Given this recent ruling, it is recommended that employers operating in New Jersey: Conduct wage-and-hour audits to ensure compliance across all employee categories Review policies and training to eliminate any status-based pay disparities Strengthen documentation and payroll practices Consult counsel when addressing workforce compliance issues involving immigration considerations. For questions and assistance regarding this decision and its impact on employers, please contact your Polsinelli attorney. 

Key Takeaways The Illinois Supreme Court Expands the Boundaries of Compensable Hours: The Illinois Supreme Court held that the Illinois Minimum Wage Law (IMWL) does not automatically incorporate federal Portal-to-Portal Act limitations. Rather, the statute requires compensation for off-the-clock work activities. Impact on Compensability: Employer-mandated pre- and post-shift activities may be compensable under Illinois law, even if not compensable under federal law. Effect on Employers: The decision increases potential wage-and-hour exposure for Illinois employers, particularly for off-the-clock activities such as screenings and security checks. Employers should review timekeeping and pay practices to ensure compliance with Illinois-specific requirements. To exclude or not to exclude off-the-clock activities, that is now a pressing question for Illinois employers. On March 19, 2026, the Illinois Supreme Court issued a significant decision clarifying the scope of compensable work under the Illinois Minimum Wage Law (IMWL), with potentially far-reaching implications for employers operating in the state. The ruling arises from litigation involving Amazon warehouse employees who sought compensation for time spent undergoing mandatory pre-shift COVID-19 screenings. The central legal question—certified to the Court by the Seventh Circuit—was whether Illinois law incorporates the federal Portal-to-Portal Act (PPA), which excludes certain “preliminary” and “postliminary” activities from compensable time. A Departure from Federal Limitations Under federal law, the PPA does not require employers to compensate pre- or post-work activities, unless those activities are “integral and indispensable” to the employee’s principal duties. Courts have historically applied this framework to exclude time spent in security screenings or similar activities. The Illinois Supreme Court, however, has now made clear that the IMWL does not incorporate the Portal-to-Portal Act’s categorical exclusions and instead requires an independent analysis under Illinois law. The Court focused on the plain language of the IMWL and the Illinois Department of Labor’s “hours worked” definition, noting that—unlike federal law—neither explicitly excludes “preliminary” or “postliminary” activities. Absent clear legislative intent, the Court declined to read those limitations into the statute. During oral argument, Amazon warned that an expansive interpretation could create liability for routine workplace activities “ranging from walking from their cars, to waiting for an elevator,” to undergoing security procedures. While the Court did not adopt that sweeping formulation outright, the decision leaves open the possibility that Illinois courts will take a more employee-favorable approach than federal law. Notably, the Court did not determine whether the specific activities at issue were compensable, leaving that determination to the Seventh Circuit on remand. A Broader Trend in Illinois Wage Law The ruling is consistent with a recent trend in Illinois Supreme Court jurisprudence interpreting the IMWL expansively. For example, in Mercado v. S&C Electric Co., the Court held that non-discretionary bonuses must be included in the “regular rate of pay” for overtime calculations, rejecting narrower interpretations of compensation. Together, these decisions signal a clear judicial preference for applying the plain language of the IMWL without importing federal limitations that could narrow employee protections. Implications for Employers This decision materially increases potential wage-and-hour exposure for Illinois employers. If broadly applied, the ruling could extend compensability to a wide range of pre- and post-shift activities, including: Health and safety screenings Security checks Required on-site waiting time Other employer-mandated activities performed off the clock. What Should Employers Do Now Employers with Illinois operations should take proactive steps in light of this development: Review pay practices: Evaluate whether employees are required to perform activities before clock-in or after clock-out. Assess compensability: Consider whether such activities could now be deemed compensable under Illinois law, even if excluded under federal standards. Update policies and procedures: Ensure timekeeping practices capture all potentially compensable work. Monitor litigation risk: The decision may spur class and collective actions challenging longstanding pay practices, particularly in industries that rely on pre-shift screening or security protocols. The Illinois Supreme Court’s ruling underscores that compliance with federal wage-and-hour law may no longer be sufficient in Illinois. Because the case will return to the Seventh Circuit for a final determination on off-the-clock compensability, changes to the Illinois Supreme Court’s decision may be on the horizon. In the meantime, employers should anticipate increased scrutiny of off-the-clock work and adjust their practices accordingly to mitigate risk. For questions and assistance regarding this decision and its impact on employers, please contact your Polsinelli attorney. 

Key Highlights DOL Clarifies Bonus Treatment Under the FLSA: In Opinion Letter FLSA2026-2 (Jan. 5, 2026), the Department of Labor confirmed that certain performance-based bonuses must be included in the “regular rate of pay” when calculating overtime. Advance Promises Eliminate Discretion: Bonuses are not considered “discretionary” if the employer communicates the criteria and amounts in advance. Once promised, the employer has “abandoned” discretion under the FLSA. Impact on Overtime Calculations: Because the safety and performance bonuses at issue were non-discretionary, they must be included in the regular rate for any workweek in which they are earned—requiring employers to review bonus programs to ensure proper overtime compliance. On January 5, 2026, the U.S. Department of Labor’s  Wage and Hour Division (the “DOL”) issued Opinion Letter FLSA2026-2 addressing the question of whether an employer must include certain bonus payments in the “regular rate of pay” when calculating an employee’s overtime pay under the Fair Labor Standards Act (“FLSA”). Background: The Employer’s Safety and Performance Bonus Plan The DOL’s letter responds to an inquiry from an employee who worked in the waste management industry inquiring whether certain performance-based bonuses were considered “discretionary bonuses” that could be excluded from the “regular rate” for purposes of calculating overtime for   hourly, non-exempt employee drivers of the employer. Specifically, the employer provided certain performance-based bonuses pursuant to a “Safety, Job Duties, and Performance” bonus plan designed to reward an employee’s punctuality, attendance, consistency in completing daily safety tasks, driving safety, compliance with traffic laws, proper attire, and performance efficiency. The amounts of the bonus, as well as the criteria to earn such bonuses, were communicated to the employees as part of a bonus plan prior to any employee meeting the performance requirements. What Qualifies as a “Discretionary” Bonus Under the FLSA? The DOL concluded that the bonus payments were not discretionary. In its letter, the DOL explained that, to be considered an excludable discretionary bonus under the FLSA, the payment must satisfy three conditions: (1) the fact and amount of the payment must be determined at the sole discretion of the employer; (2) the employer’s determination must occur at or near the end of the period when the employee’s work was performed; and (3) the payment must not be made pursuant to any prior contract, agreement, or promise that causes the employee to expect such payments regularly. 29 U.S.C. § 207(e)(3). The DOL reasoned that while the employer technically had initial discretion in deciding whether it would offer the bonus program, and on what terms, it had communicated the criteria for receiving the bonus to its employees well in advance of their performing work. As a result, the fact and amount of the bonus payments were not made at the “sole discretion of the employer at or near the end of the period” in which the work was performed. This is consistent with the FLSA’s regulations, which provide: “If the employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it.” 29 C.F.R. § 778.211(b). DOL’s Conclusion: Bonuses Must Be Included in the Regular Rate Because the bonuses at issue were not discretionary, the DOL concluded that the employer must include the bonus payments in the regular rate of pay in any workweek for which they are earned when calculating overtime for the drivers. Employer Takeaways and Compliance Considerations Employers providing performance-related bonuses should keep the three factors outlined by the DOL in mind and should review their policies and practices to ensure all such bonuses are properly classified as either discretionary or non-discretionary so that the regular rate is properly calculated when paying overtime. For questions and assistance regarding the inclusion of bonus payments or other issues involving the FLSA or wage-and-hour laws, please contact your Polsinelli attorney.

Key Highlights PAGA reforms elevate the importance of proactive compliance: The 2024 amendments reallocate penalties, expand cure opportunities, and give courts more discretion to reduce penalties for good-faith errors—making prompt remediation and well-documented compliance efforts critical in 2026. Wage-and-hour fundamentals continue to drive exposure: Daily overtime rules, regular rate calculations, evolving minimum wage requirements and strict meal and rest period obligations remain the primary sources of liability despite PAGA changes. Operational gaps can create outsized risk: Payroll misconfigurations, off-the-clock work, missed break premiums and delayed final pay can quickly compound across employees and pay periods, leading to significant penalties and litigation risk. California’s wage-and-hour framework is one of the nation’s most complex and vigorously enforced. In 2024, the California legislature enacted significant reforms to the Private Attorneys General Act (PAGA) affecting civil penalties allocations, employers’ ability to cure certain violations and PAGA case management. Those reforms took effect in 2025 and continue to influence statewide risk exposure in 2026. The PAGA Context: Reforms That Matter in 2026 PAGA deputizes employees to pursue civil penalties on behalf of the State of California and other employees for Labor Code violations. Historically, employers faced large PAGA penalties because: PAGA actions do not require class certification; Penalties could accumulate per employee, per pay period; and Procedural requirements and enforcement timing often created settlement pressure. The 2024 reforms recalibrated several parts of this framework as they: Reallocated civil penalties so that 65% now goes to California’s Labor and Workforce Development Agency and 35% to aggrieved employees (subject to certain adjustments); Expanded cure opportunities to give employers the chance to fix certain violations within defined windows and limit penalty exposure; and Adjusted penalty structures to give courts clearer guidance to reduce penalties for isolated and good-faith errors while preserving high penalties for persistent or bad-faith violations. The PAGA reforms might seem procedural. But in practice, they highlight how documented compliance efforts, rapid remediation and coordinated cross-functional responses to notices carry strategic importance for California employers. Wage-and-Hour Fundamentals That Still Drive Risk Even following the PAGA reform, the underlying wage-and-hour requirements of the California Labor Code remain central to most claims. (1) Overtime Pay California’s overtime structure is distinctive: 1.5× the regular rate for hours over 8 in a day or 40 in a week; and 2× the regular rate for hours over 12 in a day Employers with multistate payroll systems often find that other states’ “weekly-only” overtime rules do not meet California’s daily requirements. Misconfigured systems can systematically underpay overtime, and small errors compound quickly across a workforce. Because overtime is based on the regular rate and not necessarily the employee’s base hourly rate, items like nondiscretionary bonuses and differentials can change the overtime calculation—another common source of underpayment when payroll rules are not configured to California’s requirements. (2) Minimum Wage California’s statewide minimum wage is $16.90/hour in 2026, with many cities and counties requiring higher rates. Industry-specific minimum wages, like in fast food and health care, may also apply. Minimum wage exposure often stems from: Off-the-clock work; Unpaid pre- or post-shift tasks; Misapplied meal or rest period premiums; and Pay practices that inadvertently reduce effective hourly rates. Minimum wage violations also interact with exempt status thresholds, which are tied to the state minimum wage. (3) Meal and Rest Periods California requires a: 30-minute off-duty meal break for shifts over five hours; Second 30-minute meal break for shifts over 10 hours (with limited waiver options); and Paid 10-minute rest breaks for every four hours worked. Missed meal or rest breaks trigger premium wages—one additional hour of pay per violation. Additionally, meal and rest period premiums count as wages, so they must appear correctly on wage statements and be paid in the next regular payroll cycle. (4) Off-the-Clock Work Employers must compensate for all time an employee works. Common “off-the-clock” risks include: Pre-shift setup or security checks; Donning/doffing time; After-shift duties; and Remote work outside scheduled hours. Even small increments of unpaid time can push employees into unpaid overtime. (5) Final Pay and Waiting Time Penalties Final pay must be issued immediately upon termination and within three days of voluntary resignation or immediately with proper notice. Delays—even for legitimate administrative reasons—can lead to waiting time penalties that accrue daily for up to 30 days. Why This Matters California’s recent PAGA reforms do not reduce employers’ wage-and-hour obligations; they reinforce the importance of getting compliance right. While the amendments create new cure and penalty-management mechanisms, the underlying requirements governing overtime, minimum wage, meal and rest periods and final pay remain unchanged and continue to drive litigation risk. Employers should reassess payroll systems, break practices, classification decisions and final pay procedures. For more information about the PAGA reforms or California wage-and-hour compliance, contact your Polsinelli Labor and Employment attorney.

Key Takeaways:  DOL Moves to Reinstate Business-Friendly Independent Contractor Standard: The Department of Labor has proposed rescinding the 2024 independent contractor rule and returning to a more flexible “economic reality” test that emphasizes two core factors — control and opportunity for profit or loss — potentially narrowing federal misclassification exposure under the FLSA. NLRB Restores 2020 Joint Employer Rule: The NLRB has formally reinstated the Trump-era standard requiring “substantial direct and immediate control” for joint employer status, limiting liability based solely on indirect or reserved control and reducing bargaining and unfair labor practice exposure for many businesses. Despite the clocks moving forward this week, federal employer classification standards are turning back. The Department of Labor (DOL) and National Labor Relations Board (NLRB) have recently moved to restore Trump-era employment standards that reshape worker classification for businesses across industries. These developments mark a significant shift in federal labor policy with implications for employers navigating classification, franchising, staffing and gig-economy models. DOL Proposes Rescission of 2024 Independent Contractor Rule After abandoning the Biden administration’s 2024 independent contractor test, the DOL announced a proposed rule on Feb. 26, 2026 to replace its current enforcement scheme under the Fair Labor Standards Act (FLSA), which applied a six-factor “totality of the circumstances” economic realities analysis without assigning weight to any particular factor. Under the DOL’s proposal, the independent contractor standard will again be tested by the “economic reality,” focusing on whether an individual is dependent on an employer or in business for themselves. This signals a return to a more flexible, business-friendly analysis. DOL Wage and Hour Division Administrator Andrew Rogers stated: “Generally, if a worker is economically dependent on an employer for work, he or she is an employee. Generally, if a worker is in business for him or herself and isn't dependent on an employer for work, the worker is an independent contractor.” While the 2024 rule weighed six factors equally, the DOL’s proposal will apply a list of five non-exhaustive factors while elevating two to “core factors”: the nature and degree of control; and the worker’s opportunity for profit and loss. The others become less probative “guideposts”: skill required; permanence of the relationship; and integration into the employer’s production process. The intent is to look at the “actual practice” of the parties rather than what may be contractually or theoretically possible. In emphasizing control and opportunity for profit/loss, the DOL appears to be narrowing employers’ misclassification exposure under the FLSA, particularly in industries where workers exercise meaningful entrepreneurial discretion. Although this shift aligns more closely with Supreme Court and federal appellate precedent, employers should not assume that federal enforcement risk will disappear. Private plaintiffs’ attorneys are likely to continue pursuing collective and class actions, and state-law classification standards remain unaffected. Employers should review their current classification practices and prepare to update policies and training. NLRB Reinstates Trump-Era 2020 Joint Employer Standard The NLRB also formally reinstated the 2020 joint employer rule on Feb. 26 after a federal court vacated the Biden-era’s broader definition. Under the rule, joint employer status requires “substantial direct and immediate control” over one or more essential terms and conditions of employment such that it “meaningfully affects matters relating to the employment relationship.” Further, “substantial direct and immediate control” must have a “regular or continuous consequential effect” on employment terms, not control exercised only on a “sporadic, isolated, or de minimis basis.” Reserved or indirect control alone is generally insufficient. Reinstating the 2020 rule is expected to have an outsized impact on franchisors, staffing companies, private equity-backed platforms and businesses operating through layered contracting relationships. By requiring exercised or direct control, the rule will likely meaningfully limit federal bargaining obligations and unfair labor practice exposure tied to another entity’s workforce. Still, contractual language and day-to-day operational practices must align to avoid inadvertently triggering joint employer status. Employers should review current workforce relationships to assess potential obligations for bargaining and unfair labor practice exposure. Companies with pending NLRB matters or organizing activity should evaluate how the reinstated standard may affect strategy, particularly where joint employer allegations were previously asserted. Why This Matters Together, these developments signify the Trump administration’s employer-friendly approach to rulemaking and reflect a narrower federal interpretation of independent contractor and joint employer standards. While both rules may face continued legal scrutiny, employers should use this moment to proactively review independent contractor models, audit franchise and staffing arrangements, align operations with contractual intent and evaluate classification risks under relevant state standards. Polsinelli will continue to report on any DOL and NLRB updates related to these standards. Please contact your Polsinelli attorney for more information.

Key Highlights Brand ambassadors and influencers can present growing misclassification exposure. Luxury, retail and hospitality brands increasingly rely on short-term, brand-facing talent and when these workers are closely integrated into marketing, customer engagement and brand presentation, they can trigger the same wage-and-hour risks as traditional employees. California’s ABC test presents a high bar for independent contractor models. Prong B, in particular, creates challenges when brand ambassadors, stylists and pop-up personnel perform work tied to core brand functions such as customer experience and brand presentation. Control and brand standards drive risk across jurisdictions. Even outside ABC-test states, factors such as training, scripted interactions, fixed schedules, exclusivity or content approval for influencers can undermine independent-contractor classification, regardless of engagement length. Luxury brands increasingly rely on brand ambassadors, stylists, influencers and pop-up personnel to deliver curated customer experiences and reinforce brand identity. These engagements are often short-term or campaign-based and are frequently classified as independent contractor relationships. As worker-classification standards continue to tighten nationwide, however, that model carries growing legal risk. For luxury, retail and hospitality brands, misclassification claims are no longer confined to traditional retail staffing. Brand-facing marketing talent — often viewed as flexible and external — can present the same exposure as in-store employees when classification rules are not carefully applied. Why Classification Has Become a Pressure Point Misclassification can expose brands to significant liability, including unpaid minimum wages and overtime, missed meal and rest periods, payroll tax exposure, statutory penalties and representative or class actions. These risks are amplified in luxury and hospitality settings, where brand standards, customer experience and messaging consistency are central to the business. Although many brand ambassadors view themselves as independent creatives, classification turns on legal standards — not job titles or worker preferences. California’s ABC Test: A High Bar for Luxury Brands California remains the most challenging jurisdiction for contractor models. Under California Labor Code § 2775, a worker is presumed to be an employee unless the hiring entity establishes all three prongs of the ABC test: The worker is free from the control and direction of the hiring entity in performing the work, both under the contract and in practice; The worker performs work outside the usual course of the hiring entity’s business; and The worker is customarily engaged in an independently established trade or business of the same nature as the work performed. Failure to satisfy any prong results in employee status. For luxury brands, prong B often presents the greatest challenge. Brand ambassadors, stylists and pop-up representatives frequently perform work that goes to the core of the brand’s business: marketing, customer engagement and brand presentation. When the brand experience itself is the product, it becomes challenging to argue that these services fall “outside the usual course” of business. Control and Brand Standards Still Matter Elsewhere Outside California, some brands assume classification risk is lower. That assumption can be misleading. For example: New York does not apply the ABC test for wage-and-hour purposes. Instead, courts apply a common-law “control” test that examines factors such as supervision, scheduling, training and integration into the business. Illinois similarly relies on a right-to-control analysis for most wage claims, though ABC-style tests apply in certain statutory contexts, including unemployment insurance. See 820 ILCS 405/212. In practice, these standards still present meaningful risk for luxury brands. Extensive training, required attendance at brand briefings, fixed schedules, exclusivity requirements or detailed scripts and presentation guidelines can all weigh in favor of employee status, even in jurisdictions without an ABC test. The more control a brand exercises over how ambassadors interact with customers and represent the brand, the harder it becomes to sustain a contractor classification. Influencers and Pop-Up Activations: Added Complexity Influencer marketing and pop-up activations present additional classification challenges. Some influencers operate established businesses with multiple clients, supporting independent-contractor status. Others, however, function more like on-demand brand representatives. Classification risk increases when brands require pre-approval of content, dictate posting schedules, restrict work for competitors or tie compensation to strict compliance with brand directives. Engagement length alone does not eliminate exposure. Even short campaigns can give rise to misclassification claims if the underlying relationship resembles employment. Looking Ahead Luxury, retail and hospitality brands will continue to rely on flexible, brand-forward talent to remain competitive. But as worker-classification standards evolve and enforcement intensifies, contractor models that once seemed routine may no longer be defensible. Addressing classification issues at the outset of a campaign rather than after it concludes can help brands preserve flexibility while reducing legal exposure. Brands with questions about independent contractor classification or campaign staffing strategies should consult their Polsinelli Labor & Employment attorney.

The Ninth Circuit has now joined a growing number of appellate courts holding that, in Fair Labor Standards Act (FLSA) collective actions, personal jurisdiction must be determined on a claim-by-claim basis when general jurisdiction over the defendant is absent. In Harrington v. Cracker Barrel Old Country Stores, Inc., a group of current and former employees alleged that Cracker Barrel had violated the FLSA in its treatment of tipped workers’ wages. The case was filed in the District of Arizona, though Cracker Barrel is incorporated and headquartered in Tennessee. The plaintiffs sought conditional certification of a nationwide collective action. Following the traditional two-step certification process, the district court conditionally certified the collective and authorized notice to be sent nationwide, reasoning that the presence of a single plaintiff with a connection to the forum state sufficed to establish specific personal jurisdiction for all claims. Cracker Barrel then asked for an interlocutory appeal on three issues. The Ninth Circuit affirmed the district court on two, but took up the third question: Does the Supreme Court’s decision in Bristol-Myers Squibb Co. v. Superior Court of California apply to FLSA collective actions in federal court, thereby rendering nationwide notice improper? In Bristol-Myers Squibb Co. v. Superior Court of California, 582 U.S. 255 (2017), the Supreme Court held that the Fourteenth Amendment’s Due Process Clause prohibits state courts from exercising specific personal jurisdiction over claims by non-resident plaintiffs against a non-resident defendant when the claims lack a sufficient connection to the forum state. The Third, Sixth, Seventh and Eighth Circuits have already extended this principle to FLSA collective actions, while only the First Circuit has reached a different conclusion. Aligning with the majority, the Ninth Circuit held that when a collective action is based on specific personal jurisdiction — that is, where the defendant is neither incorporated nor headquartered in the forum state — each opt-in plaintiff’s claim must be evaluated for its connection to the defendant’s activities in that state. Accordingly, the Ninth Circuit reversed the District of Arizona’s authorization of nationwide notice, concluding it was based on the “mistaken assumption” that such specific personal jurisdictional analysis was unnecessary. For questions and assistance regarding collective actions or other issues involving the FLSA or other wage-and-hour laws, please contact your Polsinelli attorney. 

On May 14, 2025, the Missouri Senate voted 22-11 to repeal portions of Proposition A, the voter-approved initiative that increases the state’s minimum wage and requires employers to provide earned paid sick leave. The legislation repeals two key pieces of Proposition A: The earned paid sick time requirement, which requires employers to provide employees with one hour of earned paid sick time for every 30 hours worked, took effect on May 1. The increase to the state’s minimum wage based on inflation and a rise in the cost of living. Employers who implemented policy changes to meet the paid sick leave requirements now will face the choice of rolling those changes back or leaving them in place. Although Missouri’s minimum wage increased on January 1 of this year and will again increase at the beginning of 2026, these minimum wage increases were not set to increase based on the Consumer Price Index (CPI) until 2027. Accordingly, the increases to minimum wage this year and again in 2026 remain unchanged. Proposition A passed in November 2024 but has faced significant legislative and legal challenges. For instance, several entities brought a lawsuit, alleging the statute violated the Missouri Constitution, among other things. However, on April 29, 2025, the Missouri Supreme Court ruled to uphold Proposition A in Raymond McCarty, et al. v. Missouri Secretary of State, et al., Case No. SC100876. See our earlier blogs on these issues here and here. In the wake of the Missouri Supreme Court’s ruling, Senate Republicans used a rare procedural move to force a vote on the legislation. The bill, passing unchanged through the Senate from the House, will now advance to Governor Kehoe’s desk, and he is expected to sign the legislation into law. If signed, the repeal will become effective on August 28, 2025. Until then, employers must continue to abide by the law as currently written. For questions and assistance regarding compliance with Proposition A and upcoming changes, please contact your Polsinelli attorney.

What You Need to Know The U.S. Department of Labor has announced it will no longer enforce the 2024 independent contractor rule under the Fair Labor Standards Act (FLSA), reverting to the more employer-friendly 2008 “economic reality” test. The 2008 Rule and a reinstated 2019 Opinion Letter—favorable to app-based and gig economy businesses—will guide enforcement actions, emphasizing factors like control, investment, and profit/loss potential to determine worker status. While the shift is seen as beneficial to businesses, employers must continue to monitor developments and ensure compliance with federal, state, and local classification standards to avoid misclassification penalties. On May 1, 2025, the Wage and Hour Division of the U.S. Department of Labor (“DOL”) announced that it will no longer enforce its 2024 independent contractor rule under the Fair Labor Standards Act (“FLSA”). The nixed 2024 rule previously set forth a six-factor test to classify workers as employees or independent contractors based on a “totality of the circumstances test” of non-exhaustive factors. The 2024 rule had been subject to numerous legal challenges in district courts across the country because employers considered it to skew towards classifying workers as independent contractors. Now, the DOL will revert back to the framework set out back in 2008 in Fact Sheet #13 (the “2008 Rule”) until it can develop a revised standard. The DOL’s Guiding Independent Contractor Standard (for now) The 2008 Rule asserts that “an employee, as distinguished from a person who is engaged in a business of his or her own, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business which he or she serves.” Under this 2008 Rule, the employer-employee relationship under the FLSA is tested by “economic reality” rather than “technical concepts.” It also states that the following factors are considered significant in determining whether there is an employee or independent contractor relationship: The extent to which the services rendered are an integral part of the principal’s business; The permanency of the relationship; The amount of the alleged contractor’s investment in facilities and equipment; The nature and degree of control by the principal; The alleged contractor’s opportunities for profit and loss; The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and The degree of independent business organization and operation. Finally, the 2008 Rule provides that certain factors, such as (i) where work is performed; (ii) the absence of a formal employment agreement; (iii) whether an alleged independent contractor is licensed by a state or local government; and (iv) the time or mode of pay, are immaterial to determining whether there is an employment relationship. Impact of the DOL’s Recent Departure from the 2024 Test The DOL’s announcement does not formally revoke the 2024 rule, but it does indicate that changes to the rule will be forthcoming. The DOL will now utilize the Fact Sheet #13 and a 2019 Opinion Letter (which was previously withdrawn) to conduct audits and other enforcement actions. The 2019 Opinion Letter re-instituted by the DOL on May 2, 2025, addresses whether the workers of a virtual marketplace company that provides an “online and/or smartphone-based referral service that connects service providers to end-market consumers” are independent contractors or employees. In essence, the 2019 Opinion Letter concludes that these “on-demand” workers for virtual marketplace companies, who perform services for users (such as transportation, delivery, shopping, moving, etc.), are independent contractors, not employees. App-based rideshare companies and other similar technology-based service companies will be directly impacted by the DOL’s announcement. While these recent DOL announcements are generally viewed as more employer-friendly, time will tell if that is the practical reality of these changes. Don’t forget – state and local laws can impact the analysis of proper worker classification, so employers need to stay vigilant to ensure they are not making any major changes that would violate those pesky geographic nuances. Employers Should Proactively Monitor This Area Employers should evaluate their existing employee classifications in light of these recent developments to ensure that employees are properly classified to avoid violations of the FLSA’s requirements, including minimum wage, overtime, and recordkeeping. This is particularly important for employers to consider because misclassification issues can be costly. Additionally, employers need to stay alert for any further changes because the DOL has signaled that additional rulemaking regarding independent contractor classification under the FLSA is expected. Please contact your Polsinelli attorney if you have any questions related to this important legal development.

On April 29, 2025, the Missouri Supreme Court ruled to uphold Proposition A, the voter-approved initiative that increases the state’s minimum wage and requires employers to provide earned paid sick leave. The law will take effect as planned on Thursday, May 1. What is Proposition A? Proposition A raises minimum wage and introduces mandatory earned paid sick leave for most workers. Some of the key provisions of Proposition A include: Raising the minimum wage to $13.75 per hour in 2025 and $15 by 2026 and providing for annual inflation-based increases thereafter. Requiring employers to provide paid sick leave, with workers earning one hour of leave for every 30 hours worked. The Legal Challenge Business associations and other opponents of the measure challenged the law in Case No. SC100876, Raymond McCarty, et al. v. Missouri Secretary of State, et al. Plaintiffs argued that the summary statement and fiscal note summary were so misleading that they cast doubt on the fairness of the election and validity of its results. Further, Plaintiffs argued that Proposition A was invalid because it violated the “single subject” and “clear title” requirements of Art. III, Section 50 of the Missouri Constitution. Majority Opinion The Missouri Supreme Court’s majority held the results of the election adopting Proposition A are valid and dismissed, without prejudice, the claim contending Proposition A violated the single subject and clear title requirements for lack of jurisdiction. Key points from the majority opinion: Ballot Summary: The Court determined that the summary language was not materially inaccurate or seriously misleading to demonstrate an irregularity. Instead, the Court stated that Plaintiffs made conclusory allegations that the summary statement language misled voters but did not offer evidence to support those conclusions. Thus, a new election was not warranted. Single-Subject Rule: The judges declined to rule on whether Proposition A violated the single subject rule—the Court dismissed the claim without prejudice for lack of jurisdiction, stating that the claim had not been properly raised in a lower court before coming to the Supreme Court. Separate Opinion Judge Ransom issued a separate opinion from the majority, stating that she disagreed that the Supreme Court possesses original jurisdiction over election contests. However, Judge Ransom agreed with the majority’s decision if, for argument’s sake, the Court had jurisdiction to hear the challenges. What Happens Next? With the ruling in place: Proposition A will take effect on May 1, 2025. Employers must comply with new minimum wage rates and paid sick leave requirements, including taking immediate steps to implement paid sick leave by May 1. Lawmakers or business groups could still seek legislative revisions or bring new legal challenges. For questions about what your business needs to do to comply with the new law, reach out to your Polsinelli attorneys.

The earned paid sick time provisions of Proposition A are set to take effect on May 1, 2025. Missouri Proposition A requires employers to provide employees working in Missouri at least 1 hour of sick leave for every 30 hours worked and allows carryover of up to 80 of such hours per year. The law applies to almost all Missouri employees, including full-time, part-time and temporary with limited exceptions. For more details on the requirements and background of this paid sick leave law, see our prior blog posts on Missouri Proposition A requirements here and litigation challenge here. While ongoing litigation and legislative efforts seek to delay or modify certain aspects of the law, these initiatives are unlikely to affect the start date or the notice period required by the statute. Therefore, it is essential for employers to begin preparing for the implementation of the law to ensure compliance with the statutory requirements, including the mandatory notice and poster provisions. Notice and Poster Requirements Written Notice to Employees Employers are required to provide written notice of the earned paid sick time policy to all employees by April 15, 2025. The notice must be provided on a single sheet of paper, using a font size no smaller than 14-point. This notice should be distributed along with the employer’s updated written policy. The Missouri Department of Labor & Industrial Relations has provided a standardized notice for employers. Poster Display Requirement In addition to the written notice, Proposition A mandates that employers display a poster detailing the earned paid sick time policy in a “conspicuous and accessible place” at each workplace. This poster must be displayed starting April 15, 2025. The Missouri Department of Labor & Industrial Relations has also provided a poster for this purpose. Litigation Update On March 12, 2025, the Missouri Supreme Court heard oral arguments in a case brought by various business groups and associations challenging the constitutionality of Proposition A. The plaintiffs argue that the Proposition is unconstitutional due to its inclusion of both minimum wage and paid sick time issues on the same ballot. While the Supreme Court has not yet issued a ruling, it typically takes between 100 and 200 days for the Court to render an opinion. Although the outcome of the case may ultimately affect certain provisions of the law, employers should continue preparing for the implementation of Proposition A as currently written, effective May 1, 2025. Legislative Update On March 13, 2025, House Bill 567 passed in the Missouri House of Representatives. This bill seeks to repeal the paid sick leave provisions of Proposition A, delay the scheduled minimum wage increase, and eliminate the annual adjustments to the minimum wage based on the price index. The bill cleared a public hearing in the Senate on March 26, and an executive session will be held on April 7. If the bill passes the Senate and is signed into law by the Governor, it will not take effect until August 28, 2025. As a result, Proposition A will remain in effect beginning May 1, 2025, and employers should prepare for the law to be implemented as currently written. Resources and Support The Missouri Department of Labor & Industrial Relations has developed an overview and frequently asked questions (FAQ) section on its website to assist employers in understanding the requirements of Proposition A and the earned paid sick time benefits. Missouri employers need to review and likely need to update their existing policies regarding sick time and/or paid time off to comply with Missouri paid sick leave requirements. For questions and assistance regarding such changes, please contact your Polsinelli attorney. We are available to help ensure your organization remains compliant with the law.

On January 15, 2025, the Supreme Court of the United States issued a unanimous decision in E.M.D. Sales, Inc. v. Carrera, finally clarifying the standard of proof for employers to demonstrate an employee is properly exempt from minimum-wage and overtime-compensation requirements under the Fair Labor Standards Act of 1938 (“FLSA”). Long story short, the Supreme Court has made it crystal clear that FLSA exemptions are subject to the default “preponderance of the evidence” standard, akin to other employment law claims under Title VII. The Court explained that this decision was made, in large part, because: (1) the FLSA does not specify an evidentiary standard (which generally indicates a default preponderance standard); and (2) it does not involve the limited types of claims (e.g., constitutional claims or citizenship removal proceedings) in which the heightened “clear and convincing evidence” standard is warranted. Until the Carrera decision, the Fourth Circuit stood alone as the sole circuit embracing the “clear and convincing” standard of proof for FLSA exemptions. The Carrera decision rectified this discrepancy, making every circuit uniform in this respect. Ultimately, this decision is a win for employers in the Fourth Circuit, because it lowers their evidentiary burden to successfully argue their workers fall within an FLSA exemption. Employers elsewhere should continue doing business as usual. Contact your Polsinelli attorney to inquire whether your workforce is properly classified as exempt under the FLSA or to spot potential areas of risk related to minimum wage or overtime pay issues.

Governor Hochul signed legislation titled the “New York State Fashion Workers Act” (the “Act”), which has a widespread impact on the modeling industry as it relates to compensation, contractual restrictions, and other workplace protections. The Act takes effect on June 19, 2025. Applicability The Act is geared towards protecting models, regardless of employee or independent contractor status. The Act aims to close any loopholes by placing affirmative requirements and restrictions on model management companies and their clients. Model management companies include those persons or entities engaged in the management, procurement, or counseling of models. The Act applies to clients of model management companies, including retail stores, manufacturers, clothing designers, advertising agencies, photographers, publishing companies or any other person or entity that receives modeling services. Requirements and Prohibitions for Model Management Companies All model management companies must register with the New York Department of Labor within one year of the effective date of the Act, by June 19, 2026. After the registration is complete, the model management company must post their certificate of registration in a conspicuous place within their physical office and on their website. Model management companies may file a request for exemption if it: 1) submits a properly executed request for exemption; 2) is domiciled outside of New York and is licensed or registered as a model management company in another state that has the same or greater requirements as the requirements under this Act; and 3) does not maintain an office in New York or solicit clients located or domiciled within New York. The registration and exemption status only lasts for a two-year period. Notably, if the management company employs more than five employees, then it must post a surety bond of $50,000. The Act broadly imposes a fiduciary duty upon model management companies that is owed to their models. Acting in good faith, model management companies must, inter alia, conduct due diligence, procure opportunities, provide final agreements to models at least twenty-four hours prior to the start of modeling services, disclose any financial relationship with a client, and identify their registration number in any advertisement (including social media). The Act seeks to provide transparency to models’ compensation by requiring the management companies to clearly specify costs that the model must reimburse and providing the model with supporting documentation of those costs on a quarterly basis. The management companies must ensure that employment of a sexual nature or involving nudity complies with state civil rights law. The Act also considers the management company’s past and future use of images. For former models, the Act requires the management companies to send a written notification to the models informing them if the company continues to receive royalties. For future use of a model’s image, the management company must obtain a written consent separate from the representation agreement that details the creation, use, duration, scope and rate for that digital replica. The Act also prohibits management companies from engaging in certain activities. Among prohibitions related to compensation and fees, the Act prohibits a contractual term greater than three years and prohibits the contract from automatically renewing without affirmative consent from the model. The model management companies are prohibited from taking more than twenty percent of a commission fee. Model management companies are prohibited from discrimination, harassment and retaliation. A new topic of interest is the Act’s prohibition on altering the model’s digital replica using artificial intelligence. Finally, the Act specifies that a management company cannot present a power of attorney agreement as a necessary condition to working with the management company. Requirements of Clients The language of the Act establishes client responsibilities owed to models as it relates to compensation and safety. Clients should be aware that if a model works over eight hours in a twenty-four-hour period, they must receive overtime pay and they must receive at least one thirty-minute meal break. Clients must only offer opportunities that do not pose an unreasonable risk of danger, ensure that work opportunities of a sexual nature or involving nudity comply with civil rights law, and allow the model to be accompanied by a representative to any work opportunity. Causes of Action and Penalties Under the Act, models have a private right of action in addition to the enforcement authority of the commissioner and attorney general. The Act provides a six-year statute of limitations. The commissioner may impose penalties of $3,000 for the initial violation and $5,000 for subsequent violations. Before a court of competent jurisdiction, a plaintiff may obtain actual damages, reasonable attorneys’ fees and costs, and liquidated damages up to 100% for non-willful violations and up to 300% for willful violations. Conclusion In anticipation of the Act going into effect, model management companies should thoroughly review and update their policies and practices and prepare to register or seek an exemption. Likewise, businesses that hire models should review their practices and revise policies as necessary to ensure compliance with the Act. Polsinelli attorneys are available to assist with any questions that may arise in anticipation of the June 19, 2025, effective date and any questions that may arise thereafter.

As 2024 comes to a close, employers should be aware of the hourly minimum wage rate increases set to take effect in various jurisdictions on January 1, 2025. 21 states and 48 local jurisdictions will “ring in” the New Year with new minimum wage rates. Of these jurisdictions, 8 states will have minimum wage rates reaching or exceeding $15/hour. Non-exempt employees earning minimum wage in the following states will be impacted by the upcoming increases: Alaska Arizona California Colorado Connecticut Delaware Illinois Maine Michigan  Minnesota Missouri* Montana Nebraska New Jersey New York Ohio Rhode Island South Dakota Vermont Virginia Washington Those states identified in italics also have local jurisdictions with minimum wage increases effective January 1, 2025, that are higher than the applicable state minimum wage. Missouri’s current wage increases are under legal challenge. See our recent blog post here for more details. Employers should be on the lookout for any employees who may be affected by the minimum wage increases in the above states and localities to ensure they are ready to comply with these adjustments. In addition, employers with tip credit employees should review their tip credit notices to ensure full compliance with applicable laws (including cash wage being paid to the tipped employee and the amount of tip credit claimed by the employer). Finally, most jurisdictions require employers to post an updated minimum wage notice in the workplace, so make sure you find those notices before the holiday season takes over. Contact your Polsinelli attorney if you have any questions regarding your wage and hour compliance before we spring into 2025.

The Missouri Chamber of Commerce and Industry, along with other Missouri business groups, recently filed a lawsuit in the Supreme Court of Missouri attempting to stop Proposition A from taking effect. The lawsuit asserts five counts requesting the Supreme Court of Missouri set aside and/or invalidate Proposition A: The fiscal note summary was insufficient and unfair because it: fails to address costs to local governments; inaccurately presents Proposition A’s actual fiscal impact; fails to identify direct costs to private employers and state administrative costs; and fails to note the impact Proposition A would have on tax revenues. The summary statement was insufficient and unfair because it: fails to notify voters of the use cap on paid sick time and that it differs depending on total number of employees; improperly suggests that “all employers” would be required to provide one hour of paid sick leave for every thirty hours worked when the actual measure exempts certain employers; mispresents enforcements and oversight authority; misrepresents requirements of Missouri law; fails to properly identify which employees are excluded from the minimum wage increase; mispresents the exemptions for education institutions; fails to notify voters of creation of a new crime for failure to comply; and fails to notify voters that the new sick leave applies to non-health related reasons. Proposition A violates the single subject clause of the Missouri Constitution by including both the minimum wage increase and paid sick leave. Proposition A violates the clear title requirement of the Missouri Constitution because the title has more than one subject. Proposition A treats similarly situated entities different in violation of the Fourteenth Amendment to the United States Constitution and Article I, Section 2 of the Missouri Constitution. The Missouri Supreme Court has yet to set a briefing schedule or hearing on the matter. Absent a decision on the merits prior to January 1, 2025, employers should be preparing to institute the minimum wage provisions of Proposition A. Employers should also be preparing to implement the paid sick leave provisions of Proposition A beginning May 1, 2025. We previously detailed key provisions of Proposition A here. Polsinelli will continue to monitor this lawsuit for further developments. Please contact your Polsinelli attorney for further assistance.

In the 2024 election, Missouri voters approved Proposition A, a measure that raises the minimum wage beginning January 1, 2025, and introduces mandatory earned paid sick leave for most workers effective May 1, 2025. Key Provisions of Proposition A Applicability: Proposition A applies to most private employers and applies to most employees including full and part-time with limited exceptions. Minimum Wage Increase: Proposition A establishes a gradual increase in Missouri’s minimum wage over the next two years. Starting January 1, 2025, employers must pay Missouri employees a minimum wage of $13.75 per hour. The minimum wage increases to $15.00 per hour on January 1, 2026. Beginning January 1, 2027, the minimum wage will either increase or decrease year after year based on the cost of living. Earned Paid Sick Leave: The law mandates that employers provide paid sick leave, allowing employees to take time off for conditions such as personal illness or care of a family member with an illness. Employers can either front-load sick leave, providing employees with their full annual leave at the start of the year or use an accrual system where leave is earned over time. The amount of accrual depends on the number of employees. For example, an employer with fifteen or more employees must provide a minimum accrual of one hour of earned paid sick time for every thirty hours worked. Full-time employees who are exempt from overtime under the Fair Labor Standards Act are assumed to work 40 hours in a work week for accrual calculations—these employees are expected to accrue approximately 70 hours of earned paid sick time per year. Carryover: Employees can carry over up to 80 hours of unused, earned sick leave into the following year. However, an employer does not have to permit an employee to use more than the entitled number of sick time hours available under the statute. For employers with fifteen or more employees, employees are not entitled to use more than 56 hours of earned paid sick time per year, unless the employer selects a higher amount. PTO Policies: In lieu of implementing a second policy, an employer who already has a paid time off policy can modify their existing policy to comply with Proposition A’s requirements. If the paid leave policy meets the accrual requirements and can be used for the same conditions as earned paid sick time, additional earned paid sick time is not required. Payout: Employers are not required to pay out unused sick leave at the end of the year but may choose to do so as part of their policy instead of allowing carryover. Notably, an employer does not have to pay an employee unused earned paid sick time at termination or separation from employment. Impact on Employers Adjustments Required: Employers must comply with the new minimum wage requirements and set up systems to manage paid sick leave. They can opt for front-loading or an accrual method. Employers opting to adjust their paid leave policy to encompass earned paid sick time may do so if their policy complies with Proposition A’s accrual and use requirements. Flexibility: While the wage increases and paid sick leave mandate may increase costs, employers have some flexibility in managing sick leave through carryover limits, payouts, use limits, and discretion to loan sick time in advance. Proposition A introduces significant changes for Missouri minimum wage and paid sick leave. For questions and assistance regarding such changes, please contact your Polsinelli attorney.

Employers have been waiting with bated breath on the challenges to the DOL’s newest salary increase for exempt employees scheduled to take effect on January 1, 2025. On November 15, 2024, U.S. District Court Judge Sean Jordan for the Eastern District of Texas granted summary judgement in Texas v. Dept. of Labor striking down the DOL’s April 2024 rule. As a brief recap, in late April 2024, the DOL proposed two increases to the minimum salary threshold for the FLSA’s executive, administrative, and professional exemptions (known as the White Collar Exemptions). At the time of the new rule, the salary threshold was set at $684 per week, or $35,568 per year. The rule made the first increase starting July 1, 2024, of $844 per week ($43,888 annually), and the second increase starting on January 1, 2025, of $1,128 per week ($58,656 annually). While there were several challenges before the July 1, 2024 increase, three courts that had challenges before them did not issue injunctive relief to prevent that increase from going into effect. In his order, Judge Jordan found that the DOL’s rule exceeded its authority. Specifically, Judge Jordan found that while the DOL can use salary as a part of its authority to define the requirements of the White Collar Exemptions, the salary test “is not included in the statutory text,” and is “not unbounded.” He stated that the salary threshold cannot “displace” the duties tests for each of the White Collar Exemptions. In using the 2024 U.S. Supreme Court case Loper Bright Enterprises v. Raimondo in his reasoning, Judge Jordan examined the impact of the salary threshold increases compared to prior adjustments, specifically the latest increase in 2019. Judge Jordan found that the new salary increases did not just screen out those employees who were clearly non-exempt, but also resulted in disqualifying significant portions of employees who would otherwise meet the applicable duties tests. For example, the Judge calculated that the July 2024 increase alone resulted in a third of prior exempt employees being disqualified from the exemption. “When a third of otherwise exempt employees who the Department acknowledges meet the duties test are nonetheless rendered nonexempt because of an atextual proxy characteristic – the increased salary level – something has gone seriously awry.” Judge Jordan’s ruling completely strikes the April 2024 rule on a nationwide basis – including the increases that occurred on July 1, 2024. Thus, the salary threshold is reverted back to the $684 weekly ($35,568 annually) amount. The DOL can appeal the decision, but with the upcoming change in administration, it is uncertain what the DOL’s next step will be.

On September 11, 2024, the U.S. Court of Appeals for the Fifth Circuit in Mayfield v. U.S. Department of Labor confirmed that the United States Department of Labor (“DOL”) has the authority to use a salary basis to define its white-collar overtime exemptions. This is a significant win for the DOL as it is presently defending its latest increase to the minimum salary thresholds for executive, administrative, and professional exemptions under the Fair Labor Standards Act (“FLSA”), also known as the FLSA’s “white-collar exemptions," in litigation pending in the U.S. District Courts for the Eastern and Northern Districts of Texas. The Mayfield Decision In Mayfield, a unanimous three-judge panel of the Fifth Circuit provided that the DOL has the authority to "define and delimit" an exemption from overtime pay under the FLSA. In so ruling, the Court affirmed the dismissal of a lawsuit initiated by a Texas fast-food operator, Robert Mayfield, who claimed Congress never authorized the DOL to use salaries as a test for whether workers have managerial duties. The Court rejected Mayfield’s argument. In response, the Fifth Circuit wrote that "[d]istinctions based on salary level are... consistent with the FLSA’s broader structure, which sets out a series of salary protections for workers that common sense indicates are unnecessary for highly paid employees.” Upon issuing the Mayfield decision, the Fifth Circuit joined the four other federal appeals courts that have considered this issue previously (including the D.C. Circuit, Second Circuit, Sixth Circuit, and the Tenth Circuit). 2024 DOL Rule The 2024 DOL rule effectively focused on three main points. First, it raised the minimum weekly salary to qualify for the FLSA’s white-collar exemptions from $684 per week to $844 per week (equivalent to a $43,888 annual salary) on July 1, 2024. Second, it called for another increase of the minimum weekly salary to $1,128 per week (equivalent of a $58,656 annual salary) on January 1, 2025. Third, under the 2024 DOL rule, the above salary threshold would increase every three years based on recent wage data. As mentioned above, the Mayfield decision comes at a time when the DOL is defending its recent 2024 rule increasing the salary thresholds for white-collar exemptions in both the Eastern and Northern Districts of Texas. Indeed, the Mayfield decision’s timing could not have come at a more opportune time for the DOL because it supplies these Texas federal judges with new direction from the Fifth Circuit to consider when making their rulings. What Does This Mean for Employers? The Mayfield decision bolsters the DOL in its bid to set and increase the minimum salary requirements for its white-collar overtime exemptions, which will certainly pose challenges for employers in creating compliant employee compensation structures. In short, if the 2024 DOL rule goes into effect, employers will have to substantially raise their employees’ salaries to ensure they remain properly exempt from the overtime provisions of the FLSA. Contact your Polsinelli attorney if you have any questions related to wage and hour matters or compliance with the FLSA in light of these recent developments.

Missouri voters will decide in November whether to raise the state’s minimum wage and guarantee paid sick leave for workers. On August 13, 2024, Missouri Secretary of State Jay Ashcroft certified a ballot measure advanced by the Missourians for Healthy Families & Fair Wages. Proposition A proposes to guarantee that Missouri workers can earn up to seven paid sick days per year and would gradually raise the minimum wage to $15/hour. Proposition A asks: Do you want to amend Missouri law to: Increase minimum wage January 1, 2025, to $13.75 per hour, increasing $1.25 per hour each year until 2026, when the minimum wage would be $15.00 per hour; Adjust minimum wage based on changes in the Consumer Price Index each January beginning in 2027; Require all employers to provide one hour of paid sick leave for every thirty hours worked; Allow the Department of Labor and Industrial Relations to provide oversight and enforcement; and Exempt governmental entities, political subdivisions, school districts, and education institutions? Notably, Proposition A exempts federal, state and local governments, school districts, and educational institutions, among others, from its requirements. Proposition A also carves out numerous exceptions to the “employees” subject to the proposed amended statute, including government workers, non-profit volunteers or independent contractors, retail or service employees who work for a business that makes less than $500,000 per year, individuals who are incarcerated, golf caddies, and babysitters. If it passes, Proposition A would change Missouri law rather than the Constitution. Practically speaking, that means the Republican-controlled General Assembly could repeal the measure. However, the popularity of previous ballot initiatives raising the minimum wage curtailed action from the General Assembly. Therefore, if Proposition A passes by a large margin, the General Assembly may be reticent to repeal. Polsinelli will continue to monitor developments as the vote unfolds. If you have questions about the potential impact these amendments could have on your business or employees, contact your Polsinelli attorney.

Effective October 1, 2024, Maryland will become the sixth state (plus the District of Columbia), to require that employers provide an upfront disclosure of the wage or salary range for open positions in job listings. The new law follows a recent proposed rule similarly seeking to require federal contractors to disclose pay information in job postings. These proliferating pay transparency requirements demonstrate the need for employers to continue focusing on achieving pay equity throughout the workforce. Maryland’s law is applicable to all employers within the state, regardless of size, and applies to any position that will be physically performed, at least in part, in Maryland. As with transparency laws enacted by other states, this leaves uncertainty about the law’s application to fully remote positions that can conceivably be performed from anywhere. The new law requires that employer job listings, whether posted directly or through a third party like a recruiting firm, include a wage and salary range, as well as a general description of the benefits offered for the position. The wage or salary range must be set in good faith by reference to: (1) Any applicable pay scale;  (2) Any previously determined minimum and maximum hourly rate or minimum and maximum salary for the position; (3) The minimum and maximum hourly rate or minimum and maximum salary of an individual holding a comparable position at the time of the posting; or (4) The budgeted amount for the position. The law also applies to internal postings for promotions or transfers.  If this information is not included in a job posting, it must be provided to the applicant before any discussion of compensation takes place, or earlier upon the request of the applicant. Notably, the factors that must be referenced in setting the wage range could potentially be inconsistent – for example, an employer could be hiring for a position in which comparable employees make between $80,000 and $120,000 but have $100,000 budgeted for the hire. The law does not provide guidance on how employers should navigate such discrepancies. In addition to the job posting requirements, the law sets forth anti-retaliation and recordkeeping obligations for employers. Penalties for violation of the new law range from $300 to $600 and take effect only upon a second or subsequent offense, as the law provides that employers will receive a compliance warning for a first offense. The law is enforceable only by the Maryland Department of Labor and does not contain a private right of action. Employers with jobs that can be performed, at least in part, in Maryland should review their pay equity and transparency practices in light of this new law. If you have questions about pay equity and pay transparency practices, contact your Polsinelli attorney.

As has been expected, and as we addressed at the end of 2023 in our previous blog post, on April 23, the U.S. Department of Labor (“DOL”) at long last issued its final rule raising the salary thresholds for overtime exemptions. The rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees,” addresses the scope of the carveout for positions deemed to be exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”). Specifically, the final rule sets into motion increases in the salary threshold that must be met for a position even to be potentially exempt. The salary thresholds are higher in the final rule than they were in the proposed rule. Beginning July 1, 2024, the salary threshold will increase to $43,888/year from the current level of $35,568/year. Following that, the threshold level will increase to $58,656/year on January 1, 2025. The January 2025 level equates to $1,128/week. The DOL has said that the increased threshold beginning January 1, 2025, will affect some 3 million workers. In addition to the general salary exemption thresholds, the rule will raise the threshold for classification as a highly compensated employee, from the current $107,432 to $132,964 in July 2024 and then to $151,164 in January 2025. This will not be the last increase – the rule sets forth that automatic updates to the threshold amounts will take place every three years based on the latest earnings data. As has been the case with previous attempts at increases through DOL rules, we anticipate there will be challenges to the rule. Finally, the rule will not alter the duties necessary for the exemption qualification of a position. And employers should remember that some states have higher salary thresholds for exemption under their state wage-and hour laws. Contact your Polsinelli attorney for further guidance regarding this rule change and other wage-and-hour matters.

On January 9, 2024, the U.S. Department of Labor released the final details of their Independent Contractor test. This test addressing when companies can classify workers as independent contractors has been hotly debated since the last proposed rule by the Trump administration was struck down by the current DOL. The new rule will take effect on March 11, 2024. The new Independent Contractor focuses on the “economic realities of the working relationship” to determine if whether the worker is economically dependent on the company for work or if the worker is in business for themselves. The test is based on the “totality of the circumstances” and includes the following six factors: The opportunity for profit or loss depending on managerial skill; Investments by the worker and the company; Degree of permanence of the work relationship; Nature and degree of control of the worker – including whether the employer uses technological means of supervision (such as by means of a device or electronically), reserves the right supervise or discipline the worker, or places demands on a worker’s time that do not allow the worker to work for others or work when they choose; The extent to which the work performed is an integral part of the company’s business; and The skill and initiative of the worker – i.e., whether the worker possesses and uses specialized skills that they bring to the job, or is the worker dependent on training from the company to perform the work. While the DOL identified these six factors, it is clear that no factor has a predetermined weight, and also indicated that other “additional factors” may be relevant if they are indicative of whether the worker is in business for themselves. Pending the effective date, the DOL has issued FAQs which can be found at: https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking/faqs With this new test, companies should carefully review whether the workers they have classified as independent contractors meet the new requirements and take any appropriate action if they believe they are misclassified. Polsinelli attorneys are available to assist with this review and analysis.

As 2023 comes to a close, so did the notice-and-comment period for the U.S. Department of Labor’s (DOL) proposed rule increasing the minimum salary required for employees to be exempt under any of the “White Collar Exemptions” from overtime pursuant to the Fair Labor Standards Act (“FLSA”). With that period closing in November, it can be anticipated that steps will be taken in the upcoming election year to implement the new rule. As a reminder, and as explained in our previous blog post, the DOL has proposed the threshold salary level for exemption from overtime be raised from $35,568/year ($684/week) to $55,000/year ($1,059/year). It also proposes increasing the Highly Compensated Employee exemption threshold to $143,988 annually. The rule will not modify the duties necessary for exemption qualification. Employers may wish to keep these thresholds in mind as they review and implement compensation decisions in the new year. Employers should also take note that six states (Alaska, California, Colorado, Maine, New York, and Washington) have minimum salary requirements for overtime exemption that both exceed the current federal level and will further increase on January 1, 2024. Contact your Polsinelli attorney for further guidance regarding this potential rule change and other wage-and-hour matters.

As 2023 comes to a close, employers should be aware of the hourly minimum wage rate increases set to take effect in various jurisdictions on January 1, 2024. 22 states and more than 40 local jurisdictions will ring in the New Year with new minimum wage rates. Minimum wage employees in the following states will be impacted by the upcoming increases: Alaska, Arizona*, California*, Colorado*, Connecticut, Delaware, Hawaii, Illinois*, Maine*, Maryland*, Michigan, Minnesota*, Missouri, Montana, Nebraska, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont, and Washington*. Those states identified with an asterisk also have local jurisdictions with minimum wage increases effective January 1, 2024, which are higher than the applicable state minimum wage. Employers should confirm that any minimum wage rates are adjusted properly.  In addition, employers with tip credit employees should review their tip credit notices to ensure full compliance with applicable laws (including cash wage being paid to the tipped employee and the amount of tip credit claimed by the employer). Contact your Polsinelli attorney if you have any questions or need assistance regarding your wage and hour compliance before the arrival of the New Year.

A recent case from the Eastern District of California emphasizes the importance of employers having facially neutral and lawful wage-and-hour policies – as such policies can help in defeating class certification. In Tavares, et al. v. Cargill, Inc., et al., the Plaintiff sought certification of a Rule 23 class consisting of all hourly and non-exempt employees who worked at the Defendants’ Fresno, California meat-processing facility. That proposed class included about 4,000 employees, most of whom were production employees. Plaintiff claimed, among other things, that those employees had not been properly compensated for minimum wage and overtime, largely due to purportedly having to perform tasks before and after clocking into the timekeeping system for which they were not paid. Those tasks included donning/doffing, pre-shift COVID health checks, cleaning lockers, and reading breakroom bulletin boards. Plaintiff claimed the Defendants had a uniform policy of requiring this work be performed off-the-clock. The court found, however, that the Defendants’ policies were facially valid – that such tasks were supposed to be occurring while clocked in, if they were required at all. To determine any violation of that policy – and thus, a potential violation of wage-and-hour laws – would require numerous individualized inquiries, including whether each class member wore PPE, whether they utilized their lockers, and whether they were required to look at any breakroom bulletin boards. The court’s willingness to reject class certification at a single work location based on the various individualized circumstances presented by the proposed class reflects the continuing trend of heightened scrutiny of granting class and collective certification in wage-and-hour cases. Contact your Polsinelli attorney or a member of the Employment Class & Collective Actions practice group for further guidance regarding this decision and other wage-and-hour matters.

In a recent case from the District of Colorado, a federal judge made clear that (at least in the Tenth Circuit) the first step of conditional certification is not just a rubber stamp to move on to the next stage of litigation in Fair Labor Standards Act (“FLSA”) collective action lawsuits. And while other courts are rejecting the two-step process altogether (see our recent blog post here), even when the lower conditional certification standard is applied, it still can have some teeth to it. In Bowling v. DaVita, Inc., the plaintiff sought conditional certification of a nationwide collective of nurses and technicians claiming unpaid overtime wages based on working through their required unpaid lunch breaks pursuant to a company-wide policy. Despite the existence of a written policy requiring that employees be compensated for working during lunch breaks, the plaintiff argued that the employer actually mandated employees always clock out for lunch breaks – but that they also remain available to and actually perform work while off-the-clock. At the time of the motion seeking conditional certification, six other individuals had joined the lawsuit. Ultimately, the court rejected a nationwide collective in applying the Tenth Circuit standard: whether the Plaintiff had made substantial allegations that the proposed collective members were subject to a single decision, policy, or plan. Based on the allegations and evidence before it, the court determined that conditional certification was appropriate only in the 9 states in which the employees in the lawsuit (the named plaintiff plus the six who joined the lawsuit) had worked. The court explained that the term “substantial” must carry weight – and with personal knowledge limited to the practices and policies in those 9 states, allegations regarding other locations were not substantial. This willingness to limit the scope of the collective to only those states where individuals who joined the lawsuit actually had knowledge appears to be in line with the growing trend of heightening the standard for certifying a collective action. With these trends and changes, it may be just a matter of time before the Supreme Court finally weighs in on what the standard should be. Contact your Polsinelli attorney for further guidance regarding this decision and other wage-and-hour matters.

On May 19, 2023, the United States Court of Appeals for the Sixth Circuit became the second federal appeals court to heighten the standard for plaintiffs to obtain court-authorized notice to potential plaintiffs in Fair Labor Standards Act (“FLSA”) collective action lawsuits. Similar to the Fifth Circuit’s January 2021 decision in Swales v. KLLM Transport Services LLC (previously reported here), the Sixth Circuit’s decision plainly rejects the widely-used FLSA certification process adopted in Lusardi v. Xerox Corp., where in order to receive “conditional certification” plaintiffs are only required to make a modest factual showing that other employees are subject to an unlawful common policy or practice to receive court-authorized notice before the court engages in an analysis of whether those employees are “similarly situated” to the plaintiff. In its decision, the Sixth Circuit did not track the Fifth Circuit’s standard, which requires district courts to “rigorously scrutinize” whether potential opt-in plaintiffs are similarly situated at the outset of the case. Instead, the Sixth Circuit held in Brooke Clark v. A&L Homecare and Training Center, LLC that a plaintiff must demonstrate a “strong likelihood” that members of the notice group are similarly situated to the plaintiff before a district court can authorize notice of the lawsuit to other potential plaintiffs. The Sixth Circuit further stated that the “strong likelihood” standard requires a showing greater than necessary to create a genuine issue of fact, but less than by a preponderance of the evidence. After these noteworthy decisions in the Fifth and Sixth Circuits, time will tell if other circuits will adopt heightened notice standards for plaintiffs in FLSA collective actions and whether the United States Supreme Court will tackle the issue. Contact your Polsinelli attorney for further guidance regarding this decision and guidance regarding wage and hour matters.

As we start to come out of the pandemic, many businesses are deciding to embrace remote workforces on a more permanent basis for a variety of reasons, including cost saving, increased talent pool, and employee satisfaction. However, maintaining a remote workforce also presents the challenge of navigating various state and local laws that may be implicated. In general, the law of the state where the employee is physically located will govern their employment, regardless of where the company is located. Accordingly, it is critical for employers to determine which state and local employment laws apply to their workforce. Among the most critical employment laws that can vary significantly state-to-state are those relating to wage and hour issues. Although some states simply follow federal law, many have their own minimum wage laws, and businesses with remote employees in multiple states will need to ensure they are paying each employee at least the minimum wage required by the state or local jurisdiction where the employee is located. Similarly, many states have their own overtime laws, which may provide for a higher rate of overtime pay or a lower threshold for the number of hours worked before overtime is required. Additionally, certain states have nuanced meal and rest period requirements. Moreover, many states have specific laws regarding the information that must be contained on wage statements, the frequency of pay days, the timing of final pay, and the payment of accrued but unused paid time off. Employers with remote workforces should also be mindful of state and local leave requirements applicable to their employees in various jurisdictions, including family and medical leave and paid sick leave. Importantly, the applicability of these leave laws is often triggered by national employee headcounts (even if only applicable to employees in the state), whereas others are triggered by state headcounts. Even beyond these most common employment laws, numerous other state and local laws can be implicated by having a remote workforce—including those relating to state-specific notices and posters, workers’ compensation, harassment training, background checks, drug testing, and pay transparency laws. In fact, some of the more recent pay transparency laws may apply to job postings for positions open to remote employees across the country, regardless of whether the company ends up hiring an employee in a state with an applicable pay transparency law. Finally, businesses with remote employees should be aware of the tax implications of remote work. Hiring even one remote employee in a new state could require a company to file a corporate tax return in that state or register in the state to withhold payroll taxes. Businesses with remote employees need to consider and stay abreast of the different state and local laws that apply to their workforce and take steps to ensure that they are in compliance with all applicable laws. Polsinelli attorneys are prepared to assist employers with navigating various state laws and adopting compliant practices and policies.

On February 22, 2023, the U.S. Supreme Court ruled that high-earning professionals can only be overtime-exempt if they are paid on a “salary basis” as defined by the Fair Labor Standards Act (“FLSA”). In Helix Energy Solutions Group Inc. et al. v. Michael J. Hewitt, the Court affirmed the Fifth Circuit’s en banc decision that Helix Energy Solutions Group Inc. violated the FLSA by classifying an oil rig worker as exempt under the FLSA because it paid his $200,000+ annual compensation on a day-rate basis instead of a salary basis. The Court reasoned that the daily basis on which Hewitt was paid a “certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on” was not equivalent to being paid a salary even though he earned over $200,000 annually. The Court further explained that a "true salary" should involve a steady stream of pay workers may rely on week after week. In addition, the court opined that employers could theoretically meet the FLSA’s salary basis requirement by adding a guaranteed weekly amount to a worker’s day rate or by converting the worker's pay to a straight weekly salary for time s/he spends on the rig. Here, the employer did neither. The Court’s decision relied on a narrow interpretation of the FLSA’s text, ruling that an employee paid exclusively on a day-rate basis cannot meet the salary basis test, even if the day rate exceeds the required weekly salary amount. Justice Kagan summarized the majority’s strict interpretation by writing: “[m]ost simply put, an employee paid on an hourly basis is paid by the hour, an employee paid on a daily basis is paid by the day, and an employee paid on a weekly basis is paid by the week.” Ultimately, because Hewitt’s day-rate pay failed the salary basis test, the Court held he was not exempt from the FLSA’s overtime requirements. Contact your Polsinelli attorney for assistance in navigating this decision’s potential impact on your workforce.

On November 8, 2022, Washington, D.C. voters approved Initiative 82, which will eliminate the ability of employers in the city to rely on a tip credit to meet the minimum wage requirement for employees who regularly receive tips.  Once certified and implemented, the District will join seven other states that have eliminated the tip-credit system, including Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington state, with still more jurisdictions considering similar proposals. Under current District law, much like federal law and that of most other states, employers can rely on tips paid by customers to satisfy a portion of the minimum wage requirement for employees who customarily and regularly receive more than $30.00 per month in tips.  Currently, the “cash wage” portion of the District minimum wage that must be paid directly by the employer is $5.35, with the remainder of the $16.10 minimum wage eligible to be satisfied through tips from customers.  This difference of $10.75 is called the “tip credit.”  The employee must actually receive sufficient tips to make up the difference between the cash wage and the minimum wage. Employers of tipped employees in the District will need to prepare to revamp their wage structures to comply with the new Initiative. Initiative 82 will eliminate the ability to take advantage of the tip credit and pay a reduced cash wage by July 1, 2027.  The Initiative does this by rapidly increasing the minimum cash wage until it achieves parity with the generally-applicable minimum wage.  At that point, employers will no longer be permitted to use the tip credit to meet the minimum wage.  Initiative 82’s staged increases are scheduled as follows: January 1, 2023:              $6.00 per hour July 1, 2023:                     $8.00 per hour July 1, 2024:                     $10.00 per hour July 1, 2025:                     $12.00 per hour July 1, 2026:                     $14.00 per hour July 1, 2027:                     Same as minimum wage Employers of tipped employees will be in for an immediate shock as the Initiative’s pair of 2023 increases will raise the cash wage that employers must pay to tipped employees by approximately 50% within less than a year after the Initiative’s passage.  Notably, the District’s minimum wage is tied to inflation, so by 2027, it could be higher than the current $16.10 per hour level. Initiative 82 also opens the door for employers to implement mandatory tip pooling arrangements that include non-tipped employees beginning in 2026.  For example, at a restaurant, this type of arrangement may require servers to split their tips with back-of-house employees like cooks or dishwashers.  Federal law sets forth requirements for such tip-pooling arrangements, which have been the subject of considerable litigation, so employers should consult counsel before requiring employees to pool their tips. Initiative 82 applies to all workers who receive tips, including restaurant servers, bartenders, hairdressers and barbers, nail salon workers, valets, and other hospitality workers. An almost identical initiative, Initiative 77, was approved by voters in 2018 but was subsequently repealed by the District’s Council. This time around, however, reports indicate that a majority of the Council is likely to uphold the voters’ decision and implement Initiative 82.  Employers with tipped employees in the District should prepare for the effects of the decreasing and eventually eliminated tip credit. For questions regarding the new minimum wage initiative for tipped employees, contact your Polsinelli attorney.

On November 1, 2022, job postings for positions in New York City – including remote positions that can be performed in New York City – must include a salary range listing the minimum and maximum salary or hourly wage amounts the employer believes it will offer for the advertised job.  New York City’s law follows a similar measure in Colorado, with additional pay transparency requirements in California, Washington state, and potentially New York State slated to follow. The New York City law is relatively typical of the new wave of pay transparency laws that are being considered by state legislatures nationwide.  It applies to all employers with at least four (4) employees or independent contractors (even if properly classified as such), and at least one (1) employee working in New York City.  Such employers must include in any job advertisement or listing a description of the lowest and highest salary or hourly wage that the employer believes in good faith as of the time of the posting that it will pay for the position.  Unlike Colorado’s pay transparency law, employers need not include amounts payable as benefits, bonuses, commissions, or other compensation – only hourly wages or salary.  The law applies not only to external job postings but also to internal promotion or transfer opportunities.  The law applies to any job opportunity that can or will be performed, in whole or part, in New York City, including remotely from the employee’s home.  The law provides for steep maximum penalties of up to $250,000 per violation, though employers can avoid penalties for a first-time violation by correcting the job posting within 30 days of receiving notice of the violation. Employers face several challenges from pay transparency laws like New York City’s.  For example, some employers regard their pay data as proprietary information, which now must be disclosed publicly in job listings.  That said, many employers also find benefit in setting applicants’ pay expectations prior to investing time in interviewing applicants who would not be willing to accept an eventual offer.  Likewise, pay transparency laws can bring pay disparities among existing employees to light.  For example, if an employer discloses that a position has a pay range of $100,000 - $250,000, an employee on the lower end of the scale may assume that they are paid less than others due to their sex or other protected characteristic.  The employer then has the burden to justify the differential under many existing pay discrimination laws. With pay transparency becoming a nationwide trend, employers across the country – particularly those with employees in the affected states or who offer remote positions – should take several steps to identify and address pay equity issues that may be brought to light by pay transparency laws: Evaluate Employee Compensation for Potential Disparities:  An ounce of prevention is worth a pound of cure, and if employers review and address pay disparities before disclosing a pay range, the risk of disclosure can be greatly reduced. Create, Bolster, and Publish Compensation Policies:   Private sector compensation is often based on numerous factors about the employee’s position and background, and employer transparency about these factors both bolsters arguments that differences are justified by legitimate concerns and may educate employees on why they are paid differently, so they do not jump to the conclusion of discrimination. Consider Whether Positions Should Be Fully Remote:   Pay transparency laws offer few options for employers that do not wish to publish pay ranges, but in some cases, the laws may not apply if a position is tied to a specific geographical area based on legitimate, business justifications. From their start in Colorado and New York City, pay transparency laws will likely proliferate to numerous other jurisdictions, including some of the country’s major commercial centers.  The best way for employers to mitigate the risks created by the new pay transparency laws is to tackle pay equity issues within their workforces.  For questions regarding the new pay transparency laws, contact your Polsinelli attorney.

On October 12, 2022, the U.S. Supreme Court heard oral arguments in a case that considers whether a supervisor who earned over $200,000 annually may still be eligible for overtime pay under the Fair Labor Standards Act (FLSA). The case centers on the interpretation of the regulatory scheme surrounding highly compensated employees and their exemption status under the FLSA. The Plaintiff in the case was a worker in a supervisory role on an oil rig and his compensation was based on a daily rate. The plaintiff argued that his daily rate of pay did not constitute a salary.  Prior to the Supreme Court, the Fifth Circuit en banc agreed with the Plaintiff and found that he was not paid a salary such that he was not an exempt employee under the FLSA. This case has implications for how employers will pay workers, and whether there is potential exposure for overtime claims, even for highly compensated employees. Polsinelli will continue to monitor and report on this case.

On September 27, 2022, Governor Gavin Newsom approved SB 1162 to significantly expand the pay reporting and pay scale requirements for California employers.  These requirements are effective January 1, 2023. Pay Reporting Requirements SB 1162 amends California Government Code § 1299 and requires private employers with 100 or more employees to submit a pay data report (the “Report”) to the Civil Rights Department (the “Department”) by the second Wednesday of May each year beginning in 2023. The Report must include the following information from the prior calendar year: The number of employees by race, ethnicity and sex in the following job categories: Executive/senior-level officials and managers First/mid-level officials and managers Professionals Technicians Sales workers Administrative support workers Craft workers Operatives Laborers and helpers Service workers The mean and median hourly rate for each combination of race, ethnicity, and sex within each of the above-listed job categories; The number of employees by race, ethnicity, and sex whose annual earnings fall within each pay band used by the U.S. Bureau of Labor Statistics in the Occupational Employment Statistics Survey; The employer’s North American Industry Classification System (NAICS) code; and A section for the employer to provide clarifying remarks regarding the information provided, if any. Private employers with 100 or more employees hired through labor contractors (i.e. an individual/entity that supplies a client employer with workers to perform labor within the client employer’s usual course of business) must submit a separate report to the Department that includes the information above for those employees, along with the names of all labor contractors used to supply employees. Private employers with more than one establishment (defined as an economic unit producing goods or services) must submit a report covering each establishment. The Report must be in a format that the Department can search and sort through readily available software. If a private employer does not comply with these requirements, the Department may seek an order for compliance and recover associated costs.  Additionally, upon request of the Department, a court may impose a civil penalty of no more than $100 per employee for the employer’s failure to file the Report, and a civil penalty of no more than $200 per employee for the employer’s subsequent failure. Pay Scale Requirements SB 1162 amends California Labor Code section 432.2 and imposes new wage disclosure requirements on all private and public employers with 15 or more employees. Since 2018, Labor Code Section 432.2 has prohibited California employers from relying on the salary history of a job applicant in deciding whether to extend an offer of employment or what salary to offer, unless the applicant voluntarily discloses this information.  Employers have also been prohibited from seeking, either personally or through an agent, salary history information about an applicant. SB 1162 expands Section 432.2 to also require covered California employers to affirmatively provide pay scale information (i.e. the range of the salary or hourly rate the employer expects to pay for the position) on job postings, including postings made by third-party job sites used to advertise positions. Covered employers must also provide pay scale information upon request to current employees for their current position. An aggrieved applicant or employee may file a complaint with the Labor Commission within one year of discovering the employer’s violation.  The Labor Commissioner impose may order the employer to pay a civil penalty of no less than $100 and not to exceed $10,000. Employers are required to maintain a record of each employee’s job title and wage history during employment and for three years following the termination of employment.  An employer’s failure to keep records in violation of this section creates a rebuttable presumption in favor of an employee’s claim filed with the Labor Commissioner. Polsinelli attorneys will be monitoring new developments in this area and remain prepared to assist employers.

The U.S. Department of Labor is set to issue a Proposed Rule that will have a significant impact on the test used to determine whether someone is an independent contractor or an employee under the Fair Labor Standards Act (“FLSA”). The DOL’s intent in issuing this Proposed Rule is made clear by Secretary of Labor Marty Walsh’s comments: “While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers.  Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.” An unpublished version of the Proposed Rule indicates it will make it easier for the DOL to find that workers have been misclassified as independent contractors rather than employees. The current test, in effect since March, 2021, analyzes five factors and places the greatest weight on two “core factors”: the nature and degree of control over the work and the worker’s opportunity for profit or loss based on personal initiative or investment.  The DOL now seeks to rescind the 2021 test and replace it with the new Proposed Rule. The new Proposed Rule will focus on the “economic reality” of the worker’s situation, ultimately asking – Are the workers economically dependent upon an employer for work (and therefore an employee) or are they in business for themselves (and therefore an independent contractor)? The economic reality test in the Proposed Rule will return to a “totality of the circumstances” analysis, under which no specific factors have greater weight, and all are considered in view of the economic reality of the whole relationship. The DOL is further proposing to return the consideration of investment as a stand-alone factor, and to provide additional analysis of the control factor, including detailed discussions of how scheduling, supervision, price-setting, and the ability to work for others should be considered. Furthermore, the Proposed Rule will not limit control only to control that is actually exerted. The Proposed Rule will also re-focus the analysis on the “integral” factor, which considers whether the work is integral to the potential employer’s business. The permanency of the relationship is another factor under the Proposed Rule that often weighs against independent contractor status for many workers who provide services for the same entity over an extended period of time. The Proposed Rule is scheduled to be published in the Federal Registry on October 13, which will begin a 45-day comment period. For more information regarding the anticipated Proposed Rule, contact your Polsinelli attorney.

On July 8, 2022, Mayor Eric Garcetti signed the Healthcare Workers Minimum Wage Ordinance.  The ordinance imposes on covered employers a minimum wage of $25.00 for qualifying healthcare workers who work in the City of Los Angeles. Who is Covered: The ordinance applies to an employer who employs or exercises control over healthcare workers within the City of Los Angeles. An “employer” is any person, such as an individual, corporation, partnership, LP, LLP, LLC, business trust, estate, trust, association, joint venture, agency, instrumentality, or any other legal or commercial entity, whether domestic or foreign, including a corporate officer or executive who directly or indirectly or through any other person (i.e., through a temporary service, staffing agency) employs or exercises control over the wages, hours, or working conditions of any employee. To qualify as a healthcare worker covered by the ordinance, the individual must: (1) be employed to work at or by a covered healthcare facility (as defined in the ordinance); and (2) provide patient care, healthcare services, or services supporting the provision of healthcare.  Under the first prong, a healthcare worker is employed to work at a covered healthcare facility only if that individual’s primary work assignment is physically located at one or more such facilities.  By way of example, the ordinance notes that delivery workers primarily outside a covered healthcare facility would not be healthcare workers unless they are employed by the facility. The ordinance provides several examples of healthcare workers including a clinician, professional, non-professional, nurse, certified nursing assistant, aide, technician, maintenance worker, janitorial or housekeeping staff person, groundskeeper, guard, food service worker, laundry worker, pharmacist, nonmanagerial administrative worker, and business office clerical worker.  Managers and supervisors are specifically exempt from the ordinance as healthcare workers. What is Required: On August 13, 2022, covered employers must ensure that each qualifying healthcare worker it employs, or over whom it exercises control over, is paid a minimum wage of $25.00 per hour.  On January 1, 2024, and annually afterwards, the minimum wage will increase based on the annual increase in the cost of living. The ordinance defines minimum wage as compensation for labor, whether this amount is fixed or calculated by the standard of time, task, piece, commission, or other calculation.  Minimum wage does not include bonuses, shift differentials, premium pay, reimbursement/allowances for work equipment or other expenses, meal/lodging credits, tips, gratuities, or the cost of benefits (i.e., medical, dental, retirement, or similar benefits). Employers are prohibited from funding the required minimum wage increases by: (1) reducing healthcare workers’ premium pay or shift differentials; (2) reducing healthcare workers’ vacation, healthcare, or other non-wage benefits; (3) reducing healthcare workers’ hours of work; (4) laying off healthcare workers; or (5) increasing charges to healthcare workers for parking or work-related materials or equipment.  An employer is in violation of this ordinance if the minimum wage requirements are a substantial motivating factor for the employer to take any of these prohibited actions unless the employer can prove that it would have taken the same action at the time that it did regardless of the ordinance. Effective Date: The ordinance goes into effect on August 13, 2022. One-Year Waiver: To avoid reduction in employment or work hours for healthcare workers, a court may grant an employer a one-year waiver from the minimum wage requirements. The employer, however, must demonstrate by substantial evidence that complying with the ordinance would raise substantial doubt about the employer’s ability to continue as a going concern under generally accepted accounting standards. This evidence must include documentation of the employer’s financial condition along with the condition of any parent or affiliated entity, and evidence of actual or potential direct financial impact of complying with the ordinance. Even if the court grants a one-year waiver, the employer must nevertheless comply with the requirements set forth under federal, state, or local laws, including other applicable laws regarding minimum wage. Polsinelli attorneys will be monitoring new developments in this area and remain prepared to assist employers.

California reaffirms its reputation as the most employee-friendly state and raises potential liability for employers. On May 23, 2022, the California Supreme Court issued the long-awaited decision in Naranjo v. Spectrum Security Services, Inc., finding that meal and rest period premiums are “wages” under California law and thus employers could be liable for failure to properly report and timely pay those premiums. California law requires employers to pay non-exempt employees a premium of one hour of pay for non-compliant meal or rest periods – such as when an employee is unable to take their break or does not receive a full, uninterrupted break. California state and federal courts have reached conflicting interpretations as to whether premium pay is considered “wages” for purposes of California waiting time penalties (Cal. Lab. Code § 203) and wage statement requirements (Cal. Lab. Code § 226). The Naranjo case involves a class of security guards who alleged that Spectrum Security Services had violated California labor law by failing to report the premium pay for missed meal breaks on employees’ wage statements and failing to timely pay the premium for missed breaks upon an employee’s separation from employment. A California appellate court found that the premium payments did not constitute “wages” and thus employers could not be penalized for failing to timely pay or report such wages. The California Supreme Court reversed that decision and held that premium payments for missed meal or rest breaks are wages and thus can result in wage statement and waiting time penalties. In a unanimous decision, the California Supreme Court specifically held that “[a]lthough the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period.” What Employers Should Know The decision reaffirms the importance of strict compliance with California’s labor laws and the harsh implications and penalties that can stem from meal and rest break violations. As Naranjo now makes clear, meal and rest period violations can subject employers to waiting time and wage statement penalties if the premium payments are not properly reported and timely paid. To limit liability and exposure, California employers must be cognizant of recent developments and vigilant in updating and enforcing meal and rest period policies and payment procedures to ensure prompt reporting and payment of wages.

Earlier this week, the Supreme Court unanimously held in Morgan v. Sundance that litigants are no longer required to show prejudice when opposing a party’s delayed attempt to compel arbitration. Previously, an Eighth Circuit decision refused to find that the right to arbitrate a dispute was waived after months of ongoing litigation unless the party opposing arbitration could show their litigation position was prejudiced by the delay. Since the two parties had not yet litigated on the merits, the Eighth Circuit majority ruled that the plaintiff was not prejudiced by the delayed arbitration demand. The Supreme Court vacated the Eighth Circuit decision, reasoning that the Federal Arbitration Act does not authorize “special, arbitration-preferring procedural rules.” The Court explained that the analysis of whether a party has waived a contractual right typically does not examine whether the other party is prejudiced as a prerequisite to finding a waiver. The Court held that by requiring “that kind of proof before finding the waiver of an arbitration right, the Eighth Circuit applies a rule found nowhere else….” This is an important decision for employers because many employers use mandatory arbitration programs as a way to manage and mitigate the risk of employee claims, as arbitration facilitates class and collective action waivers, and in some cases can be less expensive than court litigation. As a result of the decision, employers should know that employees no longer have the burden of showing prejudice when challenging an arbitration agreement after litigation has already ensued. Delays in seeking to compel arbitration can alone doom an employer’s ability to arbitrate a dispute. This puts the onus on employers to promptly review their onboarding files and other agreements with employee-plaintiffs to identify applicable arbitration clauses, and act to compel arbitration of the dispute if arbitration is the desired forum. If employers delay in seeking to compel arbitration, individual and class action plaintiffs may be able to keep their claims in court. The decision settles inconsistencies among circuit court decisions on how to handle disputes when a defendant has delayed arbitration. It reminds the courts that it cannot impose arbitration-friendly legal requirements that are not backed by existing law. If you have questions or would like more detailed information, Polsinelli’s Labor & Employment team is here to assist.

In deferring to the Washington Department of Labor and Industries’ (“Department”) interpretation of its own regulation, a Washington Court of Appeals ruled that employee’s’ out-of-town travel time—including travel time to and from the airport, time in the airport, and time in the air—on behalf of their employer was compensable, a far broader interpretation than applied under the federal Fair Labor Standards Act. In Port of Tacoma v. Joel Sacks, Department of Labor & Industry, the Department investigated wage claims filed by four employees who had been sent by their employer, the Port of Tacoma, to be part of a quality inspection team in China to observe the manufacturing process of cranes that were to be purchased by the Port. The Port made all the arrangements for the trips, including air transportation. Consistent with their union’s agreement with the Port, the employees were paid a maximum of eight hours per day, regardless of the actual time spent traveling. In their wage claims, the employees argued they were entitled to payment for all travel time: including travel to and from the airport, all time spent at the airport, and all time spent in flight. The Department agreed and issued a citation to the Port, who in turn challenged the citation. The lower court granted summary judgment in favor of the Port and held that “travel time” did not meet the definition of “hours worked,” and was not compensable. The employees appealed. The Court of Appeals reversed, reaching the opposite conclusion for three reasons: Out-of-town travel is different than the daily commute, which is not compensable “hours worked”; The Court owed deference to the Department’s interpretation of its own regulations, which had found that the out-of-town travel was compensable “hours worked”; and Out-of-town travel being compensable “hours worked” was consistent with the plain language of the state wage laws requiring compensation for work “on duty” and with the liberal construction given to those laws in favor of the worker. Washington employers should revisit their travel-time policies and practices to ensure that non-exempt employees are paid for all out-of-town travel time—even time when the employees are not engaged in work for the company. When arranging for out-of-town travel for employees, employers should pay attention to the amount of time that such travel will entail—and consider flights with shorter layovers, hotels closer to the airport, and other similar considerations. The ruling also makes clear that employers should pay close attention to Department guidance and interpretation. If you have questions regarding this decision, please contact your Polsinelli attorney.

On April 27, 2021, President Biden signed Executive Order 14026, which increases the minimum wage for workers on or in connection with a federal government contract to $15.00 as of January 30, 2022.  This Executive Order increases the minimum wage level set by President Obama’s 2014 Executive Order 13658, which has been set at $10.95 per hour since January 1, 2021. The new minimum wage applies to most new federal contracts, contract-like instruments, solicitations, extensions or renewals of existing contracts or contract-like instruments, and exercises of options on existing contracts or contract-like instruments that are entered into or exercised on or after January 30, 2022.  However, the Executive Order “strongly encourage[s]” agencies to ensure, to the extent permitted by law, that the wages paid under existing contracts are consistent with the Executive Order’s requirements.  The Executive Order provides that compliance with the increased minimum wage will be a condition of payment on the government contract, raising the potential for False Claims Act liability if a government contractor accepts payment on a federal contract while failing to pay covered workers the required wage.  The Executive Order’s requirements must, in many circumstances, be included in subcontracts. Although the Executive Order does not elaborate on which employees work “on or in connection” with a federal contract, it is likely that the Department of Labor’s forthcoming regulations implementing the Executive Order will follow the lead of its previous regulations implementing Executive Order 13658.  Under those regulations, workers perform services “on” a contract if they directly perform the services called for by the contract’s terms, and they perform services “in connection with” a contract if they perform work activities that, although not specifically called for by the contract, are necessary to the contract’s performance. The Executive Order also addresses the cash portion of the tipped minimum wage for covered workers.  The cash wage for covered workers who qualify as tipped employees will increase to $10.50 as of January 30, 2022.  The wage will then increase as of 85% of the general minimum wage as of January 30, 2023, and 100% of the general minimum wage as of January 30, 2024, at which point the tip credit will be eliminated. The Department of Labor is required to issue regulations implementing the Executive Order by November 24, 2021.  Federal contractors and subcontractors should consider beginning preparations for the increased minimum wage now, in advance of the regulations, by identifying potentially covered workers whose wages may require adjustment.  Polsinelli will continue to update the contractor community when regulations are issued.

On February 25, 2021, in In Donohue v. AMN Services, LLC (2021) San Diego Superior Court, Case No. 37-2014-00012605-CU-OE-CTL, the California Supreme Court weighed in on two important issues pertaining to meal periods.  First, the Court held that California employers cannot round time punches for meal periods (although it is arguably permissible for work start and stop times).  Second, the Court held that employee time records showing non-compliant meal periods raise a rebuttable presumption of meal period violations and are sufficient to defeat a defendant’s dispositive motion for summary judgment. The Court emphasized that California’s meal period requirements are designed to prevent even minor infringements on employees’ meal periods and that rounding employees’ meal period time punches for even a de minimus amount violates state law. In Donohue, the defendant-employer, a healthcare services and staffing company, used a timekeeping system that rounded employees’ time punches for meal periods to the nearest 10-minute increment.  For example, if an employee punched out for lunch at 11:03 a.m. (rounded back to 11:00 a.m.) and punched back in at 11:24 a.m. (rounded forward to 11:30 a.m.), the system recorded a 30-minute meal period (even though only 21 minutes had actually elapsed).  The Court found that this rounding policy resulted in many employees not taking their full 30-minute meal breaks. The Court also noted that employees were paid a premium payment only if the employee proactively indicated that their meal period was missed, short, or late.  As a result, the Court found that there was sufficient evidence to suggest that employees worked over five hours before taking their meal break in violation of California Labor Code § 512 and Industrial Welfare Commission Wage Order No. 4-2001.  The case now heads back down to the Court of Appeals where the parties will submit further briefing on the plaintiffs’ meal period claims. Additionally, in reversing the defendant’s motion for summary judgment win, the Court ruled that records that demonstrate a non-compliant meal period raise a rebuttable presumption of labor code violations, which, the Court clarified, can be overcome by presenting evidence that either (1) the employees were compensated for noncompliant meals or (2) the employees were provided compliant, 30-minute, duty-free meal periods during which time the employee voluntarily chose to work. The Donohue decision serves as helpful guidance on two fronts.  First, it should be used as a warning for employers who use rounding policies for recording meal periods.  Employers who apply time rounding policies in the meal period context likely need to suspend these practices.  Moreover, based on the court’s guidance, employers that utilize general rounding practices should be wary of the potential problems that rounding policies may cause.  Second, employers should utilize paper or electronic acknowledgement forms from employees that confirm that employees are taking their meal breaks and rest breaks on a daily basis or, to the extent they are not, that this is documented as either a voluntary decision by the employee, or if it is not voluntary, that the employee is paid their statutory premium payment. Polsinelli attorneys will continue to monitor developments in this area and remain prepared to assist with any questions regarding timekeeping policies or other employment law issues.

Employers now have a clearer picture of how to determine whether a worker is classified as an employee or independent contractor under the Fair Labor Standards Act (FLSA) thanks to a new final rule from the U.S. Department of Labor (DOL), effective March 8, 2021. This test is significant for employers because under the FLSA, independent contractors are not eligible for minimum wage or overtime compensation. Many state courts and agencies have already adopted tests similar to this “economic reality” test codified by the DOL’s new rule. The “economic reality” test is a multi-factor test that has been used by the DOL in the past to determine whether a worker is an employee or independent contractor. This final rule is similar to the initial rule proposed by the DOL last September. Ultimately, the key question is whether the worker is dependent on the employer, indicating the worker is an employee, or is in business for the worker’s benefit, indicating the worker is an independent contractor. This final rule “sharpens” the economic reality test by enumerating five factors to determine whether a worker is considered an employee under the FLSA: The nature and degree of the worker’s control over the work (e.g., the worker’s ability to set a schedule, select projects and work for others). The worker’s opportunity for profit or loss (e.g., through the exercise of personal initiative, skill or business acumen, and through investments or capital expenditures). The amount of skill required for the work (e.g., whether the work requires a specialized skill or the worker depends on the employer for training). The degree of permanence of the working relationship between the worker and the potential employer (e.g., whether the work is definite or indefinite in duration). Whether the work is part of an integrated unit of production (or is segregable from the employer’s production process). The first two factors are given the most weight. If both of these “core factors” indicate the same classification, then there is a “substantial likelihood” that the resulting classification is correct. However, if the application of the first two factors leads to different conclusions, the remaining three factors should be considered, as well. With this additional guidance, employers have more information to help structure their relationships with workers and define which workers qualify as independent contractors, though it may not necessitate many immediate practical changes.  Employers should continue to be cognizant of and comply with any state and local laws regarding worker classification, which may not be identical to the DOL’s rule. It is also possible that the Biden administration will affect changes to this new rule or its implementation.  Please contact your Polsinelli attorney if you have any questions about the new final rule.

On January 12, 2021, the United States Court of Appeals for the Fifth Circuit announced a new certification standard for collective actions under the Fair Labor Standards Act (FLSA).  The appellate court vacated a grant of conditional certification, ruling that at the outset of the case district courts “must rigorously scrutinize” whether potential opt-in plaintiffs are similarly situated.  This standard requires the court identify the material facts and legal considerations needed to decide whether employees are similarly situated and authorize limited discovery on these issues before deciding conditional certification and authorizing class notice. The Fifth Circuit’s decision explicitly rejects the widely-used two-step FLSA certification process consisting of “conditional certification”—where plaintiffs must, in essence, allege only that potential plaintiffs are subject to an unlawful common policy or practice, with the court revisiting the certification after discovery to make a final decision as to whether plaintiffs and opt-ins are similarly situated. While this ruling is presently binding on district courts in the Fifth Circuit, time will tell if other circuits will adopt this heightened standard and whether the United States Supreme Court will weigh-in on the issue.  Contact your Polsinelli attorney for further guidance regarding this decision and guidance regarding wage and hour matters.

With states, cities and counties taking measures to reopen after COVID-19, businesses are also faced with reopening and returning employees to work while still facing many unknowns.  Despite these unknowns, employers must ensure compliance with applicable laws when designing a plan to reopen.  From the typical issues related to classifying employees to more nuanced considerations related to testing, employers must adhere to and consider federal and state wage and hour laws when implementing plans to reopen. Employee Classification Issues When concerns with COVID-19 began, many employers changed their employee structure to cope with economic uncertainties.  Now with reopening and bringing employees back, employers likely will face additional changes to structure their businesses around the new normal following COVID-19.  Generally, when bringing exempt, salaried employees back to work, employers must evaluate how to ensure such employees retain their exempt status.  This includes adhering to the minimum salary requirements and ensuring that the job duties still fit under an exemption.  Otherwise, employers risk liability for misclassification, including but not limited to financial liability unpaid overtime. Employers must also be cognizant on returning exempt employees on a “partial” basis – as the FLSA requires that exempt employees that are working only part of a workweek at the direction of the employer are still entitled to their entire salary for that week. Thus, if an employer has the idea of bringing back an exempt employee for 4 out of 5 work days and considering doing an automatic reduction of salary to account for the reduced schedule, the employer must communicate to the employee beforehand that the employee’s salary will be reduced – as failing to do so may jeopardize the employee’s exempt status. Additionally, salaried employees brought back from furlough, but being paid a lower rate, present unique issues.  When making these changes, employers should ensure that the salary meets federal and state minimum salary levels, that the employee’s responsibilities have not changed so much as to take them out of an exemption category (e.g., that exempt employees, even if given non-exempt duties to cover employee shortages, are still spending the majority of their time on exempt type duties), and that the proper reason for the salary reduction is communicated (e.g., that the reductions are due to the pandemic, correspond with a reduced schedule, etc.). Employers need to also ensure they are complying with applicable state laws relating to properly communicating any salary reductions to employees. Additionally, some employers may have reclassified previously exempt employees to non-exempt due to a change in business needs caused by COVID-19.  Employers should be cautious when deciding to return such employees back to exempt status and should be aware of any notice requirements that must be given to employees when changing their classification.  For example, employers should evaluate the financial circumstances of the company and changing economy before reclassification to ensure that the exempt classification is expected to remain. New Schedules Plans to reopen may include a redesign of schedules which could include staggered shifts, a continued or new focus on teleworking, or an overall change in hours.  Employers must be cognizant of how this will impact all employees, whether exempt or non-exempt. When implementing these changes employers must remember the principle that exempt, salaried employees generally must receive their full salary in any week in which they perform work, with limited exceptions.  As such, if a salaried employee is instructed to perform no work during a given week, the employer must ensure this is enforced or risk liability – meaning that the exempt employee must be prohibited from answer emails, responding to texts, etc.  Similarly, as discussed above, if less work is available but must still be performed each week, employers cannot deduct an exempt employee’s pay due to reduced hours from week to week – rather, the employer must anticipate the reduced hours and set a “new” salary ahead of time that will be paid every week to the employee when they perform work. However, the exempt employees cannot be paid on an hourly, daily, etc. basis, as that will destroy the exemption.  Employers should evaluate whether any changes in workload or duties necessitate reclassification of exempt employees. For non-exempt employees, new schedules may impact the number of hours worked.  Regardless, non-exempt employees must be paid for all hours worked, at the minimum wage necessitated by both state and federal law.  Additionally, as employers evaluate the costs and benefits of allowing teleworking, employers must continue to ensure non-exempt employees are accurately tracking all their time worked and are being paid for all hours worked.   Employers should require that non-exempt employees accurately record rest breaks and meal breaks and ensure that they take such breaks in accordance with applicable law.  Moreover, to ensure that overtime is not only recorded, but also does not place a financial strain on the business, employers may consider requiring that all overtime be pre-approved.    Using Vacation and Other Paid Time Off While businesses are choosing to reopen, some employees may still feel unsafe going into work due to COVID-19.  In addition to determining whether allowing these employees to stay home is a reasonable accommodation under the ADA, employers should consider whether they can appropriately require such employees to use vacation or other paid time off benefits during this time.  Additionally, use of vacation or other paid time off may provide assistance for employers grappling with how to pay exempt employees their required salary, despite such employees not working full weeks. Testing Many employers are instituting testing, such as temperature checks, before enter a worksite or return to work.  When deciding to implement temperature screenings, which are akin to security screenings required before entering work, employers must determine whether employees must be paid for this time.  Whether screenings constitute paid time depends on a business’s location.  Regardless of where a business is located, however, not paying employees for time spent undergoing a screening will always be the riskier approach.  As such, employers should consider whether options to minimize the time spent during a screening are available and comply with local and state orders requiring screenings.

Is Virginia the new California?  That may be an exaggeration, but in April 2020 the Commonwealth took major steps away from its historically pro-employer climate to provide employees and independent contractors with new potential claims.  We previously reported about Virginia’s extension of employment protection to LGBTQ employees and creation of a new state-law employment discrimination cause of action.  Virginia employers should also be aware of new changes to the Commonwealth’s wage and hour laws. Minimum Wage Increase The Virginia General Assembly submitted legislation to Governor Ralph Northam to increase the minimum wage from $7.25 to $9.50 per hour effective January 1, 2021. Under the proposed legislation, the minimum wage in Virginia would continue to increase to $11.00 in 2022, $12.00 in 2023, $13.50 in 2025, and $15.00 in 2026. The bill requires the General Assembly to vote again by July 1, 2024 in order for the final two wage increases to become effective. Governor Northam did not sign the bill and suggested that the bill be amended to delay the first increase until May 1, 2021. On April 22, 2020, the Virginia Legislature agreed with Governor Northam's suggestion and decided to delay increases in the Commonwealth’s minimum wage amid the COVID-19 pandemic. The Senate vote resulted in a 20-20 tie broken by Lieutenant Governor Justin Fairfax in favor of the amendment. The House of Delegates voted 49-45 in favor of the amendment to delay the increase. In addition to an increase in minimum wage, the new legislation requires three government agencies to review the effects of a regional minimum wage increase. These agencies must consider the potential impact of regional increases on benefits, income inequality and the cost of living. After review, the agencies must prepare a joint report with findings and recommendations by December 1, 2023. Under the new law, employers may pay a “training wage” at 75 percent of the minimum wage for employees in on-the-job training programs lasting less than 90 days. Moreover, the law provides that the Virginia minimum wage applies to persons whose employment is covered by the Fair Labor Standards Act, persons employed in domestic service or in or about a private home, persons who normally work and are paid on the amount of work done, persons with intellectual or physical disabilities except those whose employment is covered by a special certificate issued by the U.S. Secretary of Labor, persons employed by an employer who does not employ four or more persons at any one time, and persons who are less than 18 years of age and who are under the jurisdiction of a juvenile and domestic relations district court. The Virginia minimum wage does not apply to individuals participating in the U.S. Department of State's au pair program, those employed as temporary foreign workers, or individuals employed by certain amusement or recreational establishments, organized camps, or religious or nonprofit educational conference centers. New Wage Payment Claim Virginia also imposed a new “wage theft” statute that provides employees with powerful statutory remedies for an employer’s non-payment of wages.  Under the new law, employees can bring a claim for the recovery of unpaid wages.  If the employee is successful in proving that he or she has not been paid all wages due, then the employee can recover prejudgment interest of 8% per year on the amount of the wages from the date they were due.  If the employee can show that the employer “knowingly” failed to pay wages due, then the employee can recover his or her reasonable attorney’s fees incurred in the action.  And, if there was no “bona fide dispute” regarding the employee’s entitlement to the wages, the employee is entitled to recover liquidated damages equal to triple the amount due. Construction contractors should take particular note of this new statute.  The statute provides that general contractors are jointly and severally liable for the wages owed to their subcontractors’ employees, and are considered to be the employers of such employees.  General contractors doing business in Virginia should immediately review their contract forms to ensure that they make adequate provisions for indemnification in the event that a subcontractor fails to comply with its obligations. Independent Contractor Misclassification Finally, Virginia enacted a new statute to combat independent contractor misclassification.  Independent contractors may now bring a claim for misclassification against their putative employer to recover wages, benefits (including expenses that would have been covered by the putative employer’s insurance), or other lost compensation, as well as reasonable attorney’s fees.  Notably, the statute presumes that any individual performing services in exchange for compensation is an employee, unless the putative employer can show that the person is an independent contractor under the IRS’s independent contractor test.  The use of the IRS test is a small victory for employers, as it is a lower bar to satisfy than the “ABC” tests imposed by many state statutes such as California’s AB5. These enactments substantially shift Virginia’s legal environment in favor of employees.  Employers in the Commonwealth can no longer count on Virginia’s traditional, business-friendly environment.  Polsinelli is available to assist Virginia employers in reviewing their policies, understanding these new requirements, and evaluating the risks of any independent contractor relationships in light of the newly-enacted claims.

Following a series of local city ordinances aimed at closing the gap left by the Families First Coronavirus Response Act (“FFCRA”), on April 16, 2020, California Governor Gavin Newsom signed into law Executive Order N-51-20, mandating that certain Hiring Entities offer up to 80 hours of “COVID-19 Supplemental Paid Sick Leave” to essential Food Sector Workers, including farm workers, grocery workers, and food delivery workers, who perform work for or through the Hiring Entity.  Here are answers to key questions regarding the new law: Which hiring entities must offer COVID-19 Supplemental Paid Sick Leave? A covered “Hiring Entity” is defined as a private entity, including delivery network companies and transportation network companies, with 500 or more employees nationwide. In determining whether they meet the employee threshold, hiring entities must count full-time employees, part-time employees, employees on leave, temporary employees who are jointly employed by the hiring entity and another employer, day laborers supplied by a temporary placement agency, and all common employees of joint employers or employees of integrated employers.  Although independent contractors should not be counted, contractors may be entitled to leave under the new law (see below).  Finally, employees who have been laid off or furloughed and not subsequently reemployed should not be counted. Who is eligible to take COVID-19 Supplemental Paid Sick Leave? For an individual to be an eligible “Food Sector Worker” they must: Satisfy one of the following three criteria: Works in one of the industries or occupations defined in Industrial Welfare Commission (“IWC”) Wage Orders 3 (Canning, Freezing, and Preserving Industry), 8 (Industries Handling Products After Harvest), 13 (Industries Preparing Agricultural Products for Market, on the Farm) or 14 (Agricultural Occupations); or Works for a Hiring Entity that operates a “food facility,” as defined in Health & Safety Code § 113789(a)-(b) (e.g., restaurants and grocery stores); or Delivers food from a food facility for a Hiring Entity. AND Be an Essential Critical Infrastructure Worker, and therefore, exempt from Executive Order N-33-20 or other statewide stay-at-home orders. AND Leave their residence to perform work for the Hiring Entity. NOTE: The new law appears to apply not just to employees but also contractors and “gig economy” workers.  The law conspicuously avoids the use of the terms “employer” and “employee,” and specifically provides that for purposes of all applicable Labor Code sections, all Food Sector Workers shall be considered “employees” and any Hiring Entity shall be considered an “employer.” What are the qualifying reasons for taking COVID-19 Supplemental Paid Sick Leave? To take COVID-19 Supplemental Paid Sick Leave, a Food Sector Worker must experience one of the following qualifying events: The Food Sector Worker is subject to a Federal, State or local quarantine or isolation order related to COVID-19; or The Food Sector Worker is advised by a health care provider to self-quarantine or self-isolate due to concerns related to COVID-19; or The Food Sector Worker is prohibited from working by the Hiring Entity due to health concerns related to the potential transmission of COVID-19. Hiring Entities must immediately grant leave upon the oral or written request of an eligible Food Sector Worker. How much sick leave must be provided to eligible Food Sector Workers under the new law? Full-time Food Sector Workers can take up to 80 hours of paid sick leave, including workers who worked or were scheduled to work, on average, at least 40 hours per week in the two weeks preceding the date they take the leave; Part-time Food Sector Workers with a normal weekly schedule can take up to the total number of hours they are normally scheduled to work in a two week span; Part-time Food Sector Workers with a variable schedule can take up to 14 times the average number of hours worked each day in the six (6) months preceding the date the worker takes the leave.  If the worker has worked less than six (6) months, the calculation should be based on the entire period the individual worked for or through the Hiring Entity. COVID-19 Supplemental Paid Sick Leave should be paid out at a rate equal to the highest of the worker’s: (1) regular rate of pay for their last pay period; (2) the state minimum wage; or (3) the local minimum wage.  The total amount paid per day is capped at $511 and no more than $5,110 in the aggregate. When is the program effective? The law is effective as of April 16, 2020 and will be effective during the pendency of any statewide stay-at-home orders issued by the State Public Health Officer.  However, if a Food Sector Worker is taking COIVD-19 Supplemental Paid Sick Leave at the time of the expiration of all applicable orders, the worker may still take their full amount of leave. How does this program interact with the FFCRA and other forms of leave? It does not interact with the FFCRA. This ordinance only impacts Hiring Entities with greater than 500 workers in aggregate.  The FFCRA only applies to employers with fewer than 500 workers in aggregate.  Regardless, the two leaves would run concurrently. However, COVID-19 Supplemental Paid Sick Leave is in addition to any paid sick leave available under California’s paid sick leave law set forth in Labor Code section 246.  Moreover, a Hiring Entity may not require a Food Sector Worker to use any other paid or unpaid leave, paid time off or vacation time before the worker uses their COVID-19 Supplemental Paid Sick Leave. Is a Hiring Entity exempt if it already provides paid leave for these same reasons? A Hiring Entity is not required to provide a Food Sector Worker with COVID-19 Supplemental Paid Sick Leave if, as of April 16, 2020, the Hiring Entity provides the worker with a “supplemental benefit,” such as paid leave, for the same reasons and in an equal or greater amount as that afforded under the new law. What happens if a Hiring Entity does not comply with the new law? The new law expressly authorizes the Labor Commissioner to enforce the COVID-19 Supplemental Paid Sick Leave, leave which shall be considered “paid sick days” and enforced accordingly under Labor Code sections 246(n), 246.5(b)-(c), 247, 247.5 and 248.5.  Any Food Sector Worker denied COVID-19 Supplemental Paid Sick Leave can file a claim with the Labor Commissioner pursuant to Labor Code sections 98 or 98.7. A Food Sector Worker can also pursue any other remedies provided by state or local laws, including Business & Professions Code section 17200. Do covered entities need to provide notice of the new law? Yes, Hiring Entities must display a poster in a conspicuous place regarding the rights afforded under the new law, in compliance with Labor Code section 247.  The Labor Commissioner has made available a model notice for purposes of complying with this obligation.  If a Hiring Entity’s Food Sector Workers do not frequent a physical workplace, the Hiring Entity may disseminate notice through e-mail or other electronic means. Are there any other requirements under the new law? In addition to the paid sick leave requirements discussed above, the Executive Order expressly provides that Food Sector Workers working in any food facility shall be permitted to wash their hands every 30 minutes and additionally as needed.  This requirement is to be enforced pursuant to applicable provisions of the Retail Food Code. For questions relating to this new California COVID-19 Supplemental Paid Sick Leave, please do not hesitate to reach out to a Polsinelli attorney.

During this COVID-19 pandemic, many unions have argued their members are in a proverbial Catch-22.  While employees understand they should not go to work with symptoms of COVID-19, they also cannot miss a paycheck.  Complicating matters for those employees, especially those who work as health care providers or first responders, they are exempt from the sick leave benefits provided by the Families First Coronavirus Response Act (“FFCRA”), leaving them to either use their accrued PTO or take the leave unpaid.  In these situations, unions have demanded to negotiate paid sick leave or “hazard pay,” even though most collective bargaining agreements do not obligate employers to engage in such mid-term bargaining. Perhaps understanding this quandary, the Illinois Workers’ Compensation Commission (“Commission”) approved an emergency rule, effectively immediately and for the next 150 days, where health care providers and first responders with COVID-19 are assumed to have contracted it at work, and, hence, are eligible for workers’ compensation benefits.  These benefits include a portion of the employee’s compensation (typically 2/3s) and payment for all medical bills related to the diagnosis. It is likely that, even in the absence of this emergency announcement, employees who directly treat patients with COVID-19 would have access to workers’ compensation benefits.  What was unexpected was the emergency rule allows any employee who works for “essential businesses” to also claim these benefits without requiring proof they caught the virus at work.  Those who work at nursing homes, grocery stores, pharmacies, restaurants open for delivery/curbside service, marijuana dispensaries, etc. can file for comp benefits even if they were not treating COVID-19 patients in the discharge of their duties.  As of April 16, Illinois had over 25,000 confirmed cases of COVID-19; with this new rebuttable presumption, cost of workers’ compensation insurance may skyrocket. Employer organizations such as the Illinois Manufacturers’ Association, Illinois Retail Merchants Association, and the Associated Beer Distributors of Illinois have vowed to fight the emergency rule, including litigation.  At issue is the Commission’s authority to enact a policy outside the legislative process without providing more than 24 hours’ notice (and possibly violating the Illinois Open Meetings Act). Employers in Illinois should consult their in-house or outside counsel, their insurance carrier(s), and any attorneys appointed by those carriers to discuss any questions they may have regarding this development.

On March 18, 2020, President Trump signed the Families First Coronavirus Response Act (the “Act”), requiring employers with fewer than 500 employees to provide paid leave benefits related to the COVID-19 pandemic under the Emergency Family and Medical Leave Expansion Act (“Paid FMLA Leave”) and Emergency Paid Sick Leave Act (“Paid Sick Leave”). The details of the Act are set out in our earlier Blog post here. Since the Act was passed, there has been much discussion about how employees across related companies should be counted for purposes of coverage. Today, the Wage and Hour Division of the Department of Labor issued a “temporary regulation” or rule that clarifies this issue, which can be found here.[i]  The temporary rule remains in effect through December 31, 2020 when these provisions sunset.  In evaluating this issue, it is important to note that the two leave requirements arise in different portions of the Act. The right to Paid FMLA Leave is set forth in Division C of the Act, which amends the existing statutory text of the Family and Medical Leave Act (“FMLA”). The right to Paid Sick Leave is set forth in Division E of the Act. While both Divisions of the Act set the threshold for covered employers at “fewer than 500 employees,” neither provides express direction on how this number should be calculated across related entities. Today’s rule specifically addresses this issue. Pursuant to § 826.40 of the rule, which addresses issues related to employer coverage, aggregation of employees will occur in relation to both benefits when an employer meets either the “Integrated Employer” or “Joint Employer” tests. As a general matter, the legal entity which employs the employee is the “employer.” Where one corporation has an ownership interest in another corporation, it is a separate employer unless it is an “Integrated Employer” or a “Joint Employer.”[ii] To determine whether separate entities are considered an “Integrated Employer,” the Department of Labor considers “the entire relationship” between the parties “reviewed in its totality” based on the following four factors: (i) Whether there is common management; (ii) Whether the entities’ operations are interrelated; (iii) Whether there is centralized control of labor relations; and (iv) The degree of common ownership/financial control of the entities. If the factors indicate the entities are an Integrated Employer, the employees of all entities making up the Integrated Employer are counted to determine employer coverage and eligibility for Paid Sick Leave and Paid FMLA Leave. Even if separate entities are not considered an Integrated Employer, the Department of Labor may consider separate entities a “Joint Employer” if the entities each exercise some control over the work or working conditions of an employee. Notably, the joint employer test does not require common ownership. Joint employers may be separate and distinct entities with separate owners, managers, and facilities. Nevertheless, if an employee performs work that simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, the separate entities may be considered a Joint Employer. To evaluate whether an employee’s work simultaneously benefits two employers, the DOL applies a four-factor balancing test assessing whether the potential joint employer: (i) Hires or fires the employee; (ii) Supervises and controls the employee’s work schedule or conditions of employment                              to a substantial degree; (iii) Determines the employee’s rate and method of payment; and (iv) Maintains the employee’s employment records. The potential joint employer must actually exercise—directly or indirectly—one or more of these indicia of control to be jointly liable under the Act; however the potential joint employer’s maintenance of the employee’s employment records alone will not lead to a finding of joint employer status.  DOL guidance on the Joint Employer test can be found here. If two entities are found to be joint employers, all of their common employees must be counted in determining whether the Paid Sick Leave and Paid FMLA Leave obligations apply. Employers should exercise caution in oversimplifying the Integrated Employer and Joint Employer analyses to avoid coverage under the Act. An employer who takes the position that they are an Integrated Employer or Joint Employer for purposes of avoiding coverage under the Act may later find they waived their ability to assert they are separate entities in litigation or other disputes. Employers are encouraged to consult with counsel to determine coverage under the Act. [i] This rule is different from guidance the DOL provided recently in the form of FAQs. [ii] 29 CFR 825.104(c)(1).

On April 1, 2020, the Wage and Hour Division of the Department of Labor (“DOL”) issued temporary regulations (“Regulations”) to implement the Public Health Emergency Leave (“Emergency FMLA Leave”) and Emergency Paid Sick Leave (“Paid Sick Leave”) benefits available under the Families First Coronavirus Response Act (“the “Act”). The Regulations took immediate effect, on the effective date of the Act, and remain in effect through December 31, 2020, when the Act expires. The Regulations expand on the DOL’s guidance or “Families First Coronavirus Response Act: Questions and Answers,” which were issued late the week of March 23 and updated over the following weekend.  In some instances, the Regulations are inconsistent with the DOL’s former guidance – particularly with regard to: (1) The reasons an employee may take Paid Sick Leave, (2) The applicability of the integrated employer and joint employer tests which are used to determine the number of employees for purposes of coverage under the Act, and (3) The documentation employers may request to determine an employee’s eligibility for leave under the Act. The DOL updated its previous guidance or Questions and Answers on April 1, 2020 (here), to conform to the Regulations. A brief summary of several sections that (1) depart from the DOL’s former guidance or (2) provide new information the DOL did not previously address is below. Government Orders The Regulations expand the qualifying reasons for Paid Sick Leave to include containment, shelter-in-place and stay-at-home orders.  However, an employee is only entitled to Paid Sick Leave if the order “cause[s] the Employee to be unable to work even though his or her Employer has work that the Employee could perform but for the order.” Significantly, the Regulations further broaden “Subject to a Quarantine or Isolation Order” to include: when a Federal, State, or local government authority has advised categories of citizens (e.g., of certain age ranges or of certain medical conditions) to shelter in place, stay at home, isolate, or quarantine, causing those categories of Employees to be unable to work even though their Employers have work for them. Advice to Self-Quarantine The Regulations state that an employee has been “advised by a health care provider to self-quarantine due to COVID-19 concerns” for purposes of Paid Sick Leave if: (i) A health care provider advises the Employee to self-quarantine based on a belief that— (A) the Employee has COVID-19; (B) the Employee may have COVID-19; or (C) the Employee is particularly vulnerable to COVID-19; and (ii) following the advice of a health care provider to self-quarantine prevents the Employee from being able to work, either at the Employee’s normal workplace or by Telework. Similarly, the Regulations provide that an employee may take Paid Sick Leave to care for another who has received any of the same recommendations.  On that point, the Regulations explain that to qualify for Paid Sick Leave, the other person must be: an Employee’s immediate family member, a person who regularly resides in the Employee’s home, or a similar person with whom the Employee has a relationship that creates an expectation that the Employee would care for the person if he or she were quarantined or self-quarantined. For this purpose, ‘individual’ does not include persons with whom the Employee has no personal relationship. Seeking a Diagnosis With respect to people who suspect that they are ill, the Regulations clarify that if an employee is taking leave because they are “experiencing COVID-19 symptoms and seeking medical diagnosis,” the employee’s Paid Sick Leave “is limited to the time the Employee is unable to work because the Employee is taking affirmative steps to obtain a medical diagnosis, such as making, waiting for, or attending an appointment for a test.” Employer Coverage The Regulations provide that all common employees of joint employers or all employees of integrated employers must be counted together to determine coverage under the Act.  We have covered this issue in more detail here. Notice of Need for Leave and Documentation of Need for Leave The Regulations regarding documentation of the need for leave are a departure from the DOL’s former guidance, which suggested that an employer could require a variety of documents with a request for Paid Sick Leave or Emergency FMLA Leave.  The Regulations provide that an employer may not require a notice of the need for leave to include documentation beyond what is listed below. Before taking either Paid Sick Leave or Emergency FMLA Leave, all employees must give their employers documentation that includes: (1)  The employee’s name; (2)  The date(s) for which leave is requested; (3)  The qualifying reason for the leave; and (4)   A written or oral statement that the employee is unable to work because of the qualifying reason for leave. Before taking a Paid Sick Leave or Emergency FMLA Leave, some employees must additionally provide: o   For an employee subject to a federal, state or local quarantine or isolation order related to COVID-19: the name of the government entity that issued the Quarantine or Isolation Order o   For an employee advised by a health care provider to self-quarantine due to COVID-19 concerns: the name of the health care provider who advised the employee to self-quarantine due to concerns related to COVID-19. o   For an employee caring for an individual subject to a federal, state or local quarantine or isolation order or a health care provider’s advice to self-quarantine due to COVID-19 concerns: either (a) the name of the government entity that issued the Quarantine or Isolation Order to which the individual being cared for is subject or (b) the name of the health care provider who advised the individual being cared for to self-quarantine due to concerns related to COVID-19. o   For an employee caring for the employee’s child whose school or place of care is closed or the child’s care provider is unavailable due to a public health emergency) or Emergency FMLA Leave: the name of the employee’s child (or children), the name of the closed or unavailable school or child care provider, and a representation that no other suitable person will care for the employee’s child when the employee takes Paid Sick Leave or Emergency FMLA Leave. In addition to the information specifically identified, the Regulations generally state that an employer may request that an employee provide additional material as needed to support the employer’s request for tax credits pursuant to the Act.  And, the Regulations state that employers are not required to provide an employee’s request for leave if the employee fails to provide materials sufficient to support the applicable tax credit.  With respect to documents required for tax credits, the Regulations refer to https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs (“IRS FAQs”) for more information. Significantly, neither the Regulations nor the IRS FAQs specify any additional information employees must provide an employer to take Paid Sick Leave based on experiencing COVID-19 symptoms and seeking medical diagnosis or for employees experiencing any other substantially similar condition specified by the federal government. While the Regulations answer questions about the process of requesting leave under the Act, the Regulations leave open questions about: Whether employers can require additional documentation substantiating the need for leave after a Paid Sick Leave or Emergency FMLA Leave is approved. Whether the DOL will issue additional Regulations or the IRS will issue additional guidance on the documentation process in the coming weeks. Recordkeeping Finally, under the Regulations, an employer must: Retain all documentation related to an employee’s request for or entitlement to Paid Sick Leave or Emergency FMLA Leave for four years, regardless of whether the leave was granted or denied. Document and keep any oral statements an employee provided to support a request for Paid Sick Leave or Emergency FMLA Leave for four years. Have an authorized officer document that the employer is eligible for the small employer exemption to the Act when the employer denies an employee’s request for Paid Sick Leave or Emergency FMLA Leave (and keep such documentation for four years). Notably, the Regulations provide that a small employer must post a notice regarding the Act, even if the employer determines that it is exempt.

Since the Families First Coronavirus Response Act was signed on March 18, 2020, employers of health care providers have wondered how much of their workforce would be eligible for paid sick leave and emergency FMLA leave. (Our prior blog post on this topic is available here.) Just in time for the April 1 effective date of the FFCRA, the Department of Labor has provided new guidance. (The guidance is available here) While existing FMLA regulations provided exemptions for a number of specific provider types, many employees of health care facilities would not have been exempt. Under the DOL’s updated guidance, the health care exemption applies to everyone employed at a: doctor’s office hospital health care center health clinic pharmacy post-secondary educational institution offering health care instruction medical school nursing facility retirement facility nursing home home health care provider facility that performs laboratory testing facility that performs medical testing local health department or agency The guidance also includes a catch-all category for employers similar to the listed employers. Further, the guidance allows exemptions for employees of entities that provide services to or maintain the operations of any of the employers listed above. Accordingly, all clinicians and non-clinical staff members working for health care employers or their contractors / vendors are exempt – they do not qualify for either paid sick leave or emergency FMLA leave under the FFCRA. While the definition of health care provider is quite broad, the DOL urges employers to “be judicious” in exempting workers apparently based on its concern that employees could spread COVID-19 if leave is not available. This guidance is an important reminder to employers to consider how their policies may influence whether an employee who is sick will feel incentivized to come to work.

Employers have faced many questions as they prepare for the effective date of the Families First Coronavirus Act (FFCRA).  Many of those questions remained unanswered after the Department of Labor issued its “Families First Coronavirus Response Act: Questions and Answers” on Tuesday, February 23, 2020.  The DOL added to its guidance late Thursday, February 25, addressing some of these outstanding issues: What does it mean to be “unable to work” to qualify for leave under the FFCRA?  An employee is unable to work if the employer has work available for the employee to perform, either at a worksite or remotely, and the employee is unable to perform that work because of a COVID-19 qualifying reason.  A common example is if an employer has telework available, but the employee cannot perform the telework because the employee has a young child who needs supervision because the school is closed due to COVID-19. On the other hand, if the employer’s worksite is shut down, for example under a stay at home order, and the employee’s work cannot be performed remotely, the employee likely does not qualify for leave—the employee is able to work, the work is just not available.  Note, though, that a stay at home order is different from a quarantine or self-isolation order.  Employees under a quarantine/isolation order might be entitled to leave. Do laid off or furloughed employees qualify for leave?  No.  Once an employee is laid off or furloughed, whether before or after April 1, that employee is no longer eligible for leave under the FFCRA.  The same is true even if the employee is laid off or furloughed while on leave provided by the FFRCA.  The same is also true if an employer closes the worksite, before or after April 1, even for a brief or temporary period.  In sum, an employee is not entitled to leave under the FFCRA during the period while the business is closed, even if the closure was caused by a federal, state, or local order.  Similarly, an employee cannot use leave under the FFCRA for hours reduced by an employer, even if the reduction in hours was related to COVID-19. Can an employer require documentation showing an employee’s need for leave?  Yes.  An employer can and should require an employee to provide documentation showing the COVID-19 qualifying need for leave, such as a closure notice on a school website or a copy of a government order placing the employee under quarantine.   Indeed, an employer must require and retain documentation to claim for the tax credit available under the FFCRA.  There are no designated FFCRA forms.  However, an employee requesting emergency FMLA for a COVID-19 qualifying reason that rises to the level of a “serious medical condition” must continue to provide the medical certifications required under the FMLA. Click here for the fact sheet. Can FFCRA leave be used intermittently?  It depends.  If an employee is teleworking, the employee may use emergency FMLA or paid sick leave in any increment the employer agrees to.  If an employee is performing work at the employer’s worksite, the employee may use emergency FMLA or paid sick leave intermittently to care for the employee’s child(ren) whose school is closed or childcare is unavailable because of COVID-19 related reasons with the employer’s permission.  However, an employee must use emergency paid sick leave continuously in full day increments if the employee is subject to an isolation or quarantine order, has been advised by a healthcare professional to self-quarantine, is experiencing COVID-19 symptoms, or is caring for someone isolated because of or suffering from COVID-19 symptoms.  In these situations, the employee must use the emergency paid sick leave continuously until the employee exhausts the leave available or no longer has a qualifying reason for the leave.  Note the DOL’s guidance encouraged flexible, voluntary arrangements when the employee needs leave to care for a child who is out of school or does not have childcare due to COVID-19. Can FFCRA leave be used in conjunction with unemployment benefits?  Not under federal law.  Under federal law, an employee receiving paid leave under the FFCRA is not eligible for unemployment insurance benefits.  However, benefits may be available under state law as states have the authority to offer unemployment benefits to workers whose pay has been reduced. The full text of the DOL’s Q&A is available here.

Since negotiations began last week, people across the country have been anxious to know how Congress’s response to the COVID-19 pandemic would impact them. The Senate has just passed the Families First Coronavirus Response Act (“Act”). The Act will impact how employers address the pandemic and how health care providers are paid for some of the services associated with COVID-19. Unemployment Benefits The Act provides $500 million dedicated to providing immediate, additional funding to states for staffing, technology, and other administrative costs, so long as the state meets certain claim processing requirements. For states with a 10% or more increase in their unemployment rate (over the previous year) that comply with all beneficiary access provisions, the federal government will provide 100% of the funding for Extended Benefits, as opposed to the usual 50%. Emergency Paid Sick Leave Act Employers with fewer than 500 employees and government employers must provide employees with an additional two weeks of paid sick leave for certain COVID-19-related instances. Employers must provide paid sick leave to an employee who is unable to work (or telework) due to a need for leave because: 1. The employee is subject to or is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19. 2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19 or is caring for an individual who has been so advised. 3. The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis. 4. The employee is caring for their child due to the closure of their child’s school or place of care, or the unavailability of the child’s care provider, due to COVID-19 precautions. 5. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor. Employees would receive the following amounts of paid sick leave: 1. Full-time Employees – 80 hours 2. Part-time Employees – hours equal to the number of hours that such employee works, on average, over 2 weeks For employees on leave due to being placed in isolation or experiencing COVID-19 symptoms, paid sick leave is paid at their full regular rate, capped at $511 per day and $5,110 in the aggregate. For employees on leave due to the other reasons provided in the Act, paid sick leave is at 2/3 the employee’s regular rate, capped at $200 per day and $2,000 in the aggregate. If an employee works varying hours week to week, the number of hours paid is based on the average number of hours scheduled per day over a 6-month period ending on the date when an employee took leave, or if such information is unavailable, the employee’s reasonable expectation at the time of hiring of the average hours per day the employee would be scheduled to work. After the first day an employee receives paid sick leave, an employer may require the employee to follow reasonable procedures to continue receiving paid sick leave. Sick leave under the Act expires if not used in 2020. State and local paid leave entitlements are not preempted by the Act. Employers are prohibited from discharging, disciplining, or discriminating against an employee who takes leave under this Act or complains or institutes a complaint related to this Act. Employers violating this Act will be considered to have violated the Fair Labor Standards Act (“FLSA”) and will be subject to the respective penalties. The Secretary of Labor may exempt employers with less than 50 employees from the paid sick leave requirements if compliance would jeopardize the business’s viability as a going concern and may also exclude certain health care providers and emergency responders from the definition of eligible employee. The sick time requirements go into effect 15 days after the bill is enacted and expire December 31, 2020. Emergency Family and Medical Leave Expansion Act Employers with fewer than 500 employees must provide 12-weeks of job-protected, partially paid FMLA leave to certain employees prevented from working due to COVID-19. Employees are eligible if they have been employed for at least 30 calendar days (not the 12 months typically required under FMLA). Employers must provide 12 weeks of FMLA leave if an employee is unable to work (or telework) due to the need to care for their minor child because of the closure of the child’s school or care facility, or unavailability of the child’s care provider, due to a declared Federal, State, or local COVID-19 emergency. Employers are not required to provide paid leave during the first 10 days of leave under this section of the Act. Accordingly, pay for the first 10 days would be under paid sick leave. After the first 10 days of FMLA leave, employers must pay an employee no less than 2/3 of the employee’s regular rate of pay under the FLSA for the number of hours the employee would have normally been scheduled to work, up to $200 per day and $10,000 in the aggregate. If an employee works varying hours week to week, the number of hours is based on the average number of hours scheduled per day over a 6-month period ending on the date when an employee took leave, or if such information is unavailable, the employee’s reasonable expectation at the time of hiring of the average hours per day the employee would be scheduled to work. Employees must provide the employer with notice of leave as is practicable. At the end of the leave period, employers must generally reinstate employees to the same or a reasonably equivalent position upon availability. Employers with fewer than 25 employees are not required to reinstate employees under certain conditions. The Secretary of Labor may exempt employers with less than 50 employees from the emergency leave requirements if compliance would jeopardize the business’s viability as a going concern and may also exclude certain health care providers and emergency responders from the definition of eligible employee. The emergency leave requirements go into effect no later than 15 days after enacted and expires December 31, 2020. Employer Tax Credits In order to defray costs, the Act provides a payroll tax credit to employers for “qualified sick leave wages” (i.e., wages required to be paid under the Emergency Paid Sick Leave Act) and “qualified family leave wages” (i.e., wages required to be paid by the Emergency FMLA Expansion Act), subject to certain caps. Employers may claim a credit against Social Security tax liability for each calendar quarter. If the credit exceeds an employer’s social security taxes for a calendar quarter, the excess is generally refundable. Health Care Costs The Act includes several notable provisions aimed at providing coverage for COVID-19 related health care services. Private group and individual health plans must cover COVID-19 diagnostic testing, including the cost of a provider, urgent care, or emergency room visit to obtain the testing, without any patient cost-sharing (this includes deductibles, copayments, and coinsurance). Medicare Part B already covers the cost of a COVID-19 diagnostic test, but the Act expands that coverage to include COVID-19 testing-related services, with no cost-sharing. A “testing-related service” is an outpatient, hospital observation, emergency department, nursing facility, or home service furnished during the COVID-19 emergency that relates to and results in an order for a COVID-19 diagnostic test. Medicare Advantage plans must also cover COVID-19 diagnostic testing and testing-related services without any cost-sharing or prior authorization requirements. Medicaid and CHIP plans are similarly required to cover COVID-19 diagnostic testing and the related visit without any patient cost-sharing. Individuals covered under TRICARE, veterans, and federal civilian workers cannot be charged for any cost-sharing for COVID-19 diagnostic testing and the associated visit. The same is also true for individuals receiving care through the Indian Health Service. During the COVID-19 emergency period, states are permitted to expand Medicaid to uninsured individuals for COVID-19 diagnostic testing and the associated provider visit. Medicaid costs for these individuals will be matched 100% by the federal government. For the period of the public health emergency, the federal government will increase Federal Medical Assistance Percentages (FMAP), the federal funding portion of all Medicaid programs, by 6.2%. Allotments to U.S. territories will also increase. Conclusion Employers, payors and health care providers will need to take immediate steps to adapt to the requirements of the Act. Polsinelli’s Cross-Disciplinary COVID-19 Response Team is at the forefront of these efforts and stands ready to assist.

On March 12, 2020, the California Supreme Court broadened the scope of who can bring a representative action claiming penalties under the 2004 Private Attorneys General Act (PAGA).  (Kim v. Reins International California, Inc.) By way of background, in a PAGA action the named plaintiff must be an “aggrieved” employee or former employee who alleges that the defendant committed one or more California Labor Code violations against him or her.  This permits the employee to bring a “representative” PAGA claim against the defendant on behalf of other “aggrieved” employees for other alleged Labor Code violations.   In its ruling, the Supreme Court held that an employee who settles his or her own individual claims against their employer may still bring a PAGA action on behalf of other “aggrieved” employees. Until recently, an employee who settled their individual claim(s) against the employer could no longer maintain a PAGA action on behalf of other “aggrieved” employees.  The courts reasoned, prior to the instant decision, that because the plaintiff was made whole he or she was no longer “aggrieved.”  With the Kim decision, however, the Supreme Court stated that “[t]he statutory language reflects that the Legislature did not intend to link PAGA standing to the maintenance of individual claims… .”  Rather, the Court ruled that independent of any individual settlement an employee has PAGA standing if “…one or more of the alleged violations was committed against him [or her]… .” The Court’s decision that an employee’s individual claims are no longer linked to PAGA standing will affect the strategies employers utilize in litigating PAGA actions.  For example, companies with arbitration agreements may be unable, and may not want to, arbitrate named plaintiffs’ individual claims.   This is because even if the employer is successful in its arbitration against an employee on his or her individual claims, the employee may still bring a separate PAGA action.  Moreover, employers will need to consider PAGA exposure when settling wage and hour claims with employees on an individual basis.  The Labor and Employment Department of Polsinelli is of course ready to provide you further guidance on this ruling and all of your California and Federal labor and employment questions.

In addition to bolstering the provisions of its mini-WARN Act (see Part I), New Jersey Governor Phil Murphy also recently signed into law expansive provisions aimed at deterring worker misclassification. Fines for Employee Misclassification A.B. 5839 authorizes New Jersey’s Department of Labor and Workforce Development to fine businesses for intentionally misclassifying workers.  Fines for employers are $250 per misclassified employee for a first violation, and up to $1,000 per misclassified employee for each subsequent violation.  Additionally, employers must pay each misclassified individual up to 5% of the worker’s gross earnings over the past year. Expanded Liability Under A.B. 5840, businesses entering into agreements with labor contractors—e.g., staffing agencies—for workers are now jointly and severally liable and share legal responsibilities for violations of state wage and hour laws and state employer tax laws, including those related to employee misclassification. A.B. 5840 also impacts manager-level employees of businesses found to have violated state wage and hour and employer tax laws.  The law expands individual liability for violations to any person acting on the employer’s behalf to now include managers. Notice Posting Requirements A.B. 5843 requires employers to conspicuously post notices containing the prohibition against misclassification; the standard for whether an individual is an employee or individual contractor; benefits and protections for employees under state wage, benefit, and tax laws; remedies available for misclassification; and how to report alleged misclassification.  Violations may result in the employer being guilty of a disorderly persons offense and a fine of $100 – $1,000. The new law includes an anti-retaliation provision for employees who complain about potential misclassification.  Employers violating the anti-retaliation provision must offer reinstatement to the discharged employee; correct any discriminatory action; and pay the employee considerable damages of reasonable legal costs, lost wages and benefits, and punitive damages equal to two times the lost wages and benefits. Stop-Work Orders and Public Posting of Violators In keeping with the trend of employee protections, A.B. 5838 allows New Jersey regulators to issue an immediate stop-work order for worksites where an employer has been found to have violated New Jersey wage, benefit, or tax laws.  Employers who violate a stop-work order may be fined up to $5,000 per day.  While a stop-work order can be issued while an employer appeals a violation decision, an employer may seek injunctive relief, and must then demonstrate the stop-work order would be or has been issued in error. New Jersey also enacted S.B. 4226, allowing the Department of Labor and Workforce Development to post information of persons who violate state wage, benefit, and tax laws. For guidance on compliance with any of these new laws and regulations in New Jersey, please contact your Polsinelli attorney.

New Jersey continues to become one of the country’s most employee-friendly states.  On January 21, 2020, Governor Phil Murphy signed into law a slate of employee-friendly bills.  In this post, we discuss the significant expansion of rights for employees impacted by mass layoffs.  In our next post, we will cover the wave of laws aimed primarily at combating worker misclassification and expanding potentially liable persons and entities. S.B. 3170 increases notification time and requires severance pay for mass layoffs.  Beginning July 19, 2020, when 50 or more full-time workers are laid off from an establishment in a 30-day period, employers must pay terminated employees severance equaling one week of pay for each full year of employment.  The changes to the law also expand the definition of “establishment” form a single employment site to any single or group of locations in New Jersey, meaning that the 50 affected employees do not need to have been employed at the same physical location. Under the same bill, employers who employ 100 or more employees (whether full-time or part-time) must provide at least 90 days’ notice (instead of 60) of the layoff to affected workers, any union representing affected workers, local officials, and the Commissioner of Labor and Workforce Development.  If an employer fails to provide the required notice to any employee, the employer must pay an additional four weeks of pay to that employee. Employers considering a mass layoff or in the process of mass layoff should consult their Polsinelli attorney to ensure compliance with this new, extensive New Jersey law.

The Courts were kind to California employers in September, 2019, issuing two decisions which substantially reduce the damages which plaintiffs can recover in wage and hour cases. In the first case, ZB N.A. and Zions Bancorp.v. the Superior Court of San Diego County, the Supreme Court held that individuals cannot recover unpaid wages as part of a Private Attorneys General Act (“Paga”) action.  In doing so, it held that the "unpaid wages" that are available pursuant to § 558 can only be recovered by the Labor Commissioner and that they are not a civil penalty that a private citizen has authority to collect through PAGA. In the second decision, Naranjo v. Spectrum Security Services, Inc., the Court of Appeals of the State of California Second Appellate District held, among other things, that unpaid premium wages from meal and/or rest break violations do not entitle employees to additional remedies pursuant to §§ 203 and 226 of the Labor Code.  In doing so, the Court rejected those "derivative" claims and, relying on the Court in Kirby v. Immoos Fire Protection, Inc., (2012) 55 Cal.4th 1244, concluded that a § 226.7 action is brought for the non-provision of meal and rest periods, not for the "non-payment of wages." The significance of these cases is that the damages available to employees who claim that they have been denied meal and/or rest breaks is limited to the premium payments allowed for under Cal.Lab.Code § 226.7 but they are not entitled to recover unpaid wages under Cal.Lab.Code § 558 nor are the entitled to recover waiting time penalties under § 203 or penalties for violation of § 226 relating to itemized wage statements.  Additionally, under Kirby, attorney’s fees are not payable for alleged meal and rest break violations because those violations are not wages. The net result of these cases is that employees pursuing claims, whether on an individual basis, class basis or based on Paga, will only be able to recover the premium payments under § 226.7 but will be unable to recover any derivative damages and/or attorney's fees for an employer's failure to provide meal and/or rest breaks.

On September 24, 2019, the US Department of Labor announced a finalized rule increasing the earnings threshold necessary for employees to qualify as exempt from the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime pay requirements. It is estimated the new Rule will bring an additional 1.3 million employees below the FLSA’s overtime requirements, making them non-exempt employees. Why the change? Employee earnings, including federal and state minimum wage requirements, have continued to grow since the last time the exemption thresholds were updated—all the way back in 2004. Though some have suggested the DOL should automatically update the salary threshold levels in the future, the DOL has rejected this proposal. But, the DOL has noted it plans to provide more frequent updates to the standards through notice-and-comment rulemaking. What does the Rule do? Raises the “standard salary level” for white-collar employees paid on a salary basis (either weekly or annually) from $455/week to $684/week (or an increase from $23,660/year to $35,568/year for a full-time employee). For “highly-compensated employees,” the annual compensation threshold for exemption is increased from $100,000/year to $107,432/year. Allows greater flexibility in the payment method of the minimum salary requirements, allowing non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level. The Rule does not change the regulatory test for primary duty or the tests for the duties necessary for exempt executive/administrative/professional employees; it does not amend the definition of “salary basis;” does not apply a new compensation standard to doctors, lawyers, teachers or outside sales employees; and makes no change to the computer employee exemption. What should employers do? The effective date for the changes is January 1, 2020.  There are several things employers should consider in determining how best to comply with the new Rule. Employers should determine which and how many employees will be affected by the change—those making between $455 and $684 per week.  An employer should then determine if it makes business sense to increase the salaries of those individuals or to reclassify them as non-exempt making them eligible for overtime pay. For employees who will become non-exempt, employers should consider adjusting employee schedules, especially those which allow for flexible hours and remote working options. Employers should ensure that the timekeeping and payroll systems are updated to reflect any changes in employees’ exempt/non-exempt statuses. Employees transitioned to a non-exempt status should be trained on timekeeping systems and proper timekeeping practices to capture all time worked (including, but not limited to work performed on smart phones, on remote access systems, etc. – or eliminating these employees’ ability to conduct such work away from the office). Employers should consider conducting audits to ensure that current classifications are proper as well as to determine if any other exemptions may apply to employees that otherwise will be brought into the non-exempt category by the new Rule. Of course, employers should always be aware that being in compliance with this Rule and the FLSA in general is just a small part of their overall compliance requirements of applicable wage and hour laws. There are also state and local laws and regulations that employers must comply with that may significantly differ from the FLSA. Employers with questions or concerns should consult competent counsel.

UPDATE:  California Governor Gavin Newsom signed AB5 into law on September 18, 2019.  In his signing statement, Governor Newsom stated that the “next step is creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work.”  Businesses that retain workers as independent contractors in California should now immediately begin planning to defend these arrangements under the new law or adapt them to avoid or reduce potential misclassification liability (September 19, 2019). On September 10, 2019, the California Senate passed AB5, a sweeping bill to control the use of independent contractors in the nation’s largest state.  With the California Assembly concurring in the Senate’s amendments to the bill on September 11, 2019, the legislation now proceeds to Governor Gavin Newsom who is expected to sign it into law. AB5 codifies the California Supreme Court’s holding in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, and adopts an “ABC” test to determine whether a worker is classified as an “employee” for purposes of California’s Labor Code, unemployment insurance law, and wage orders.  Under the “ABC” test, for a worker properly to be classified as an independent contractor, the putative employer must satisfy three conditions: The worker is free from the employer’s control and direction in connection with the work performed, both under the contract and in fact; The work being performed is outside the usual course of the employer’s business; and The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The bill contains numerous exceptions for occupations and contracting arrangements that will not be subject to the ABC test under either AB5 or Dynamex.  Certain professionals, including lawyers, doctors, engineers, accountants, investment advisors, insurance brokers, and others, will continue be governed by the pre-Dynamex common law standard.  Independent contractors providing certain types of services (including, marketing, human resources, design, photography, writing, and editing) will not be subject to the ABC test if they meet a separate, six-factor test focusing largely on whether they operate an independent business.  Construction subcontractors and bona fide business-to-business contracting relationships are also exempted from the ABC test. Although AB5 states that it applies only prospectively to work performed after January 1, 2020, it is an open question whether the Dynamex ruling will be applied retroactively.  The U.S. Court of Appeals for the Ninth Circuit previously ruled that it did, but then vacated that ruling and certified the issue to the California Supreme Court, which has not decided the issue.  AB5 is not helpful to employers on this point, providing that its test “does not constitute a change in, but is declaratory of, existing law.” It is anticipated that Governor Newsom will sign the bill, though he has stated he will continue to negotiate with major California gig economy employers about its scope.  If passed, the bill will upend numerous independent contractor relationships in the state and subject businesses that retain independent contractors to a patchwork of local minimum wage laws (21 in the Bay Area alone), meal and rest break requirements that are difficult for employers to police, and the requirement to provide wage statements containing nearly a dozen categories of information.  Businesses in California that use independent contractors should immediately begin working with counsel to plan for AB5’s January 1, 2020 effective date by either ensuring that existing contractor relationships pass the ABC test or meet the requirements of one of AB5’s exceptions and/or preparing to transition certain contractors to W-2 employment status.

In an unpublished opinion, the Colorado Court of Appeals recently held that a departing employee's right to vacation pay at separation is dependent on the company's policies.  Nieto v. Clark’s Market, Inc., 2019 COA 98. In this case, the employer had a policy stating than an employee was not entitled to payment for unused vacation time if the employer discharged her or if she voluntarily quit without giving two weeks' notice. The employee quit without giving the requisite two weeks' notice and the employer did not pay her for unused vacation pay.  Thereafter, the employee filed suit. In its decision, the Court rejected the employee’s claim that her vacation pay was "earned and determinable," and, thus, owed to her on discharge pursuant to the Colorado Wage Claim Act (“CWCA”). Therefore, the employer did not owe her for that vacation time. The Court observed: Nothing in the CWCA creates a substantive right to payment for accrued but unused vacation time.  Rather, "the employee’s substantive right to compensation and the conditions that must be satisfied to earn such compensation remain matters of negotiation and bargaining and are determined by the parties’ employment agreement rather than by statute." The Court concluded by writing: In sum, reading Sections 8-4-101(14)(a)(III), 109(a), and 121 together, we hold that the [employer’s] unused vacation policy doesn't violate the CWCA.  [The employee’s] right to compensation for approved but unused vacation pay depends on the party's employment agreement.  And that agreement unequivocally says that the vacation pay she seeks wasn't vested given the circumstances under which she left the [employer’s] employ." The Nieto case is certainly good news for employers.  Even if not binding precedent, its rationale can be used to support a “use it or lose it” policy.  However, it may be prudent to still rely on a "cap on accrual" policy as a way of controlling an employer's liability to a separating employee for vacation pay.  Employers with questions regarding vacation payout policies and other employment policies would do well to consult with able counsel.

For years, courts applied the de minimis doctrine “to excuse the payment of wages for small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record.” Troester v. Starbucks Corp. 5 Cal. 5th 829, 835 (2018). Recently, California courts have held that the de minimis doctrine does not apply to wage and hour claims brought under the California Labor Code, which may increase exposure for California employers to potential class actions regarding menial tasks that employees may perform “off the clock.” By way of background, in Troester, the California Supreme Court determined the de minimis doctrine did not apply where the manager of a coffee shop was required to clock out before completing the following tasks: 1) performing the “close store procedure” on a computer; 2) activating the alarm; 3) exiting the store; 4) locking the front door; and 5) walking coworkers to their cars. On average, together these tasks took four to ten minutes of “off the clock” time, and totaled 12 hours and 50 minutes during the manager’s 17-month employment with the company. The Court ruled that the employer must compensate hourly employees for off-the-clock work that occurs on a daily basis. Critically for employers, the Troester ruling is already making its way through the courts. For example, in Rodriguez v. Nike Retail Services, Inc., 928 F.3d 810 (2019), plaintiff-employees filed a class action seeking compensation for “off the clock” exit inspections, which occurred at the end of each shift. The district court granted summary judgment to the employer, and held that plaintiffs’ state law claims failed based on the de minimis doctrine. When making its ruling, the district court noted that Troester was pending before the California Supreme Court and it had to apply the law as it currently existed. Predictably, the plaintiffs in Rodriguez appealed and, while the appeal was pending, the California Supreme Court issued its decision in Troester. Subsequently, the U.S. Ninth Circuit Court of Appeals reversed the district court’s grant of summary judgment to the employer based on Troester and remanded the case for further proceedings. Notably, the court rejected the employer’s contention that because there was evidence that only 3.3% of the exit inspections lasted more than 60 seconds, the time was de minimis even under Troester, and reasoned that the exit inspections at issue did not appear to be “so irregular that it is unreasonable to expect the time to be recorded.” The Ninth Circuit’s ruling in Rodriguez indicates that the Troester ruling is here to stay. Accordingly, employers with workforces in California may wish to consider examining whether their employees perform “off the clock” for time that may have previously been considered de minimis to minimize legal risk. **Polsinelli provides material for informational purposes only. The material provided herein is general and is not intended to be legal advice.

Recently, the U.S. District Court for the Southern District of Alabama issued a decision reminding employers to take care when reviewing and responding to charges of discrimination. In Payne v. Navigator Credit Union, the defendant employer moved to dismiss the plaintiff employee’s claim for disability retaliation on the grounds that the plaintiff failed to exhaust her administrative remedies. Specifically, the employer argued that the plaintiff failed to allege in her EEOC Charge that she was retaliated against, and was precluded from pursuing a retaliation claim in court. When making its argument, the employer pointed out that the plaintiff had not “checked the box” for “retaliation” on her EEOC Charge nor did she use the word “retaliation” when describing how she had allegedly been harmed.  Nevertheless, the court ruled that the plaintiff’s allegation in the charging document that she was terminated shortly after informing her employer of her need to take medical leave for cancer treatment was sufficient to place the employer on notice of the a claim for  retaliation. This decision suggests that some courts will grant plaintiffs wide latitude to define their claims in litigation.  Employers facing an agency charge, or that have questions regarding responding to inquiries from administrative employment agencies, should consult with competent counsel.

Does the adage “no good deed goes unpunished” apply to employers that fail to pay wages to hourly employees during volunteer events? Not necessarily, according to a recent U.S. Department of Labor (DOL) Opinion Letter. Per the Opinion Letter, to avoid a finding that an employee’s volunteer time is compensable, the employer must refrain from directly or impliedly coercing its employees to participate. In other words, participation must be voluntary and devoid of any undue influence. The DOL’s Opinion Letter clarifies that notifying employees of the volunteer event or asking for participation is not coercive. Conversely, if consequences exist for failing to participate, such as changes to working conditions, the employee’s time spent volunteering would likely be considered compensable, as participation would not be considered “voluntary.” The Opinion Letter also addresses whether offering certain benefits for participation would be considered “coercive.” Critically, an employer may consider an employee’s volunteer activities when determining a bonus, without converting volunteer time to compensable hours, as long as: volunteering remains optional; non-participation is not punished; and the bonus is not guaranteed. Employers that wish to ensure volunteer time is non-compensable would do well to remember two things: (1) employers should not punish an employee’s lack of participation in volunteer activities; and (2) bonuses for participation cannot be guaranteed.  Employers with questions about whether volunteer time should be compensated should consult with competent counsel.

Mergers and acquisitions can be complicated transactions, particularly when the entity to be acquired has employees covered by a collective bargaining agreement with a union.  In a recent case, a federal court in Chicago ruled that a successor owner of a business unlawfully terminated health benefits for retired employees under a collective bargaining agreement entered into by the business it acquired. The plaintiffs were two retired employees who worked for a packaging company for more than 35 years and were members of the union.  After retirement, they continued to receive health care benefits under a collective bargaining agreement (CBA) their union negotiated in 1994.  The packaging company went into bankruptcy and it negotiated new CBAs with the union in 2001 and 2002, which were approved by the bankruptcy court.  After emerging from bankruptcy in 2003, the packaging company was acquired by the first successor, which closed the plant where the retirees had worked.  After the plant closed and the CBA expired, the first successor continued to provide benefits under the expired CBA’s terms.  In 2014, the first successor sold part of its business and transferred its obligations under the relevant CBA to the second successor.  Shortly thereafter, the second successor terminated the CBA. The retirees and the union filed suit against both the first and second successor to enforce the health care benefits provided under the CBA.  The case focused on two provisions in the CBA.  Specifically, Section 6 of the CBA provided:  “any Pensioner or individual receiving a Surviving Spouse’s benefit who shall become covered by the Program established by the Agreement shall not have such coverage terminated or reduced (except by the Program) so long as the individual remains retired from the Company or receives a Surviving Spouse’s benefit, notwithstanding the expiration of this Agreement, except as the Company and the Union may agree otherwise.”  In addition, Section 7 stated the CBA “shall remain in effect until February 29, 2014, thereafter subject to the right of either party on [120] days written notice served on or after November 1, 2003 to terminate the [agreement].” The court noted that “unlike pension benefits under ERISA, insurance benefits, such as the benefits at issue in this case, do not automatically vest” and an employer “may create vested welfare benefits by contract.”  The defendants argued that Section 6 of the CBA limited lifetime health benefits because the phrase “except as the Company and the Union may agree otherwise” incorporated Section 7’s language permitting unilateral termination.  The court disagreed, noting that Section 7 referred only to termination of the CBA, and did not apply to health benefits under Section 6. The defendants also argued that the U.S. Seventh Circuit Court of Appeals had previously ruled that “lifetime” benefits were limited to the term of the CBA.  The court readily distinguished the defendants’ authority because the agreements at issue therein expressly limited the duration of the benefits to the duration of the contract.  But in the current case, the court ruled that the “provision of lifetime benefits without provision for their termination constitutes vested benefits.”  As a result, the court granted summary judgment for the plaintiffs. When a merger or acquisition involves a collective bargaining agreement, employers would do well to perform a thorough legal analysis of the terms and history of existing and predecessor collective bargaining agreements and contract negotiations (as well as pending and past grievances and unfair labor practices).  Doing so is critical to understanding (and minimizing or avoiding) any potential risk.  Employers with questions should consult with able counsel. Stone v. Signode Industrial Group, LLC, No. 17 C 5360, (N.D. Illinois) March 13, 2019.

Employers who thought that they had received a respite from the U.S. Equal Employment Opportunity Commission’s proposed requirement to report information about employees' pay and hours worked when submitting their annual EEO-1 forms received a surprise on March 4, 2019, when the U.S. District Court for the District of Columbia resuscitated the revamped EEO-1 reporting obligation. The additional data reporting requirement — which was first proposed by the EEOC in 2016 — had been stayed since Aug. 29, 2017, after the Office of Management and Budget vacated its prior approval of the new EEO-1 form. U.S. District Judge Tanya Chutkan vacated that stay and reinstated the reporting obligation. Although the EEOC filing portal has not yet opened for the current filing period, this ruling may leave employers scrambling to meet the upcoming May 31, 2019, EEO-1 submission deadline. EEO-1 Pay and Hours Worked Data Collection: On and Off Again Title VII of the Civil Rights Act of 1964 requires employers to keep and preserve records relevant to a determination of the occurrence of unlawful employment practices and authorizes the EEOC to mandate that employers produce reports of such records. Since 1966, the EEOC has required that employers with 100 or more employees file an EEO-1 form on an annual basis reporting the number of employees by job category, race, sex and ethnicity. Certain government contractors and first-tier subcontractors with 50 or more employees and a contract in excess of $50,000 are also subject to this requirement. Employers subject to the EEO-1 requirement who do business at one single establishment are required to submit a single EEO-1 report, while multi-establishment employers must submit separate reports for the headquarters and each establishment and a consolidated report including all employees. In 2016, as part of an interagency initiative to combat pay discrimination, the EEOC announced that it would add a second “component” to the EEO-1, pursuant to which employers would be required to report the total number of full- and part-time employees by demographic category in each of 12 pay bands for each EEO-1 job category and also the aggregate hours worked by all of the employees in each pay band. The OMB approved the new EEO-1 data collection, as required by the Paperwork Reduction Act, or PRA, just over a month before the 2016 presidential election and one day after the EEOC submitted it to the OMB for review. In doing so, the OMB disregarded a groundswell of comments from employers contending that the cost of assembling and reporting this information would be burdensome and the utility of the information for its stated purpose of investigating potential pay discrimination would be limited. Under the PRA, the OMB can revisit and stay prior approvals of agency data reporting requirements under certain circumstances. On Aug. 29, 2017, the OMB initiated a review of the new EEO-1 reporting requirement and stayed its prior approval. The OMB justified its change of course by noting the EEOC’s post-approval publication of data file specifications for employers to use when submitting the EEO-1 data and also asserted that the data collection would be “unnecessarily burdensome” and “lack practical utility.” Two public interest groups that advocate for pay equity, the National Women’s Law Center, or NWLC, and Labor Council for Latin American Advancement, or LCLAA, subsequently filed suit in the U.S. District Court for the District of Columbia challenging the OMB’s action. Legal Challenge to the Stay: Revised EEO-1 On Again? The NWLC and LCLAA, filed suit against the OMB, EEOC and other federal defendants asserting that the OMB’s 2017 decision to stay the new EEO-1 reporting requirement was arbitrary and capricious and should therefore be overturned. Judge Chutkan agreed. After finding that the NWLC and LCLAA had standing and that the 2017 stay was a final agency action subject to judicial review, the court analyzed whether the OMB’s decision comported with its PRA regulations. The court found that the data file specification published by the EEOC after the new EEO-1 form’s approval did not meaningfully affect the nature or burden of the data collection and had in fact been expressly contemplated by the EEOC’s notices and prior submissions to the OMB. Accordingly, the court dismissed this justification as a mere “technicality.” Similarly, the court found that the OMB’s second justification for its revocation of its approval of the EEO-1 form — that the initial burden estimate had been incorrect — was speculative and not supported by any reasoned analysis. The court further criticized the OMB for departing from the reasoning behind its prior, 2016 approval of the new EEO-1 form without providing any factual or legal analysis to explain its change in position. For these reasons, the court found the OMB’s decision to be arbitrary and capricious. The court then turned to the question of the proper remedy its decision required. Rather than remanding the issue to the OMB to repair the identified deficiencies in its analysis, the court vacated the stay issued on Aug. 29, 2017, effectively reinstating the OMB’s prior approval of the revised EEO-1 form. What Happens Next? So where does this leave employers? Originally, the additional EEO-1 requirements had been slated to commence in March 2018, but prior to the court’s decision, the requirements had been indefinitely stayed from going into effect. On Feb. 1, 2019, the EEOC extended the deadline for submission of 2019 EEO-1 data until May 31, 2019 due to the recent government shutdown. According to the EEOC’s website, the 2018 EEO-1 survey will open for submission on March 18, 2019, but as of March 14, 2019, the EEOC had not provided any guidance regarding the effect of the court’s decision or what information employers will be required to submit by May 31, 2019. Because the EEO-1 salary and hours reporting requirements never went into effect prior to the OMB’s 2017 stay, many if not most employers have not been preparing to collect this data for submission in the 2018 EEO-1 report. As commentators noted during the EEOC’s and OMB’s 2016 approval of the new EEO-1 form, many employers do not maintain the types of demographic data traditionally collected by the EEO-1 and the newly required wage and hour data in the same systems. If employers must comply with the new EEO-1 reporting requirements by May 31, 2019, there will be a scramble to collect and collate data from disparate human resources and payroll databases. Employers would be well advised to begin this process immediately, in light of the challenges of identifying, collecting and preparing wage and hour data for production to the government. Aside from the practical burden of compiling this data and preparing the required report, employers now also face renewed risk that the data reported on an EEO-1 form will be used in support of discrimination claims. While this risk has always been at least notionally present, as EEO-1 reports are always requested and reviewed by the Office of Federal Contract Compliance Programs in its compliance reviews and can be requested in discovery by employees, the inclusion of compensation data increases the threat that these reports can pose in the hands of an adversarial government agency or plaintiff. The district court’s decision may not be the final word in this matter, however. The government could appeal the decision and seek a stay of the decision while the case is before the U.S. Court of Appeals for the D.C. Circuit. Given that the EEO-1 filing period opens in mere days and the deadline is only a few months away, any delay by the government in seeking or obtaining a stay would heighten the present uncertainty. Another possibility is that the EEOC could delay the onset of the requirement for employers to provide the additional information in recognition of employers’ reliance on the OMB’s 2017 stay and the fact that the EEOC itself may be unprepared to begin accepting this information. With no guidance to date, however, it is uncertain whether the EEOC will postpone the deadline for both components of the EEO-1, only the new reporting requirement, or would allow the new requirement to remain in place as scheduled. Notably, the EEOC only has two of its five commissioners in place and lacks a quorum to take certain actions. The court’s decision is surely a shock to the system for employers who are subject to the EEO-1 reporting requirement. Regardless of what happens next, such employers would be wise to begin collecting the required EEO-1 pay and hours data immediately and preparing for the new requirements to remain in place beyond the 2018 reporting period.

In Wallace v. Andeavor Corp., the U.S. Fifth Circuit Court of Appeals affirmed the grant of summary judgment to an employer on a former vice president’s Sarbanes-Oxley Act (SOX) whistleblower claim, finding that he could not have reasonably believed that the employer was misreporting its revenue in its 10-K filings with the Securities and Exchange Commission (SEC). Plaintiff was the Vice President of Pricing and Commercial Analysis of Andeavor, an operator of petroleum refineries.  He suspected that the Company was erroneously booking certain sales and excise taxes it collected from customers and remitted to federal and state governments as revenue in  internal reports.  However, he represented in e-mails that he believed external reporting was proper, and certified Company 10-K reports and financial statements.  The 10-K report explicitly disclosed that excise and other taxes were recognized in both the “revenue” and “costs of sales and operating expenses” categories, but its disclosures were arguably ambiguous as to whether it included sales taxes. At the same time, Plaintiff was the subject of a human resources investigation, which found that he had fostered a hostile work environment and engaged in other unacceptable behavior.  As a result of this investigation, his employment was terminated.  Plaintiff filed suit under SOX’s anti-retaliation provision, claiming that he was terminated because he reported the alleged problems with the tax and revenue recognition.  The district court granted summary judgment to the employer on his SOX claim, finding that Plaintiff had not engaged in SOX protected activity because he did not report conduct that he believed to constitute shareholder fraud. The Fifth Circuit assessed the evidence presented to the district court on whether Plaintiff’s purported belief that his employer was misreporting its revenue was objectively reasonable.  SOX requires not only that the employee have reported certain types of misconduct, but also that they both subjectively and objectively believed that misconduct actually occurred.  In this case, the Fifth Circuit focused on evidence that Plaintiff had considerable training and experience in business and accounting, and also noted his specific expertise in SEC financial reporting practices. Based on this background, the court reasoned that Plaintiff “should be capable of understanding disclosures in SEC filings.”  The court also pointed to evidence that Plaintiff was one of the employees who certified the Company’s financial statements, and stated Plaintiff should have conducted an investigation to ensure that his claim that the public disclosures contained a reporting violation was reasonable.  The court found that, if such an investigation had occurred, he would have determined that the Company consistently disclosed its treatment of sales and other taxes to its shareholders.  Accordingly, the Fifth Circuit affirmed the grant of summary judgment to the employer. This decision makes clear that a SOX retaliation claimant must have a reasonable basis for reporting wrongdoing, considering the claimant’s education, background, and experience.Employees with business and accounting experience will likely be held to a higher standard regarding the basis for their allegations when seeking to invoke SOX’s retaliation protections.Publicly traded companies would do well to clearly identify in the job descriptions of employees with accounting, finance and compliance roles their compliance, reporting, investigation and certification responsibilities.

Although it may seem counterintuitive that an employer should keep time for an exempt employee, there may be sound reasons at times for doing so.  In a recent case in California, Furry v. East Bay Publishing, LLC (January 4, 2019), the Court of Appeals of the State of California ruled that the consequences for failure of the employer to keep time records required by statute falls on the employer and not the employee.  In that situation, the Court indicated that imprecise evidence of time can provide a sufficient basis for damages. In Furry, the employee alleged, among other things, that his employer failed to pay minimum and overtime wages. After a bench trial, the trial court concluded the employer did not keep detailed records of the hours worked by the employer and failed to meet its burden of proof that the employee was exempt from the laws pertaining to overtime and minimum wage.  However, the trial court found the employee’s testimony regarding his work hours to be “uncertain, speculative, vague and unclear” and refused to award any damages for overtime and minimum wages. When reversing the trial court’s decision on the issue of damages, the Court of Appeals agreed with the employee that a relaxed standard of proof applies when the employer fails to keep time records.  The Court observed that “once an employee shows that he performed work for which he was not paid, the fact of damages is certain; the only uncertainty is the amount of damage.”  Under those circumstances, an employee can use “imprecise evidence,” such as time estimates from memory, to meet the relaxed standard that was applicable. The Court explained the shifting burdens of proof: “[A]n employee has carried out his burden if he proves that he has in fact performed work for which he was improperly compensated and if he produces sufficient evidence to show the amount and extent of the work as a matter of just and reasonable inference.  The burden then shifts to the employer to come forward with evidence of the precise amount of work performed or with evidence to negative the reasonableness of the inference to be drawn from the employee’s evidence.  If the employer fails to produce such evidence, the court may then award damages to the employee, even though the result be only approximate.” The Bottom Line When an employer properly classifies employees as exempt, then time records and timekeeping do not seem important. However, if the exemption is challenged and not proper, then the employer may need evidence of the time worked or some other evidence or approximation of time worked. Without this evidence, the employer may be exposed to liability based on the testimony of the employee. Employers with questions regarding time recording or wage and hour laws would do well to consult with competent counsel.

With the New Year, employers should make sure that they are up to date on the minimum wage laws applicable to their employees.  As of January 1, 2019, the minimum wage has increased in the following 19 states: *Listed minimum wage rate is for most large employers in the corresponding state.  In California, the minimum wage for employers with 25 employees or fewer is $11.00/hour.  In Minnesota, the minimum wage for employers with annual gross revenues of less than $500,000 is $8.04/hour.  In New York, the minimum wage for employers in New York City and Nassau, Suffolk, and Westchester counties is higher.  On April 1, 2019, the minimum wage in Michigan will increase to $9.45/hour.  On July 1, 2019, the District of Columbia’s minimum wage will increase to $14.00/hour, and Oregon’s standard minimum wage will increase to $11.25/hour (with a minimum wage of $12.50/hour applicable to Portland workers, and a minimum wage of $11.00/hour applicable to rural workers in the state). In addition, the minimum wage in multiple counties and cities across the United States has increased as of January 1, 2019 or will increase later in the year.  Employers should be aware of any local laws that may apply. Finally, employers should note that Senator Bernie Sanders plans to introduce legislation in 2019 that, if passed, would increase the federal minimum wage to $15.00/hour by 2024.  Stay tuned to Polsinelli at Work for further updates.

Recently, we discussed the U.S. Department of Labor’s (“DOLs”) rescission of the 80/20 rule.  Unfortunately, less than two months after the DOL’s rescission, the U.S. District Court for the Western District of Missouri rejected the DOL’s new guidance, claiming it is “unpersuasive and unworthy” of deference. As a reminder, the 80/20 rule requires businesses to pay tipped workers at least minimum wage (with no tip credit) for non-tip generating tasks when these tasks take up more than 20% of the tipped workers’ time. In Cope, et al. v. Let’s Eat Out, Inc., et al., Case No. 6:16-cv-03050, the court rejected the defendants’ motions to decertify the class of workers who claimed defendants violated the 80/20 rule. Defendants relied on the DOL’s recent rescission of the 80/20 rule.  The court denied the defendants’ motion to decertify, stating: The abrupt issuance of an opinion letter purporting to change the DOL’s interpretation after years of consistently construing the [underlying regulation] as limited by the [80/20] rule does not persuade this court to apply a new interpretation to the litigation ….  The DOL does not offer reasoning or evidence of any thorough consideration for reversing course. The court further stated that the DOL’s rescission does not stand up to either the Auer v. Robbins or Skidmore v. Swift & Co. deference standards set by the U.S. Supreme Court.  Specifically, the court explained that the rescission of the 80/20 rule was an “unfair surprise” to workers, as well as an unjustified departure from the DOL’s prior guidance.  The court further reasoned that the 80/20 rule is “a reasonable interpretation of the dual jobs regulation” – notwithstanding the DOL’s issuance of the November 2018 opinion letter or the update to the DOL’s investigation handbook. This decision represents a step back for restaurant industry.While this is only one case, it is expected that Cope will be used by future plaintiffs bringing 80/20 rule violation claims on behalf of themselves and putative classes in the near future.Only time will tell whether other district courts across the country will follow the Western District of Missouri’s footsteps, or whether we will have a split in the circuits.Stay tuned to Polsinelli at Work for further updates.

The application of the 80/20 Rule has been a hot topic in the restaurant industry the last several years because it is the foundation of an onslaught of collective and class action litigation brought by service workers claiming they were not paid minimum wage. As a brief summary, the 80/20 Rule limits the use of the lower tip credit wage rate ($2.13 per hour) when a tipped employee spends more than 20% of their working time on non-tipped work. In other words, employers can only apply a tip credit to time spent on non-tipped work if such duties did not exceed 20% of the employee’s time.  Take a look at our previous post regarding the 80/20 rule for more information. Last year, in Marsh v. J. Alexander’s LLC the U.S. Ninth Circuit Court of Appeals struck down the 80/20 Rule and created a split among the circuits as to its validity.  However, the Ninth Circuit reheard the Marsh v. J. Alexander’s LLC matter en banc and, reversed its prior ruling, determining (in line with other Circuits) that the 80/20 Rule was indeed valid. More recently, in November 2018, the U.S. Department of Labor (“DOL”) issued an Opinion Letter stating that it has officially done away with the 80/20 Rule for tipped workers and restored its old guidance. The Opinion Letter states: “We do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.” This result comes as welcome news for the restaurant industry, as restaurants no longer need to track a tipped employee’s every task and the amount of time spent on each task – a logistical nightmare. Additionally, this change may result in a reduction of minimum wage collective and class action claims brought by tipped employees and lift the administrative burden the 80/20 Rule placed on restaurant employers.

On November 30, 2018, the U.S. District Court for the Southern District of New York determined that a company’s decentralized pay and promotion structure made the matter unfit for class and collective certification under Title VII, the Equal Pay Act (“EPA”), and state law.  In Kassman v. KPMG, No. 11 Civ. 3742 (LGS), 2018 WL 6264835 (S.D.N.Y. Nov. 30, 2018), plaintiffs filed suit under federal and state law, alleging discrimination against thousands of female associates, senior associates, managers, senior managers/directors, and managing directors in their pay and promotions.  Plaintiffs asserted both disparate impact and disparate treatment theories. The court held that plaintiffs could not establish the commonality requirement for a disparate impact class.  First, the court noted that the proposed class consisted of at least 10,000 women in various offices across the company and in various positions.  Second, while the defendant had uniform and firm-wide pay and promotion procedures, those procedures merely set up a structure for how employees were evaluated, but did not control the manner in which individual decision makers exercised their discretion regarding pay and promotion. Third, the court observed that the employer’s evaluation metrics were vague and unweighted, and that its promotion criteria included amorphous considerations like professionalism, integrity, reputation, and potential.  Such criteria did not meaningfully constrain discretion.  Finally, the employer presented evidence that members of senior management did not review or second-guess individual employee performance, pay, or promotion decisions, and instead simply confirmed the decision as a matter of process and budget. The court also found that plaintiffs could not establish commonality for a disparate treatment class.  The court held that the relevant level of decision-making for the challenged practices was at the practice-area level.  Because plaintiffs had not shown that promotion policies and practices were uniform across KPMG, the court found that plaintiffs could not rely on nationwide statistics.  The court also rejected the plaintiffs’ argument that certification was warranted because the employer was aware of a pay and promotions gap, and its efforts had not completely eradicated the gap.  Finally, the court observed that plaintiffs’ attempts to use anecdotal evidence to support class certification highlighted individual, rather than common, questions. The court next rejected plaintiffs’ request for EPA final certification because members of the collective did not work at a single “establishment” and were not “similarly situated” to each other. The employer’s pay and promotions were not sufficiently centralized to permit a finding that the many offices and practice areas represented by the proposed collective qualified as a single “establishment” under the EPA.  Moreover, the number of opt-ins, positions, offices, and cost centers at issue, as well as the lack of a uniform causal mechanism for pay and promotion, gave rise to procedural difficulties that could not assure fair treatment of all opt-ins. Kassman highlights the difficulties that plaintiffs have in obtaining certification on nationwide collective and class actions, particularly following the Supreme Court’s holding in Wal-Mart v. Dukes.  We will continue to monitor this matter, so stay tuned.

So far in 2018, the U.S. Department of Labor (“DOL”) has issued more than 20 opinion letters navigating the murky waters of the Fair Labor Standards Act (“FLSA” or “Act”). In late-August, the DOL issued several new opinion letters to which employers can refer for guidance when confronted with FLSA questions.  Recently, we reviewed two such opinion letters. Here, we review another letter that employers may find helpful when navigating the FLSA. 3.   Applying the Motion Picture Theater Exemption to All Theater Attractions Under the FLSA, a commercially operated business primarily engaged in showing motion pictures qualifies for the motion picture exemption and need not comply with the Act’s minimum wage and overtime requirements. Drive-in movie theaters (remember those?) may fit within the exemption; theaters with live productions generally will not. Today’s large movie theater complexes offer diverse entertainment options, including “finer” food and dining (not simply the average popcorn, nachos and candy snack bars), as well as cocktails and arcades. The entire complex and its attractions may – or may not, in part – qualify for the motion picture exemption, depending on how closely interconnected each of these options are to each other. The resulting minimum wage and overtime requirement matrix could be cumbersome and prone to mistakes. The DOL recently noted a three-part test should help movie businesses to assess whether the motion picture exemption applies to its entire operations at a particular venue: Physical separation of the theater’s parts; Whether the different theater parts are operated as separate units, maintaining separate records and booking; and Whether the different theater parts intermix and exchange employees. The businesses subject to the opinion letter were incorporated as a single business unit, filed taxes and maintained business records jointly, ordered goods and paid invoices as a single business, and used the same bank accounts to pay business expenses. Additionally, the businesses provided services to the public under the same, single business name and considered/treated their employees as employees of the entire business unit. The DOL opined the motion picture exemption was a natural fit to the theater’s entire operations. As with any workplace policy or procedure, questions regarding wage-hour matters should be addressed proactively by employers to maintain compliance, identify potential areas of noncompliance and chart courses to achieve compliance. Employers should consult with in-house and outside employment counsel regarding such efforts and questions.

In recent years, California courts have complicated the lives of employers that utilize commission and piece rate compensation systems (i.e., “activity-based compensation”).  Federal and state courts have repeatedly found activity-based compensation plans to be unlawful under California law, even when they result in per-pay-period compensation that exceeds the minimum wage.  Courts reasoned that these plans violate California law because they do not separately compensate employees for each hour worked, such as time spent performing non-commission or non-piece-rate earning tasks (e.g., waiting for work, cleaning, attending meetings, etc.).  See, e.g., Vaquero v. Stoneledge Furniture LLC, 9 Cal. App. 5th 98 (2017); Gonzalez v. Downtown LA Motors, LP, 215 Cal. App. 4th 36 (2013). However, the California Court of Appeal recently gave its stamp of approval to a variable hourly-based compensation system that could permit employers to closely approximate the wages paid using traditional commission/piece rate plans while complying with California law.  In Certified Tire and Serv. Ctrs. Wage and Hour Cases, 2018 WL 4815544 (Cal. Ct. App. Sep. 18, 2018) (“Certified”), the employer compensated automotive technicians as follows: [A] technician is paid an hourly wage for all work performed …, which … exceeds the legal minimum wage. … [T]he hourly rate paid to a technician during any given pay period may be higher than the guaranteed minimum hourly rate based on a formula that rewards the technician for work that is billed to the customer …. [E]ach billed dollar of labor charged to a customer as a result of the technician’s work during the pay period is referred to as the technician’s “production dollars.”  Certified Tire … multipl[ies] the technician’s production dollars by 95 percent, multiplying that amount by a fixed “tech rate” …, and then dividing by the total hours worked by the technician during the pay period.  By applying this formula, Certified Tire determines the technician's “base hourly rate” for the pay period.  If the base hourly rate exceeds the technician’s guaranteed minimum hourly rate, the technician is paid the base hourly rate for all time worked during the pay period.  If the guaranteed minimum hourly rate is higher than the base hourly rate, the technician is paid the guaranteed minimum hourly rate for all time worked during the pay period. Id. at *1.  Put simply, a technician’s hourly rate was the higher of a pre-set minimum, or a rate derived from the technician’s average hourly “production.”  The court provided this illustration of the plan’s operation: [A] technician with a “tech rate” of 30 percent who generated $5,000 of production dollars in an 80-hour pay period, would achieve a base hourly rate for that pay period of $17.81 (based on $5,000 multiplied by .95, multiplied by .30, divided by 80).  Assuming that base hourly rate is higher than the technician’s guaranteed minimum hourly rate, the technician would be paid $17.81 multiplied by 80 hours for the pay period, for a total payment of $1,424.80. Id. at *1 n.4. The plaintiffs alleged this compensation method violated California law because the employer required employees to perform work that could not generate production dollars (e.g., tire rotations, oil changes, cleaning, attending meetings, etc.) and thus “could not increase the base hourly wage[.]”  Id. at *2 (emphasis in original).  As such, time spent performing these non-productive activities was “all uncompensated[.]”  Id. at *3 (“[A]ccording to [plaintiffs], technicians earn ‘no wages’ when performing work that does not generate production dollars, and therefore ‘the [plan] violates the minimum wage requirements by failing to provide the required separate compensation’ for each hour worked.”).  To bolster this point, plaintiffs compared the compensation of two hypothetical technicians: [A]ssume one technician generates $2,000 of production dollars in a 30-hour pay period working solely on tasks that generate production dollars.  A second technician generates $2,000 of production dollars in a 40-hour pay period, devoting 10 hours of the 40 hours to tasks that do not generate production dollars.  Further assume both technicians have a “tech rate” of 30 percent.  The base hourly rate for the first technician is $19 per hour ($2000 x .95 x .30 ÷ 30 = $19).  The base hourly rate for the second technician is $14.25 per hour ($2000 x .95 x .30 ÷ 40 = $14.25).  For 30 hours of work the first technician gets paid $570 during the pay period ($19 x 30 = $570).  For 40 hours of work the second technician also gets paid $570 during the pay period ($14.25 x 40 = $570). Id. at *7.  According to plaintiffs, this example illustrates that “because both technicians are taking home the same amount in their paychecks (i.e., $570) even though the second technician worked 10 hours more than the first technician while involved in tasks that did not generate production dollars, the second technician is not compensated at all for the last 10 hours of the pay period.”  Id. at *8 (emphasis in original).  The court rejected the plaintiffs’ argument. First, the court noted that the technicians’ pay plan was an hourly-based compensation system, not an activity-based compensation system.  “Although the hourly rate differs from pay period to pay period because technicians have the opportunity to increase their guaranteed minimum hourly rate based on the generation of production dollars, the technicians are always paid on an hourly basis for all hours worked at a rate above minimum wage regardless of their productivity, and regardless of the type of activity in which they were engaged during those hours.”  Id. at *7. Second, the court found “no merit to plaintiffs’ contention that the second technician is receiving no wages … for the time spent on tasks that do not generate production dollars[.]”  Id. at *8.  Because the plaintiffs received an hourly wage for all hours worked – albeit a variable one – the court “reject[ed] the plaintiffs’ argument that [the employer] must make a separate additional payment to the technician” for unproductive time to comply with California law.  Id.  Accordingly, the court concluded that the variable hourly rate compensation was lawful. The court’s decision in Certified provides a roadmap for employers struggling to create compensation plans that incentivize production while complying with recent decisions invalidating traditional commission and piece rate plans.  Employers with questions regarding their compensation plans should consult with competent counsel.

In the wake of the #MeToo Movement, New York enacted legislation that is specifically targeted to sexual harassment in the workplace.  On October 1, 2018, New York released final guidance materials regarding the legislation, including a model policy and a list of Frequently Asked Questions, which can be located here. All New York employers must have updated anti-sexual harassment policies in place by October 9, 2018.  All employers must distribute to all New York employees a sexual harassment prevention policy and complaint form that employees can use to report sexual harassment, which New York has made available online here. For employers that opt to create their own policies, the policy must: Prohibit sexual harassment consistent with guidance issued by the Department of Labor in consultation with the Division of Human Rights; Provide examples of prohibited conduct that would constitute unlawful sexual harassment; Include information concerning the federal and state statutory provisions concerning sexual harassment, remedies available to victims of sexual harassment, and a statement that there may be applicable local laws; Include a complaint form; Include a procedure for the timely and confidential investigation of complaints that ensures due process for all parties; Inform employees of their rights and redress and all available forums for adjudicating sexual harassment complaints administratively and judicially Clearly state that sexual harassment is considered a form of employee misconduct and that sanctions will be enforced against individuals engaging in sexual harassment and against supervisor and managerial personnel who knowingly allow such behavior to continue; Clearly state that retaliation against individuals who complain of sexual harassment or who testify or assist in any investigation or proceeding involving sexual harassment is unlawful. Additionally, employers must provide this policy in writing or electronically to employees.  If the policy is made available on a work computer, employees must be able to print a copy for their own records.  New York further requires that the policy be provided to employees “in the language spoken by their employees.”  To assist employers, New York intends to publish the model materials in different languages; yet if the model materials are not available in an employee’s primary language, the employer may provide the employee with an English-language version.  Employers do not have to provide this policy to “independent contractors, vendors or consultants.” Furthermore, the complaint form does not need to be included in full in the employer’s policy, but the policy should be clear about where the form may be found, for example, on the company’s internal website. In addition to the above requirements, all New York employers must provide employees with annual, interactive sexual harassment prevention training.  The deadline for completing the training requirement has been extended to October 9, 2019. New York employers may wish to work with competent counsel to examine their anti-harassment policies to ensure compliance with the legislation.  New York employers should also make sure that they implement compliant annual preventative sexual harassment training by the October 9, 2019 deadline.  In addition, New York employers operating in New York City should familiarize themselves with the requirements imposed by the Stop Sexual Harassment in New York City Act, which will impose additional training requirements beginning April 1, 2019.

Throughout the month of September, 2018, the U.S. Department of Labor (“DOL”) held five listening sessions across the United States to receive feedback from the public on the minimum salary requirements for the white collar exemptions of the Fair Labor Standards Act (“FLSA”).  These sessions were held in Atlanta, Seattle, Kansas City, Denver, and Providence.  Another listening session is scheduled for October 17, 2018, in Washington, DC. As a reminder, in 2016, the DOL proposed an increase to the FLSA’s salary threshold for the white collar exemptions from $455 per week (i.e., $23,660 annually) to $913 per week (i.e., $47,476 annually). On November 22, 2016, a federal judge in Texas issued a nationwide injunction halting implementation of the DOL’s proposed rule. Polsinelli attorneys participated in the DOL’s listening sessions in multiple cities to ascertain the concerns raised by employers. Summary of employers’ comments The vast majority of the comments were from employers. In general, employers did not oppose an increase to the salary threshold, but advocated that the DOL adopt the 2004 methodology of calculating the minimum salary, which would put the salary threshold for purposes of the exemption at approximately $32,000/year. Employers large and small raised several concerns regarding the DOL implementing a threshold salary level that is too high. Indeed, employers argued that small business would have to hire and schedule more employees, engage expensive HR and payroll consultants, and contend with morale issues associated with people losing the salaried stature.  Employers further advocated against automatic increases in the salary threshold and argued the DOL should engage in a notice and comment period prior to implementing any additional increases.  Employers further stated that the jump in salary threshold as proposed in 2016 would have caused wage compression, budget issues, and impacted the regular salary/raise structures employers already had in place. Employer representatives also advocated for the DOL to make the duties test for the administrative exemption clearer to avoid misclassification and avoid future litigation. Summary of comments from other institutions Additionally, several speakers pointed out that the current workforce desired and enjoyed the flexibility that comes with being an exempt employee, and that raising the salary threshold too high could disqualify individuals and restrict this freedom. Moreover, several financial institutions advocated for a larger percentage of the threshold salary to be satisfied through incentive and bonus payments to employees. Publicly funded education institutions advocated for the salary threshold to be tied to local conditions as they rely on public funds and budgets. They also raised concerns that the salary threshold did not include “in kind” compensation. There was also a concern that any increase to the salary threshold needed to be phased in over time so educational institutions could comply with the federal grants which had been granted under prior salary requirements. The DOL did not make any responsive comments or engage with speakers during the listening sessions. Only time will tell if employers’ concerns were heard and will be considered by the DOL when formulating the new salary threshold for the FLSA’s white collar exemptions.  Stay tuned to Polsinelli at Work for further updates.

Notwithstanding two previous California Supreme Court decisions which essentially held that “[u]nder the common law, corporate agents acting within the scope of their agency are not personally liable for the corporate employer’s failure to pay its employees’ wages,”  Reynolds v. Bement (2005) 36 Cal.4th 1075, 1087, and Martinez v. Combs (2010) 49 Cal.4th 35, 66 (limiting liability for wage claims to the actual employer and not its agents), the California Court of Appeal just held that  individual employees can be liable for civil penalties and attorneys’ fees for a company’s failure to pay overtime and/or minimum wages. In Atempa v. Pedrazzani (September 28, 2018, D069001) ___ Cal.App.4th ___ [2018 WL 4657860], the Court of Appeal, Fourth Appellate District, distinguished both Reynolds and Martinez and held that individuals can be liable for civil penalties under California Labor Code section 558, subdivision (a) (relating to overtime) and Labor Code section 1197.1, subdivision (a) (relating to minimum wage) through the Private Attorneys General Act (“PAGA”) (Cal. Lab. Code, § 2699). The Court held that the plain meaning of Labor Code sections 558(a) and 1197.1(a) imposed liability for civil penalties on an “other person” acting on behalf of an employer.  Having established that an individual under the circumstances described in the case could be individually liable for civil penalties, as contrasted to the underlying wages, the Court relied on PAGA to allow a private attorney to collect those penalties (75% to the state and 25% to the aggrieved employees) and to collect attorneys’ fees of $315,014 pursuant to PAGA (Lab. Code, § 2699, subd. (g)(1)). CORPORATE EMPLOYEES NEED TO BE MINDFUL OF INDIVIDUAL LIABILITY FOR CIVIL PENALTIES ARISING FROM VIOLATIONS OF CALIFORNIA’S WAGE AND HOUR LAWS Notwithstanding the California Supreme Court’s determination that individuals, absent alter ego liability, are not liable for wages owed to a company’s employees, the Pedrazzani case establishes that corporate individuals can be held personally liable for civil penalties underlying the statutes requiring that employees be paid overtime and a minimum wage.Additionally, they can be held personally liable for attorneys’ fees resulting from an employee’s successful pursuit of those civil penalties under PAGA. It is unclear whether those payments ultimately will be paid by the company, if it hasn’t gone bankrupt, pursuant to California Labor Code section 2802.

When operating its business, an employer should consider whether and when to implement employment agreements with certain employees.  When considering whether an employee should execute an employment agreement, employers should consider the following five factors: 1.       Complex or specialized compensation, bonus, equity rights, fringe benefits, or duties: If the employee receives compensation, bonuses, equity rights, or unique fringe benefits that other employees do not receive, employers should strongly consider memorializing same in an employment agreement. 2.       Restrictive covenants:Some states’ laws require restrictive covenants (non-competition, non-solicitation and/or confidentiality) provisions to be a part of an otherwise enforceable agreement and do not permit stand-alone restrictive covenant agreements.  In such cases, to the extent the employer wants the employee to agree to restrictive covenants, the covenants should be included in an employment agreement. 3.       Employment for a definite term (with severance): When recruiting employees who would be difficult to replace or who hold a significant position with the company, such as a C-suite employee, the employer may wish to negotiate employment for a specified period to time.  The employer should also consider memorializing with the employee whether and when severance payments will be due to the employee upon termination of employment. 4.       Change in control:Typically, for C-suite or key employees where the employer needs to have certain provisions become operative in the case of a change in control (sale of assets, sale of stock, merger, etc.), placing such terms in an employment agreement is advisable. The employer may also consider including an assignment provision – as permitted under applicable state law – to assign the employment agreement to an entity that buys the employer’s business. 5.       Memorialize specific post-termination provisions: The employer should memorialize any post-termination obligations in an employment contract, and should also consider whether to include a compulsory mediation or arbitration provision regarding any disputes surrounding any post-termination disputes that may arise. When properly implemented, employment agreements can be very beneficial to employers.  Employers considering asking employees to sign such agreements would do well to consult with competent counsel.

In the waning days of President Obama’s Administration, the Occupational Safety and Health Administration (“OSHA”) announced sweeping changes to its recordkeeping rule, originally to be effective January 1, 2017, which contained a heightened emphasis on injury reporting and anti-retaliation protections.  We wrote about those changes in our Blog on August 4, 2016, which can be accessed here. Implementation of the new rule was fraught with delay, with OSHA extending various deadlines for compliance.  The new rule was also challenged in litigation.  Industry groups filed a lawsuit in Texas seeking to block enforcement of the anti-retaliation provisions contained within the new rule.  See Texo ABC/ABG, et al. v. Perez, et al., No. 3:16-cv-01998 (N.D. Tex. July 8, 2016).  Another consortium of industry groups filed a legal challenge in Oklahoma attacking the new rule’s electronic submission requirement for injury data.  Nat’l Assn. of Home Builders, et al. v. Perez, et al., No. 5:170cv000009 (W.D. Okla. Jan. 4, 2017).  Both of these cases were stayed by their respective court in response to OSHA, under President Trump’s Administration, indicating that it would consider revisions to the rule. On July 30, 2018, OSHA announced its proposed changes to the Obama-era recordkeeping rule. See 83 Fed. Reg. 36494 (July 30, 2018).  But, if employers were anticipating wholesale changes to the rule, they may be disappointed.  There were no changes made to the anti-retaliation provisions or electronic submission requirements for OSHA’s Annual Summary Report (Form 300A).  The only substantive change proposed in the new rule is the removal of the electronic filing requirement for OSHA Form 300 and 301 that applied to establishments with 250 or more employees.  The new proposed rule also adds the requirement that employers submit their Employer Identification Number together with injury data.  Employers have until September 28, 2018 to submit comments on the new proposed rule. As OSHA did not make any changes to the anti-retaliation provisions contained within the recordkeeping rule, OSHA’s position on safety incentive programs remains intact.  Incentive programs which reward workers for reporting near-misses or hazards or otherwise encourage involvement in the safety and health management program will likely withstand OSHA scrutiny.  But rate-based incentive programs, which reward employees based upon injury and illness numbers, may give rise to a record keeping violation if OSHA determines the program discourages the reporting of workplace injuries without improving worker safety.

Many Colorado physician employment agreements and equity agreements require physicians to pay liquidated damages if the physician competes with his/her former employer after leaving the organization.  The payment of damages are a work-around of the Colorado statute on restrictive covenants, which provides that a physician cannot be prevented from practicing through a restrictive covenant, but permits an organization to require a physician to pay for damages caused by termination of the employment or equity agreement, including damages caused by competition. Two recent legal developments suggest that health care organizations should take a look at their agreements that contain damages provisions for Colorado physicians. 1. On March 8, 2018, a division of Colorado’s Court of Appeals announced a decision criticizing a physician liquidated damage provision.  Crocker v. Greater Colorado Anesthesia, P.C., 2018COA33.    Specifically, the decision stated that because Colorado’s statute provides that physicians can be required to pay damages “related to the injury suffered,” a liquidated damages provision must be reasonable compared to the actual damages experienced after the physician’s departure and competition.  In other words, the decision stated that, unlike other liquidated damage provisions, courts should not assess whether the liquidated damage provision was reasonable when signed, but whether the liquidated damage provision is reasonable at the time of enforcement and in comparison to actual damages experienced.  Importantly, the decision did not state that physician liquidated damages provisions are categorically unenforceable.  Moreover, there are grounds for later courts to conclude these statements are non-binding dicta.  Nevertheless, the decision highlights an issue that is likely to be raised in future cases and should prompt health care organizations to act. 2. Effective April 2, 2018, the legislature amended Colorado’s statute on restrictive covenants to ensure access to care for patients with rare disorders.  As a result of this amendment, physicians are permitted to notify and continue to treat or consult for patients with rare disorders when they leave one organization for another.  Additionally, the statute protects physicians and the organizations that employ them from paying damages for notifying and providing treatment or consultations for patients with rare disorders.  Rather than defining criteria for rare disorders, the statute uses a list compiled and maintained by the National Organization for Rare Disorders, Inc. In response to these developments health care organizations should take the following steps: Review the method used when setting the liquidated damages formula or amount. Assess with experienced counsel whether it demonstrates a desire to and is an attempt to reach an amount that is reasonably related to actual damages. Test the liquidated damage formula or amount against actual experience to assess whether the amount is reasonably related to actual damages. Review accounting and other administrative procedures with experienced counsel to ensure that the organization will be able to prove any  actual damages suffered. Assess with experienced counsel whether the liquidated damages formula or amount should be revised in light of the rare conditions amendment. Evaluate whether training should be provided to physicians and administration about revisions to the liquidated damage provisions and the rare conditions amendment.

Summertime, and the livin’ is easy . . . Ella Fitzgerald’s voice brings images of crackling heat, warm breezes and long, languid days. But, when the temperatures rise outside, human resource managers can find their workforce temperatures rising as well. As summer progresses, the season presents unique workforce management issues. Here are four tips for keeping your workforce temperatures cool, calm and productive during the long, hot summer. 1. Revisit and Communicate Time-Off Policies School’s out; kid’s out. Academic summer breaks can lead to workplace absences and increased requests for time off (paid and unpaid) as parents juggle summer break child care, summer program involvement, family vacations, and those ubiquitous summer camps. HR professionals should take the opportunity, early, to revisit with employees the organization’s workplace vacation or paid time off (PTO) policy. Additionally, HR professionals should communicate the employer’s time-off policies and process/system for time-off requests and approvals, paying attention to communicating any first-requested, first-approved, workplace coverage and seniority requirements, before employees (and HR) find themselves confronted with denied requests, interrupted vacation plans, disappointments and morale issues. 2. Address the Dress Code The arrival of warmer weather can find employee dress leaning more to the casual side of life, reflecting the more relaxed pace of life outside the workplace. While workplace dress codes vary across professions, industries and even specific company/office cultures, summer’s longer days provide a great – and sometimes, needed – opportunity to reiterate to employees  attire that is, and is not, appropriate in a particular workplace. Maybe sandals, flip-flops, shorts, summer tanks and tees are encouraged in some workplaces, but in others, they are considered too casual for business casual. In other, more buttoned-up, workplaces, business casual itself remains too casual, even during the summer. Remind employees, again, of the organization’s dress code policy. If the employer has not implemented a formal dress code policy, take the opportunity to work with management to develop, and communicate, a policy that informs employees of appropriate attire in the particular workplace. At a minimum, communicate the employer’s expectations for workplace attire. Finally, always review applicable federal, state and local laws and guidance for applications of dress code requirements among certain protected classes. 3. Check the Severe Weather Policy Hurricanes, severe thunderstorms, tornadoes – summer can also mean casting a wary eye to the sky (and the forecast). HR professionals should also ensure the employer is prepared should inclement weather cause a major disruption to its business, or to the welfare of its employees. Employers should develop, and communicate, a plan/policy regarding specific steps when severe weather strikes. Some questions to ask, and answer for employees: If severe weather strikes during business/operations hours, what is the plan for sheltering in place? When will the employer close or remain open during a storm or other severe weather outbreak? How will the employer communicate an office closure or reduced-hours schedule? Will employees be allowed to telecommute if the office/facility closes or transportation becomes an issue Will the office/facility be available for sheltering purposes during extreme weather events? 4. Ensure Any Unpaid Internship Program is Compliant With Wage Laws Summertime can bring an influx of interns to a workplace. The Fair Labor Standards Act (FLSA) generally requires “for profit” employers to pay employees for all time worked. However, under certain limited circumstances, interns may not be considered “employees” under the FLSA, in which case they may not be required to be compensated for their work. When it comes to unpaid workplace internships, the U.S. Department of Labor and courts have developed the “primary beneficiary test” to determine whether an intern is, or is not, an “employee” under the FLSA. Employers should review the following factors when determining whether an intern may be unpaid for his/her internship: 1.       The extent to which the intern and the employer clearly understand there is no expectation of compensation. Any promise of compensation, express or implied, suggests the intern is an employee – and vice versa. 2.       The extent to which the internship provides training similar to that which would be given in an educational environment, including clinical and other hands-on training provided by educational institutions. 3.       The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit. 4.       The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar. 5.       The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning. 6.       The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern. 7.       The extent to which the intern and the employer understand the internship is conducted without entitlement to a paid job at the conclusion of the internship. This review should be flexible; no single factor determines whether an internship should be paid or unpaid. The unique circumstances of each internship will require reviewing all of the factors. Additionally, any housing or food stipends – for example – should be clearly designated as unrelated to wages. HR professionals should also consult with in-house or outside labor and employment counsel for questions regarding any workplace policy, regardless of season.

In three separate cases involving airline employers, the U.S. Ninth Circuit Court of Appeals recently certified five questions to the California Supreme Court for guidance on whether California’s labor code provisions apply to non-residents who may be temporarily working in the state for an out-of-state employer because of the mobile nature of a company’s operations.  See Vidrio et al. v. United Airlines Inc. et al., (Case No. 17-55471); Ward v. United Airlines Inc., (Case No. 16-16415); and Oman v. Delta Air Lines Inc., (Case No. 17-15124).  The rulings by the California Supreme Court will be critical to airlines because their workforces inherently cross state lines, potentially requiring compliance with a patchwork of state laws and regulations.   The importance of these decisions reaches beyond the airline industry to any out-of-state employer that has employees who work, at least in part, in California and could arguably be subject to California’s employment laws. The Vidario and Ward cases In the consolidated Vidrio and Ward cases, unionized pilots and flight attendants working for United Airlines (“United”) sued their employer, alleging various wage and hour violations under California law even though they did not principally work in California.  Indeed, the undisputed statistics showed that the plaintiff classes worked only 12-17% of their working time in California or California airspace. The Plaintiffs further alleged that United violated California Labor Code § 226 by issuing noncompliant wage statements.  Plaintiffs also brought a claim under the Private Attorneys General Act and sought penalties and other remedies under the California Labor Code.  The District Court certified the cases as class actions, then granted summary judgment in United’s favor after finding that the California Labor Code could not apply to employees who do not principally work in California and whose employer is not headquartered nor operating primarily in California.  Plaintiffs appealed to the Ninth Circuit, which heard oral argument in March 2018. After considering the issues raised and the lack of controlling California precedent on the extraterritorial application of California law under these circumstances, the Ninth Circuit certified two questions to the California Supreme Court: (1) Wage Order 9 exempts from its wage statement requirements an employee who has entered into a collective bargaining agreement (CBA) in accordance with the Railway Labor Act (RLA). See 8 C.C.R. §11090(1)(E). Does the RLA exemption in Wage Order 9 bar a wage statement claim brought under California Labor Code §226 by an employee who is covered by a CBA? (2) Does California Labor Code §226 apply to wage statements provided by an out-of-state employer to an employee who resides in California, and pays California income tax on her wages, but who does not work principally in California or any other state? The Oman case In the Oman case, the Plaintiffs sued Delta Airlines (“Delta”) in federal court, alleging that Delta’s flight pay calculation for its non-union flight attendants violated California minimum wage law by failing to pay the minimum wage “per hour for all hours worked.” They argued that the flight pay formula impermissibly averaged a flight attendant’s wages for paid, productive time and unpaid, unproductive time. They also contended that Delta failed to pay their wages on time, in violation of California Labor Code § 204, and failed to issue them wage statements that complied with California Labor Code § 226. The Plaintiffs sought to apply California law to their claims based solely on the location of their work – work that lasted only for hours and minutes, not days, in California. They argued that California Labor Code §§ 204 and 226 apply to any pay period in which they performed work in California and the California minimum wage law applied to any work performed in California, however short the duration.  The District Court granted summary judgment to Delta and Plaintiffs appealed.  Following oral argument, the Ninth Circuit determined that there was no controlling California precedent that answered the legal questions in the case.  Accordingly, the Ninth Circuit asked the California Supreme Court for guidance on three questions: (1) Do California Labor Code §§ 204 and 226 apply to wage payments and wage statements provided by an out-of-state employer to an employee who, in the relevant pay period, works in California only episodically and for less than a day at a time? (2) Does California minimum wage law apply to all work performed in California for an out-of-state employer by an employee who works in California only episodically and for less than a day at a time? See Cal. Labor Code §§ 1182.12, 1194; C.C.R, § 11090(4). (3) Does the Armenta/Gonzalez bar on averaging wages apply to a pay formula that generally awards credit for all hours on duty, but which, in certain situations resulting in higher pay, does not award credit for all hours on duty? See Gonzalez v. Downtown LA Motors, LP, 155 Cal Rptr. 3d 18, 20 (Ct. App. 2013); Armenta v. Osmose, Inc., 37 Cal. Rptr. 3d 460, 468 (Ct. App. 2005). Employer Takeaways While the California Supreme Court is considering these questions, out-of-state employers with employees who work at least some of the time in California should carefully consider whether to comply with California’s labor and employment requirements.  Stay tuned to the blog for further updates.

In a 5-4 decision in Epic Systems Corp. v. Lewis, No. 16-285, the United States Supreme Court upheld the use of class and collective actions waivers in arbitration agreements.  Employers nationwide may require employees to sign agreements to arbitrate any employment disputes on an individual basis The majority opinion, written by Justice Gorsuch, found no conflict between the broad mandate to enforce arbitration agreements under the Federal Arbitration Act (“FAA”) and employees’ rights to bargain collectively under the National Labor Relations Act (“NLRA”).  Observing that these nearly 100-year-old laws “have long enjoyed separate spheres of influence,” the majority opinion saw no reason to pick one statute over the other. The majority noted that the NLRA focuses on the right to organize unions and bargain collectively. While the NLRA permits unions to bargain to prohibit arbitration, it does not approve or disapprove of arbitration, mention class or collective action procedures (which did not exist when the NLRA was enacted), or “hint at a wish to displace the Arbitration Act.”  The majority’s enforcement of individualized arbitration agreements obeys the Supreme Court’s long-standing practice to harmonize statutes whenever possible. The majority also rejected the suggestion that class and collective action waivers are invalidated by the savings clause of the FAA.  The savings clause voids arbitration agreements based upon contract defenses generally applicable to “any” contract, such as fraud or duress, not because an employer and employee freely contracted for individualized, as opposed to class, arbitration. The judicial approval of class and collective action waivers in arbitration agreements presents an opportunity to consider whether, and how best, to implement an arbitration program for employment disputes. Polsinelli attorneys stand ready to help employers create and manage effective arbitration programs.

On April 9, the Ninth Circuit Court of Appeals issued its decision in Rizo v. Yovino, which held that salary history may not be used by an employer as a factor when defending gender disparities in initial wages, whether considered exclusively or in conjunction with other factors.  The decision, which overruled a previous decision interpreting the Equal Pay Act, has caused some confusion and created a circuit split. Where is the confusion? In concurring opinions, some of the judges seem to question the strict nature of the majority’s holding.  Specifically, they agree that salary history should not be the sole factor when defending initial wages, but they take the position that salary history may be considered – along with other factors (such as education, experience, past performance) – so long as the other factors are job- or business-related and may justify the use of salary history as unrelated to sex.  For example, the concurring judges explain that the majority’s opinion could prevent prospective employees from using their past salary to negotiate higher pay, or could prevent employers from luring away top talent from competitors with more attractive compensation offers. To be sure, the majority’s ruling does not foreclose the use of salary history in individualized pay decisions, such as those resulting from negotiations with prospective employees.  However, it remains unclear how employers are supposed to refrain from considering prior pay on the one hand, while allowing prior pay to play a role in individualized pay negotiations on the other.    Although the true target for the Ninth Circuit’s ruling was a written compensation policy that based initial wages exclusively on salary history, which all the judges agreed violated the Equal Pay Act, it is difficult to not read the holding expansively despite the disclaimer. The Circuit Split In 2005, the Seventh Circuit Court of Appeals ruled that prior pay alone can justify pay differentials, and that the burden is on the employee to prove that the use of salary history was a disguise for discrimination.  Meanwhile, other Circuits have taken a middle of the road approach more in line with the concurring judges in Rizo. Employer Considerations While these cases are addressed to the issue of factors other than sex under the Equal Pay Act, employers cannot forget state law or county and city ordinances as well.  States, like California, have enacted laws restricting an employer’s ability to request or use prior pay information.  Employers in such states, counties, and cities must evaluate local laws and federal law to determine how to comply with both. Employers must remain vigilant regarding pay equality and should avoid relying solely on historical salary information when setting initial pay.  Employers must also consider carefully whether and when they can elicit prior salary information from applicants.  Until the Supreme Court weighs in, employers should err on the side of caution and consult with counsel regarding current pay-setting practices and plans to implement widespread changes.

Congress and the President have waded in to the ongoing debate regarding employers’ use of “tip pools” under the Fair Labor Standards Act (“FLSA”) by passing the Tip Income Protection Act (“TIPA”) as part of the omnibus spending bill. The FLSA permits an employer to take a partial credit against its minimum wage obligations based on employee tips ifthe employee retains all of his or her tips, or they are made part of a tip pool shared only with employees who “customarily and regularly receive tips.” See29 U.S.C. § 203(m). Thus, an employer utilizing a tip credit to comply with minimum wage obligations cannot establish a tip pool that includes non-tipped employees (e.g., back-of-the-house restaurant employees).  The FLSA left the allocation of tips unregulated where an employer did not use tip credits. In 2011, the Department of Labor (“DOL”) issued a regulation applying the limitation on the use of tip pools to cases where the employer did not take a tip credit and paid employees the full federal minimum wage.  See29 C.F.R. § 531.52.  A number of federal courts concluded that the regulation was inconsistent with the text of the FLSA.  See, e.g., Marlow v. New Food Guy, Inc., 861 F.3d 1157, 1163-64 (10th Cir. 2017) (2011 DOL regulation was inconsistent with the FLSA, which did not authorize the agency to “regulate the ownership of tips when the employer is not taking the tip credit”).  However, the Ninth Circuit disagreed, reasoning that because the FLSA is “silent as to the tip pooling practices of employers who do not take a tip credit” it should defer to the DOL.  Oregon Rest. and Lodging Ass’n v. Perez, 816 F.3d 1080, 1090 (9th Cir. 2016). In 2017, the DOL announced proposed rulemaking to rescind the 2011 regulation.  Seehere and here. After much deliberation regarding the proposed agency action, Congress enacted TIPA, which states, in relevant part: “An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” TIPA also provides that the 2011 regulation shall have “no force of effect.”  An employer that violates TIPA may be liable for any tip credit taken, the amount of the withheld tips, liquidated damages, and $1,100 civil penalty for each violation. Stated simply, TIPA limits the permissible use of tip pooling for allemployers irrespective of whether an employer takes advantage of a tip credit or whether its employees’ regular hourly rate exceeds the minimum wage.  However, TIPA’s language raises a number of interpretive questions, such as: What does it mean for an employer to “keep tips” received by employees?  The law very likely prohibits an employer from diverting tips directly to its own coffers.  But does an employer “keep tips” by implementing a standard tip pool that does not include “managers or supervisors?” TIPA does not define a manager or supervisor.  Assuming TIPA permits standard tip pools, does an employer violate the law if the pool includes modestly-paid hourly employees with minimal management responsibilities and limited or no ability to discipline employees (e.g., shift leads)? These are a few of the questions employers with tipped employees will confront in the coming months and years as we await additional guidance from the courts and the DOL.  Employers in the restaurant and other industries should closely analyze how they distribute employee tips to ensure compliance with TIPA. We will keep readers apprised of important judicial and agency interpretations of TIPA.

The U.S. Department of Labor (DOL) recently announced a new pilot program, referred to as the Payroll Audit Independent Determination (“PAID”) program, which allows employers to conduct self-audits of its pay practices using the DOL’s compliance materials.  If an employer determines its pay practices are not in compliance with the Fair Labor Standards Act (FLSA), or if an employer believes its practices are lawful but wishes to resolve any potential claims without the need for litigation, the employer may self-report the issue to the DOL’s Wage & Hour Division and certify it has changed the practice to comply with the FLSA. The DOL will evaluate the employer’s information and confirm the amount of back wages due to employees if any.  The DOL will then issue releases of claims limited to any self-identified violations, which employees may sign to receive payment of any wages due.  Employees are not obligated to accept a payment or sign a release of claims, so participation in the PAID program may not insulate participating employers from litigation.  It is also unclear what impact participation in the PAID program might have on state-law wage and hour violations, which may have a longer statute of limitations than the FLSA.  In addition, an employer that self-reports violations pursuant to PAID may invite further investigation from the DOL or other state agencies. For employees who choose to settle the employer-identified violation, the employer must pay the back wages by the end of the next full pay period. The PAID program allows employers to avoid liquidated damages or civil monetary penalties for any self-identified violations of the FLSA.  Further, the PAID program may be used to resolve inadvertent violations of the FLSA, such as failure to pay employees for off-the-clock work, the maintenance of unlawful comp time structures, or employee misclassification issues. Employers cannot conduct self-audits via the PAID program for claims that are already being investigated, nor can employers use the PAID program for repeat-violations. The PAID program will be piloted for a six month period, so the DOL may adjust the parameters of the program at a later date.  While participation in the PAID program may be beneficial to employers with inadvertent, minor FLSA violations, it may not be right for all employers.  Employers that are interested in participating in PAID, or conducting an internal audit of payroll processes, would be wise to work with counsel.  Stay tuned for further updates on the pilot program.

On January 10, 2018, the Northern District of California certified a state-wide class of non-exempt hourly employees who allege that they were not fully compensated for all time spent submitting to their employer’s bag inspection requirements. (Heredia v. Eddie Bauer, LLC, January 10, 2018, Freeman, B.). In this case, the employer maintained a formal written policy that required all hourly employees who carried a bag that could be used to conceal merchandise to submit to a personal property or bag inspection by a member of management before leaving the store at the end of their shift. Problematically, the written policy at issue was silent as to: Whether employees must clock out before or after undergoing the required inspections. Whether managers needed to inform employees that the inspections would be conducted on-the-clock. The employer claimed that all members of management were trained to conduct all bag inspections and to inform all employees that bag inspections were on-the-clock. When certifying the class, the Court found that both the commonality and typicality requirements of Rule 23 were met since there was a common question about whether the inspections were to be conducted off-the-clock or on-the-clock. The Court dismissed arguments that class treatment was inappropriate because not all hourly employees carried bags to work, finding that even if they did not carry a bag they were still required to inform management that they did not have a bag before leaving the store. The Court also dismissed the employer’s argument that the written policy did not specifically state that the inspections had to be conducted off-the-clock and were therefore not a policy or practice that resulted in off-the-clock inspections in every instance. A takeaway for employers enforcing a bag inspection: the policy should state that the inspection must occur while the employee is on-the-clock.  This will inform employees that they must stay clocked in for the inspection and will reinforce to management that they must ensure employees are clocked-in until the inspection is complete.

On January 5, 2018, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) reissued 17 Opinion Letters that were previously issued in January of 2009 in the waning days of the Bush administration. The Obama administration promptly withdrew the Opinion Letters in March, 2009, “for further consideration.” Subsequently, the Obama DOL discontinued the practice of issuing Opinion Letters in favor of publishing more Administrator Interpretations. The requirements of the Fair Labor Standards Act (FLSA) and the Family Medical Leave Act (FMLA) are established by statutes and regulations promulgated by the DOL.  Employers or other interested parties may seek guidance from the WHD regarding interpretation of the FMLA and FLSA.  In response, the WHD may provide official written explanations of the FLSA or the FMLA requirements through Opinion Letters. Notably, Opinion Letters are intended to be “fact-specific,” based on the facts presented in the individual inquiry. The 17 re-issued Opinion Letters are fact-specific. Many of the re-issued Opinion Letters are based on specific job positions in specific industries, i.e., the exempt status of civilian helicopter pilots, the exempt status of project superintendents of a commercial construction company, and the exempt status of clinical coordinators and business development managers for a temporary medical professional provider.  Other reissued Opinion Letters opine regarding calculating the regular rate of pay for firefighters and alarm operators under a collective bargaining agreement, the exempt status of client service managers at an insurance company, and the application of the retail or service exemption to plumbing sales/service technicians, compensation of “on-call” hours of ambulance personnel. The Opinion Letters do not create “new law,” but rather may provide employers with guidance as they navigate the strictures of the FMLA and the FLSA.  Employers concerned with whether a given Opinion Letter may apply to their specific problem would do well to discuss the matter with able counsel. For a complete list of the re-issued Opinion Letters (including a link to the Opinion Letters), visit https://www.dol.gov/whd/opinion/flsa.htm. 

Employers, take note:effective January 1, 2018, 18 states, as well as several cities across the country, increased the minimum wage. Companies with employees in Alaska, Arizona, California, Colorado, Florida, Hawaii, Maine, Michigan, Minnesota, Missouri, Montana, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont, and Washington should review their pay practices to ensure compliance with the new state minimum wage rates. Additionally, according to the Economic Policy Institute, 39 localities across the United States have adopted a minimum wage above even their own state’s minimum wage.  Legislators in Oregon, Maryland, and Nevada have introduced bills to increase the minimum wage in their respective states in 2018. And in cities and counties in California, Illinois, Maryland, Maine, Minnesota, New Mexico, and Washington, D.C., ordinances to raise the local minimum wage rate are being considered as well. With these changes, 29 states and Washington D.C. have a higher minimum wage than the federal minimum wage rate. Thus, employers with employees in more than one state must ensure compliance with federal law, and may also have to ensure compliance with state and local law regarding minimum wage. With the constant changes in minimum wage rates coming at both the state and local level, employers would do well to audit their pay practices in the New Year.

Pursuant to Wage Orders promulgated by California’s Industrial Welfare Commission, most non-exempt employees in California are entitled to a paid 10 minute rest break for every 4 hours worked or major fraction thereof. In December 2016 the California Supreme Court clarified in Augustus v. ABM Security Services, Inc. (2016) 2 Cal. 5th 257, 260, that during said rest breaks, “employers must relieve their employees of all duties and relinquish any control over how employees spend their break time.” As we anticipated when this decision first came out, there has been a steady uptick in litigation about this matter as the courts work to define the nature of relinquishing control in the context of a 10 minute rest break. Prior to Augustus, the California Labor Commissioner, Division of Labor Standards Enforcement (“DLSE”) directed that employers could require employees to stay on the premises during rest breaks. However, in the wake of Augustus, in November 2017, the DLSE published updated guidance on the provision of rest breaks to California non-exempt employees and made clear that employers “cannot impose any restraints not inherent in the rest period requirement itself,” including whether employees may leave the premises. As the New Year approaches, California employers should ensure they are meeting the requirements of California rest break law. California businesses should: Review and update policies to reflect that employees entitled to rest breaks may take them at the location of their choosing; Train managers and supervisors on requirements for rest breaks for California employees to ensure expectations are properly communicated; and Communicate to eligible employees their rights regarding rest breaks. If you have concerns that your business may have unintended liability for the provision of rest breaks or you have concerns about remaining compliant, please contact your Polsinelli attorney.

On December 4, 2017, the Department of Labor (“DOL”) proposed a rule that will rescind the 2011 regulation prohibiting restaurants, bars, and other service industry employers from requiring front-of-house employees, such as servers, to share tips with back-of-house workers, such as cooks and dishwashers. The current rule does not require tipped employees to share their tips with non-tipped employees; however, the proposed rule, which was first announced in July, will allow employers to require tipped employees to split tips with their co-workers. “The proposal would help decrease wage disparities between tipped and non-tipped workers,” the DOL said in a statement Monday. Under the Fair Labor Standards Act (FLSA), the federal law which governs minimum wage and overtime, employers may take what is called a “tip credit,” meaning they can pay tipped employees less than the minimum wage (the federal tipped minimum wage $2.13 however some states require more) so long as the tips earned by a given employee will increase their wage rate to at least $7.25 an hour (or the state minimum wage, if higher).  Under the DOL’s new rule, employers may choose to not take a tip credit by paying all employees minimum wage. If an employer pays everyone minimum wage, the employer could decide how to split tips received from customers as the tips would no longer be the property of the employee. The proposed rule only applies to employers who pay tipped employees at least the federal minimum wage of $7.25 an hour (or the state minimum wage, if higher than the federal minimum wage) and allow compensation sharing through a “tip pool” with employees who usually do not receive tips, such as cooks and dishwashers. The DOL will accept public comments on the proposed regulation for 30 days (until January 4, 2018). If you have questions about how the proposed rule will affect your business, contact the Labor and Employment attorneys at Polsinelli.

On November 7, 2017, the U.S. House of Representatives voted on and passed the Save Local Business Act, H.R. 3441 (the Act). If passed by the Senate and signed into law by President Trump, the Act would reverse a National Labor Relations Board (NLRB) decision that expanded the definition of what entities can be considered “joint employers” for purposes of the National Labor Relations Act (NLRA). The House’s passage of the Act is welcome news for entities that may have been considered “joint employers” pursuant to the NLRB’s 2015 standard set forth in Browning-Ferris Industries of California Inc., which expanded joint employer liability to employers that exercised or possessed “indirect control” over aspects of another employer’s workforce, such as contractors, franchisees, or staffing agency employees. If signed into law, the Act would undo the NLRB’s Browning-Ferris decision and amend both the NLRA and the Fair Labor Standards Act (FLSA) to provide that an employer is only jointly liable for a business partner’s violation of law when it exercises “direct control” of the partner’s workers. This more limited definition encourages employers to enter into profitable relationships with business partners because there is less fear of becoming liable for the other employer’s bargaining responsibilities and employment law violations. Note the Act faces a tough road in the Senate, where it will need the backing of at least eight Democrats to avoid a filibuster. A companion bill has yet to be introduced in the Senate. The Act marks the latest effort to reverse the controversial Browning-Ferris decision, which is currently on appeal in the D.C. Circuit. It also comes as the U.S. Supreme Court has been asked to take up a decision expanding joint employer under the FLSA. We will continue to monitor the Act’s progress, as well as the Browning-Ferris case as it winds its way through the courts.

On October 30, 2017, the U.S. Department of Labor (DOL) filed an appeal in the United States Court of Appeals for the Fifth Circuit of the August 31, 2017 ruling by the United States District Court for the Eastern District of Texas that invalidated proposed revisions to the Fair Labor Standards Act (FLSA) overtime regulations. Judge Mazzant of the ED of Texas previously issued a nationwide injunction preventing implementation of the regulations that were to take effect on December 1, 2016. According to a DOL statement, “On October 30, 2017, the Department of Justice, on behalf of the Department of Labor, filed a notice to appeal this decision to the U.S. Court of Appeals for the Fifth Circuit. Once this appeal is docketed, the Department of Justice will file a motion with the Fifth Circuit to hold the appeal in abeyance while the Department of Labor undertakes further rulemaking to determine what the salary level should be.” The regulations would have approximately doubled the minimum salary requirement for an employee to meet the requirements of the executive, administrative, and professional exemptions to the minimum wage and overtime requirements under the FLSA (the so-called “white collar” exemptions). Employers applauded when Judge Mazzant issued the nationwide injunction. Employers were further encouraged when the DOL published a Request for Information (RFI) regarding the overtime final rule in July of 2017. The comment period for the RFI has ended, and the DOL is reviewing those submissions. Based on the statement issued, the DOL’s appeal appears designed to provide additional time to rewrite the overtime rule and potentially render the Fifth Circuit litigation moot. We continue to monitor these developments and will provide information and analysis as it becomes available.

As the 2017 California legislative session comes to an end, employers are faced with new employment laws added to the labyrinth of California employment compliance. Governor Brown recently signed into law six new statutory obligations that take effect on January 1, 2018*: 1. Ban on Salary Inquiries- Applicant’s Prior Salary History (AB 168): California is the eighth state and/or local government to prohibit inquiries into an applicant’s salary history. AB 168 enacts Labor Code section 432.3, which makes it unlawful for California employers to ask job applicants about their salary history, including benefits and/or other compensation information. California employers were already precluded from using an applicant’s salary history to justify a pay disparity (Labor Code section 1197.5). However, the addition of section 432.3 creates potential liability for employers if they ask about salary history when interviewing, extending job offers and/or deciding how much to pay applicants. To the extent that an applicant voluntarily provides their salary history, an employer may consider the information, but should do so with great care to avoid any hint of impropriety which could lead to a potential claim. Section 432.3 makes California the first state to require an employer to provide the pay scale of a position to an applicant upon “reasonable request.” The law is silent as to what constitutes a “reasonable request.” We expect to see guidance from the legislature and/or the courts in the coming months to identify the specific facts and/or circumstances that would trigger this employer obligation. 2. Parental Leave for Small Employers and Parental Leave Mediation Program (SB 63) The California Family Rights Act (“CFRA”) has long provided child bonding parental leave to employees at companies with 50 or more employees. However, California Senate Bill 63 (codified as Section 12945.6 of the California Government Code), the “New Parent Leave Act,” extends CFRA rights to employees working at locations with at least 20 employees within a 75 mile radius. Identical to CFRA, an employee under the New Parent Leave Act must have at least 12 months of service with a covered employer and at least 1,250 hours of service during the 12-month period prior to his/her leave to take up to 12 weeks of parental leave to bond with a new child within one year of the child’s birth, adoption or foster care placement. The new statute also establishes a parental leave pilot mediation program through the Department of Fair Employment and Housing (“DFEH”) for the resolution of claims related to parental leave. Specifically, the program permits an employer to demand mediation within 60 days of receiving a “right-to-sue” letter from the DFEH. Until 2020 (when the trial period of the program is currently scheduled to end), an employee will be prevented from pursuing a private civil action until the mediation is complete or the parties determine that mediation will be fruitless. 3. “Ban The Box”-Conviction History of Applicants (AB 1008) California officially joins the ever-growing list of states that have adopted “ban-the-box” laws limiting employers’ ability to review and/or consider an applicant’s prior criminal conviction history. As a result, the California Fair Employment and Housing Act (“FEHA”) has been amended to prohibit employers with 5 or more employees from inquiring into, seeking disclosure of, or considering an applicant’s conviction history until after the applicant receives a conditional offer of employment. Specifically, this new “ban-the-box” law prohibits California employers from making hiring decisions based on an applicant’s criminal conviction records. Few exceptions apply, limited to the following positions and/or circumstances: (1) criminal justice agencies; (2) farm labor contractors; (3) criminal background check, conviction history or restriction of employment based on an applicant’s criminal history as required by state, federal or local law. The state-wide “ban-the-box” provision mimics the “fair chance” process that is required in San Francisco before an employer can deny employment based on an applicant’s conviction history. To the extent that California employers do not comply with this new legislation and the accompanying “fair chance” process, they will be at risk for claims under the FEHA. Accordingly, an applicant denied employment based on conviction history may file a claim for violation of the FEHA before the DFEH. 4. Additional Harassment Training on Gender Identity, Expression & Sexual Orientation (SB 396) Senate Bill 396 requires California employers with 50 or more employees to expand their mandatory biennial sexual harassment prevention training for supervisory/managerial employees to include the topics of gender identity, gender expression and sexual orientation. This training must include practical examples to address such harassment. Covered employers must also post a DFEH-approved poster for all employees to review regarding transgender rights. 5. Immigration Worker Protection Act (AB 450) Governor Brown recently signed legislation limiting the coordination between local and state law enforcement and federal immigration officials. To mirror this commitment to the undocumented worker, Governor Brown also signed into law Assembly Bill 450, “the Immigration Worker Protection Act” (“the Act”), which prohibits employers from allowing federal immigration enforcement officials to access non-public areas of a work place without a judicial warrant. The Act also prohibits an employer from voluntarily allowing an immigration enforcement agent to access, review or obtain employee records without a court order or subpoena, with the following exceptions: (1) employment Eligibility Verification forms and other documents for which a Notice of Inspection has been provided to the employer; or (2) instances where federal law requires employers to provide access to records. The Act requires employers to provide affected employees sufficient notice of an agency’s inspection, which must meet specific content requirements in order to be compliant. Employers who violate the provisions of the Act may face civil penalties of up to $10,000 per violation. Accordingly, employers should review the Act and seek guidance from legal counsel. 6. Expansion of the Labor Commissioner’s Authority For Retaliation Claims (SB 306) SB 306 will provide the California Labor Commissioner greater authority to investigate and assure compliance with anti-retaliation laws by: (1) Permitting the Division of Labor Standards Enforcement (“DLSE”) to investigate an employer without any complaint of retaliation it if “suspects” that retaliation occurred through its adjudication of a wage claim, field inspection or other inquiry. (2) Authorizing the DLSE to obtain injunctive relief when it finds “reasonable cause” to believe that an employer has engaged, or is engaging in, unlawful retaliation. (3) Providing a fast-track method (mirroring the procedure for unpaid wage claims) for the DLSE to enforce violations by removing the DLSE’s burden to initiate civil actions. Rather, the DLSE/Labor Commissioner may now issue a citation directing an employer to take corrective actions. If the employer disagrees with the order, it may seek review through an administrative hearing before the Labor Commissioner within 30 days of the citation. (4) Imposing penalties up to $20,000 for any “willful” refusal to post a notice to employees, to hire, promote or otherwise restore a current or former employee to a position, and/or to comply with a court order to stop the offending activity. (5) Permitting an employee to initiate a civil action for retaliation in violation of Labor Code section 1102.5 and seek temporary or preliminary injunctive relief, which must be issued when “reasonable cause exists to believe a violation has occurred.” The 2017 Legislative Session brings many changes for California employers of all sizes. Employers should review these new obligations, set a plan for compliance, and prepare for enforcement of these new requirements. *The legislative updates discussed in this blog represent a partial list of the new employment laws that were passed during the 2017 California Legislative Session.

Since its inception more than a dozen years ago, California’s Private Attorneys General Act (PAGA) has been criticized for how it has been used by plaintiff’s counsel to secure (sometimes) large attorney’s fees awards and penalties from employer-defendants for relatively minor Labor Code violations. Despite political pressure from the California business community, the Legislature has done little to reform the statute. Governor Jerry Brown proposed policy and procedural changes to PAGA as part of his January 2016 state budget, but those proposals were reduced to modest changes. In 2017, several PAGA reform bills were introduced but fizzled out before legislative hearings were held. As a result of the Legislature’s inability to effect changes to PAGA, and with support from California’s business community, three different versions of PAGA reform initiatives were filed with the Attorney General’s office on October 5. These initiatives are collectively known as the “Worker Protection and Lawsuit Accountability Act.” Version 1 This proposed initiative would, among other things: Repeal PAGA in its entirety. Give the Labor Commissioner sole authority to issue citations for civil penalties (other than where a civil penalty is specifically provided by statute). Distribute all civil penalties with a 50-50 split: 50 percent to the employee(s) and 50 percent to the Labor and Workforce Development Agency. Protect employers from penalties where they acted in good faith reliance on an administrative regulation, order, ruling, approval, or interpretation of the Labor Commissioner. The wholesale repeal of PAGA is unlikely. However, two additional versions of the initiative were submitted to the Attorney General’s office, each imposing certain obligations and limitations on attorneys who handle PAGA claims. Version 2 This proposed initiative would: Prohibit a plaintiff’s attorney from contracting for or collecting a contingency fee on PAGA cases. Require plaintiffs’ attorneys be compensated on an hourly basis and at a rate that may not exceed 150 percent of the rate charged by the Attorney General. Require that plaintiffs’ attorneys’ billed hours be subject to court review and approval. Provide that a PAGA action may only be brought by an employee who has personally suffered an actual injury under each and every action contained in the complaint. Limit discovery in PAGA cases to information regarding employees in the same job classification and the same geographic location as the representative. Require all complaints for violation of labor laws be submitted under penalty of perjury. Provide that in any year in which an attorney files a PAGA lawsuit, the attorney shall complete an additional eight hours of legal ethics training. Version 3 The final proposed initiative mirrors the second, with the following slight differences: Only a “willful” violation of the law will subject an employer to PAGA penalties. Contingency fees for Plaintiffs’ attorneys handling PAGA cases will be limited to 25 percent for the first $100,000 awarded, and 12.5 percent for damages collected above the $100,000 threshold. While these initiatives are likely to be viewed as positive developments for employers, it could be years before Californians vote on any of these PAGA reform initiatives. We will keep you informed as additional steps are made in this process.

On October 2, 2017, the United States Supreme Court heard oral argument in Epic Systems v. Lewis, which considers the import of the National Labor Relations Act (NLRA) on the enforceability of class action waivers under the Federal Arbitration Act (FAA). According to some estimates, approximately 25 million employees are covered by arbitration agreements that prohibit class actions or other joint proceedings. Thus, the Supreme Court’s decision is likely to have a significant impact on employment and labor relations throughout the country. Summary of Oral Argument Questioning during oral argument hinted at a divide down ideological lines. In one interesting exchange, Justice Breyer appeared to tip his hand: The [NLRA] protects the worker when two workers join together to go into a judicial or administrative forum for the purpose of improving working conditions, and the employers here all said, we will employ you only if you promise not to do that. … That’s the argument against you. …I haven’t seen a way that you can, in fact, win the case … without undermining and changing radically what has gone back to the New Deal,that is, the interpretation of Norris-LaGuardia and the NLRA. Notably, Justice Gorsuch (perhaps following the example of his quiet and contemplative colleague Justice Thomas) did not ask a single question during argument. Substantively, the Court focused on the nature of the right protected by Section 7 of the NLRA. According to Petitioners, Section 7 protects employees’ right to decide to bring class or representative actions. However, it does not govern the rules applicable in the judicial or arbitral forum. As Petitioners characterized it, the “Section 7 right … gets you to the courthouse, it gets you to the Board, it gets you to the arbitrator. … But once you’re there you're subject to the rules.” Framed this way, the arbitration agreement merely operates “to set the rules for the forum of arbitration when you get there.” Just like an employer can contest the appropriateness of class proceedings based on failure to satisfy the requirements of Rule 23 (e.g., numerosity, commonality, etc.) without running afoul of the NLRA, it can also do so based on the existence of a bilateral arbitration agreement. In contrast, Respondents contended that Section 7 prohibits employer interference with concerted activities, including requiring an employee to sign an agreement that precludes class proceedings in all forums. Justice Alito seemed skeptical of this formulation, appearing to find scant substantive distinction between enforcing an agreement precluding class proceedings and a procedural limitation on employees’ ability to engage in collective litigation. Justice Kagan attempted to address Justice Alito’s skepticism, stating: Section 7 doesn’t extend to the ends of the Earth. If there are three employees who go out jointly rioting in the streets, they run up against antiriot laws and they go to jail just like everybody else. What Section 7 does and what Section 8 does is to establish a set of rules that deal with how employers can deal with employees. And one of the things that Section 7 and Section 8 say in concert, if you will, is that employers can’t demand as conditions of employment the waivers of concerted rights. And that's all you're saying here. Justice Kennedy, the Court’s most frequent swing vote, suggested that class waivers may not significantly impact employees’ ability to collectively enforce employment rights. Justice Kennedy presented the following scenario: [T]hree people … can[] go to the same attorney and say please represent us, and we will share our information with you, we have three individual arbitrations, but you represent all three of us, they can do that. … [T]hat is collective action. … [T]hey are proceeding concertedly. They have a single attorney. They are presenting their case. It is going to be decided maybe in three different hearings. … [M]any of the advantages of concerted action can be obtained by going to the same attorney. Sure, the cases are considered individually … While the availability of one method of collective employee action would not normally render valid a mandatory waiver of another, Respondents did not contend that employees were entitled to bring class proceedings in court. Respondents embraced the more modest proposition that so long as “joint legal action is available in one forum, that would be sufficient.” To the surprise of many, General Counsel for the National Labor Relations Board (NLRB), Richard Griffin, agreed that an arbitration provision that selects an arbitral forum that renders class proceedings onerous, if not impossible, would be enforceable. This is illustrated in the following colloquially with Chief Justice Roberts: CHIEF JUSTICE ROBERTS: Let’s say … the rules of the arbitral forum says you can proceed individually, but you … proceed collectively, but only if the class represents more than 50 people. Is that all right under your theory? MR. GRIFFIN: That’s a rule of the arbitral forum, and the employee takes the rules of the forum as they find them. … CHIEF JUSTICE ROBERTS: The arbitral forum has rules, just like the Federal Rules of Civil Procedures. And what you’re saying is … once you get into federal court, of course you’ve got to follow the rules of the forum. And we have arbitral forums as well. MR. GRIFFIN:And I’m saying those rules are equivalent, that … the employee takes the rules of the forum as they find them. What is prohibited [] under the National Labor Relations Act is an agreement by the employer that’s imposed that limits the employee’s right to take the rules … So it would be okay if the forum said that. Justice Alito highlighted that a decision adopting the rule advanced by the General Counsel would be pyrrhic victory for the NLRB. “[I]f that’s the rule, you have not achieved very much because, instead of having an agreement that says … no class action, no class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.” The Board’s General Counsel appears to have belatedly recognized the import of his concession at oral argument. On October 4, Griffin sent a letter to the Court correcting the position he articulated at oral argument, writing: I am writing to correct an inaccurate response I gave at oral argument yesterday in response to the line of questioning from Chief Justice Roberts … My responses, to the extent they indicated any difference from the responses given by employees’ counsel, Mr. Ortiz, to the questions of Chief Justice Roberts … were a result of my misunderstanding the Chief Justice’s questions and were inaccurate; Mr. Ortiz correctly stated the Board’s position and there is no disagreement between the Board’s and the employees’ position on the answers to those questions. The above summary just scratches the surface of the October 2 oral argument. Not only did the Court and parties contemplate the issues above, they discussed a variety of other topics, including whether class waivers are akin to “yellow dog” contracts, and the operation of the FAA’s “savings clause.” The Court’s decision will have a significant impact on the enforceability of widely-used class action waivers and potentially pending class litigation. Employers should pay close attention to Polsinelli at Work Blog in the coming months, as we will provide in-depth analysis when the Court issues its opinion.

The Ninth Circuit Court of Appeals has created a circuit split with the Eighth Circuit Court of Appeals by rejecting the U.S. Department of Labor’s (DOL) interpretation of Fair Labor Standards Act (FLSA) regulations, and issued a restaurant-friendly decision regarding the application of the “tip credit” when paying regularly tipped employees. As discussed previously, the restaurant industry has experienced an increase in lawsuits relating to servers’ duties and the 80/20 “rule”. In Marsh v. J. Alexander’s, the Ninth Circuit addressed consolidated actions filed by servers and bartenders, who alleged that their employers improperly claimed a tip credit and failed to pay the required minimum wage. Plaintiffs alleged their “sidework”, which generally consisted of making tea or coffee, cutting lemons and limes, rolling silverware, and refilling ice or glasses, were non-tip generating activities that took over 20 percent of their work hours. Plaintiffs claimed as a result they were owed regular minimum wage for the time spent performing those tasks. The FLSA’s regulations provide that individuals employed in “dual occupations” cannot be paid using a tip credit for hours worked in the non-tipped occupation. For example, someone employed as a server and as a dishwasher for a restaurant cannot be paid using the tip credit for hours worked as a dishwasher. Furthermore, the DOL’s guidance states that an employer may not take the tip credit for time spent on duties not related to the tipped occupation because such an employee is “effectively employed in dual jobs.” The Ninth Circuit concluded that the DOL’s guidance attempted to create a de facto new regulation because the FLSA’s regulations’ focus is on dual jobs, whereas the DOL’s guidance interpreting said regulations speaks to duties a server may have throughout a shift. Because the dual jobs regulation is concerned with when an employee has two jobs, not with differentiating between tasks within a job, the court determined the DOL’s guidance is invalid. Until the U.S. Supreme Court resolves the circuit split, employers must ensure they understand how the 80/20 rule is applied in the applicable jurisdiction. Contact the wage and hour attorneys at Polsinelli with any questions, who are ready and willing to assist.

Earlier this week, the U.S. District Court for the Northern District of California granted Nike’s motion for summary judgment and dismissed a class action alleging unpaid wages brought by workers who complained they were not paid for time going through “security checks.” Specifically, the Court determined in Rodriguez v. Nike Retail Services, Inc. that the time they were forced to wait in security checks to have their bags or jackets inspected prior to exiting the store was de minimis and non-compensable. Rodriguez set forth evidence (primarily deposition testimony from store managers) that security checks could take up to “a few minutes at a time.” In contrast, Nike produced a study of more than 700 hours of security footage, which explained that the vast majority of employees who exited the store spent approximately 18 seconds waiting for their bags or jackets to be searched when exiting. When opposing Nike’s summary judgment motion, Rodriguez argued the de minimisdoctrine was inapplicable to his claims brought pursuant to the California Labor Code (CLC). However, the Court quickly disposed of this argument, ruling the de minimis doctrine applies to the class claims. Despite the California Supreme Court’s silence on the issue, California courts of appeal and the Ninth Circuit Court of Appeals both previously (and regularly) applied the de minimis doctrine to CLC wage claims. Rodriguez also sought to exclude Nike’s expert report. To do so, Rodriguez hired an expert witness to attack the methods by which Nike’s study was produced, as well as its findings. Yet Rodriguez’s expert did not supply any evidence that would contravene Nike’s study, and the Court held the lack of contrary evidence did not create a “battle of experts” or a fact issue that would allow Rodriguez to survive summary judgment. Finally, the Court turned to the evidence before it, and determined that any wait time upon exiting was in fact de minimis. The Court specifically addressed the deposition testimony of store managers, some of whom testified employees could wait up to a few minutes for security checks prior to exiting. But Nike’s study showed such wait times of a few minutes were irregular, and the average wait time was less than twenty seconds. As a result, the aggregate amount of “compensable time” spent waiting in security checks was small. Moreover, given the administrative difficulty in recording between 20 seconds and two minutes of total wait time in security checks, the Court held the de minimis doctrine applied and granted summary judgment to Nike. This decision confirms the continuing viability of thede minimis doctrine and provides employers another arrow in their quiver when defending against similar “wait time” claims. Even so, employers in retail settings would do well to monitor employee wait times should such employers make use of “security checks” to ensure any wait time is under a minute. To the extent such wait times last longer than one to two minutes on average, employers may wish to consider setting up a mechanism to track such time.

On August 2, 2017, the California Court of Appeal issued a decision clarifying the arbitrability of claims under the Private Attorney General Act (PAGA), finding that those seeking “victim-specific” relief can be subject to mandatory arbitration. The California Supreme Court established in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348 (2014) that PAGA representative actions seeking civil penalties are not subject to mandatory arbitration (the so-called “Iskanian rule”). Since Iskanian, many assumed that all PAGA claims are exempt from mandatory arbitration. The Court of Appeal rejected that assumption in Esparza v. KS Indus., L.P., 2017 WL 3276363 (Cal. Ct. App. 2017), holding that the Iskanian rule only applies to claims where a portion of the recovery is allocated to the Labor and Workforce Development Agency (LWDA). On the other hand, PAGA plaintiffs requesting “victim-specific” relief – such as “an amount sufficient to recover underpaid wages” under Labor Code Section 558 – can be subject to mandatory arbitration. The plaintiff in Esparza brought a PAGA claim seeking “civil penalties” under Labor Code Section 558 in the form of per-pay-period penalties and unpaid wages that are “paid to the affected employee.” Lab. Code § 558 (emphasis added). The employer moved to compel arbitration, arguing that because wages recoverable under Section 558 are “paid to the affected employee” they are “victim specific” and are thus not subject to the ruling in Iskanian. The plaintiff, relying on the plain language of the statute, contended that wages recovered under Section 558 are a “civil penalty” for purposes of PAGA and application of the Iskanian rule. The court rejected the employee’s argument, characterizing it as “based on semantics and not substance.” Substantively, the wage-based recovery under Section 558 does not operate as a true civil penalty (even though referred to as such in the Labor Code) because it is recoverable by the employee in his or her individual capacity. This is in contrast to other “civil penalties” under PAGA, seventy-five percent (75%) of which are payable to the LWDA. The Esparzacourt concluded that “[t]he rule of non-arbitrability adopted in Iskanian is limited to claims ‘that can only be brought by the state or its representatives, where any resulting judgment is binding on the state and any monetary penalties largely go to state coffers.’” Consequently, claims for unpaid wages paid to the employees under Section 558 – even though sought under PAGA – may be subject to mandatory arbitration. However, claims seeking per-pay-period civil penalties paid to the LWDA – are subject to the Iskanian rule and may not be compelled to arbitration. What this means for employers: For employers with well-crafted arbitration agreements, Esparza creates an additional hurdle for plaintiffs seeking to evade class waivers by bringing PAGA-only actions. California employers seeking to limit their exposure to high-risk class or representative actions should review their employment arbitration agreements to ensure they: Apply to the victim-specific claims, including those under Labor Code Section 558; Prohibit class and representative actions to the extent permitted by law; and Contain no legally unconscionable provisions that would interfere with enforcement.

In 2011, the United States Supreme Court issued its landmark decision in Wal-Mart Stores, Inc., v. Betty Dukes, et al., decertifying a putative class of approximately 1.6 million current and former female Wal-Mart employees who claimed gender discrimination in wages and promotions in violation of Title VII. 564 U.S. 338 (2011). The Court reversed the Ninth Circuit’s affirmation of class certification and determined the plaintiffs failed to meet the class “commonality” standard set out in Federal Rule of Civil Procedure 23. Id. at 349-60. The Dukes decision set in motion a number of spinoff regional cases, one of which – barring another grant of certiorari to the high court – met its end somewhat anticlimactically, when the Eleventh Circuit issued its August 3, 2017 order in Love, et. al. v. Wal-Mart Stores, Inc. No. 15-15260. The Love plaintiffs included a sub-group of the Dukes plaintiffs who worked in the southeastern United States. These holdover Dukesplaintiffs were able to refile their claims because of the requirement that federal court discrimination plaintiffs first file with the Equal Employment Opportunity Commission. This rule effectively tolled the statute of limitations during the pendency of Dukes. But critically, under the Eleventh Circuit’s “no piggybacking rule”, tolling is limited to individual claims only, not class claims, which has also been adopted by the Fifth and Sixth Circuits. The Lovecourt previously left little room for argument when it noted in a 2013 order that “[t]he Eleventh Circuit categorically refuses to toll the limitations period for subsequent class actions by members of the original class once class certification is denied in the original suit.” Thus, on October 16, 2015 the individual named plaintiffs and Wal-Mart settled and jointly filed a “stipulation of voluntary dismissal.” On November 6, 2015, the Love appellants, made up of unnamed members of the would-be class, filed a motion to intervene solely to appeal the dismissal of class claims. This motion was denied 13 days later as moot, which, to make matters worse for the appellants, took them outside of their 30-day deadline to appeal the October 16 stipulated dismissal. The Eleventh Circuit thus found the appeal jurisdictionally barred, providing a rather sudden end to the winding multi-year litigation. In light of this tangled and technical history, employers and their counsel should be sure to understand the differences in treatment of class actions and individuals under the relevant rules, regulations, and statutes. Though it can be tempting to move immediately to the standard substantive arguments against numerosity, commonality, typicality, and adequacy of the proposed class, the Wal-Mart cases show that knowing your way around the procedural thicket is another useful skill in avoiding or minimizing the cost of class litigation.

Several circuit courts of appeal have considered a critical aspect of class litigation: does the court or arbitrator decide if arbitration agreements permit class arbitration (the “who decides” question)? The U.S. Supreme Court has not yet resolved this issue. However, the Eighth Circuit, in Catamaran Corporation v. Towncrest Pharmacy,No. 16-3275 (July 28, 2017), joined the Third, Fourth, and Sixth Circuits when holding that courts, not arbitrators, should answer the “who decides” question when the arbitration agreement at issue is silent on the subject. The Eighth Circuit concluded that the “who decides” question is a substantive question of arbitrability rather than a preliminary procedural question, and that courts are thus the proper authority to answer the question (whereas arbitrators decide preliminary procedural questions). Indeed, according to the Eighth Circuit, courts must play a threshold role to determine whether parties have submitted a particular dispute to arbitration because such issues presumptively lie with the courts. The Eighth Circuit reached this conclusion “because of the fundamental differences between bilateral and class arbitration.” The court noted that arbitration is poorly suited to class litigation where the rights of absent members are determined, thereby fundamentally affecting both the nature and scope of the parties’ arbitration. After explaining its rationale, the Eighth Circuit reversed the district court’s order denying Catamaran’s motion for summary judgment because the district court erred when concluding that the question of class arbitration was procedural rather than substantive. The Eighth Circuit remanded the matter to the district court to determine whether a contractual basis for class arbitration exists in the agreements at issue. As mentioned above, the “who decides” question is currently an unsettled and dynamic area of law. Accordingly, employers may wish to consult with counsel prior to drafting arbitration agreements to consider the business and legal ramifications of potentially defending a class action in court versus in arbitration, as well as the language to include in such agreements. And, as always, we will continue to follow this emerging area of law here, so stay tuned.

The restaurant industry is a major target of Fair Labor Standards Act collective and class action litigation. Employers are experiencing an increase in lawsuits related to the 80/20 “rule” for servers’ duties and how it affects the tip credit. Under the FLSA, if a tipped employee performs two or more jobs, one that generates tips and one that does not generate tips, an employer may not take a tip credit for the non-tipped work and must pay the employee minimum wage. See 29 C.F.R. § 531.56(e). Tip-related job duties, such as “a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses,” do not constitute a dual job and the employee is not entitled to earn minimum wage for those tip-related duties. Accordingly, an employer may claim a tip credit for the tip-related duties, even though all of the duties do not produce tips, without violating the FLSA. Tip-related duties are called “side work.” The side work rule is subject to two limitations. First, if the side work is not incidental to the employee’s tipped work, the employee must be paid minimum wage for that work. Incidental work could consist of, for example, a server rolling silverware, filling salt and pepper shakers, cleaning tables, and making coffee. Non-incidental work includes, for example, sweeping the parking lot, taking out trash, and dusting the restaurant, and this sort of work is subject to payment of minimum wage. Second, if the side work, even though tip related, occupies more than 20 percent of the employee’s workweek, the employee must earn minimum wage for that work. This is known as the “80/20 rule.” Examples of side work for restaurant servers that fall under the 20 percent of the 80/20 Rule include, but are not limited to: filling bins with lettuce, tomatoes, condiments, and sauces; cutting lemons; setting up dishes and glassware at bar; slicing garnishes for the bar; lining baskets with wax paper for hamburgers; assembling stacks of sliced tomatoes, pickles, onions; breaking down sheets of prepared desserts into smaller pieces; stocking server stations with plates, glasses, silverware; rolling silverware; sweeping and mopping floors; stocking “to-go” containers; dusting window blinds and sills; cleaning and breaking down expeditor’s line, soup stations, and salad areas; taking out the garbage; breaking down and cleaning tea, coffee, and soda stations. Interestingly, the 80/20 rule is not found in a binding regulation but, rather, is found in the U.S. Department of Labor’s (“DOL”) Field Operations Handbook. Jurisdictions are split as to whether an 80/20 rule violation is a valid FLSA cause of action. The 8th and 7th Circuits have given the DOL’s Field Operations Handbook deference and held that servers have a cause of action for wages under the 80/20 rule. However, that idea has been challenged by the District of Arizona, which rejected that the FLSA’s regulations (rather than the Field Operations Handbook) provided that all“related” un-tipped work exceeding 20 percent must be paid at the minimum wage. Rather, the court found the server occupation “inherently includes side work” and thus the defendant employer was “entitled to take the tip credit for the entirety of the tipped server occupation” whether the duties being performed were actually being tipped or not. Because of this split in the Circuits, restaurants should be aware of the 80/20 rule and whether it has been held a valid cause of action in their applicable jurisdiction. Restaurants in jurisdictions where the 80/20 rule is applicable should audit the duties performed by their servers and track how much time they spend on side work to determine that their pay practices are compliant with the FLSA.

In recent weeks, we have blogged about a number of employer-friendly decisions related to Article III standing under the Fair Credit Reporting Act (FCRA). (See here and here). We have highlighted the standing doctrine and the importance of strict FCRA compliance. Another recent decision highlights the importance of compliance when obtaining consumer reports. In Graham v. Pyramid Healthcare Solutions, Inc., 2017 WL 2799928 (M.D. Fl. June 28, 2017), the plaintiff alleged that the employer utilized an FCRA disclosure that contained extraneous information in violation of the law’s standalone disclosure requirement. The employer’s disclosure improperly included: (i) the logo of the consumer reporting agency; (ii) blank lines for “Organization Name” and “Account”; (iii) the address and phone number of the consumer reporting agency; (iv) a statement that a copy of “A Summary of Your Rights Under the FCRA” was attached; (v) various state law disclosures; and (vi) an authorization “requiring … putative class members to forego their legal rights.” Id. at *1. The employer contended that the plaintiff did not have standing because the inclusion of extraneous information did not cause a concrete injury. The court rejected the argument in a three-paragraph analysis, concluding that the plaintiff established standing because the employer “procured a consumer report … without following the FCRA’s disclosure and authorization requirements.” Id. at *2-3. The court went on to certify a class of all applicants who received the non-compliant FCRA disclosure. It reasoned that whether the “disclosure forms violated the FCRA” and “whether Defendant’s conduct was willful” did not require an individualized inquiry. Id.at *7. “[A]ny violations stemming from the same FCRA disclosure form were uniformly directed to all members of the putative class.” Id. The court’s brief decision could be read to suggest that any number of technical FCRA violations (e.g., use of disclosures containing extraneous information) create Article III standing. However, this finding is arguably inconsistent with the Supreme Court’s admonition in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016) that a plaintiff “cannot satisfy the demands of Article III by alleging a bare procedural violation” of the FCRA. Id.at 1544. In any event, given the unsettled nature of federal standing doctrine, employers should be careful to comply with the strict requirements of the FCRA. What This Means for Employers The Grahamcourt’s decision highlights the costly nature of FCRA violations. Once a plaintiff establishes a violation and convinces the court of Article III standing, the statutory violation (or lack thereof) is often apparent on the face of the FCRA-related document(s) (e.g., disclosures, pre-adverse action notices, etc.), and potentially renders the case susceptible to class treatment. In cases based on the inclusion of extraneous information in mandatory disclosures, plaintiffs’ counsel may find it relatively easy to certify several-thousand-member classes comprised ofallindividuals who underwent background checks after receiving the improper disclosure(s). Thus, employers should seek to minimize their FCRA exposure by: Updating FCRA documents (including disclosures, authorizations, and state and locality-specific notices) to ensure inclusion of only required information and exclusion of “extraneous information.” Training managers and human resources professionals regarding background check processes, including the presentation of required disclosures and providing appropriate notices when taking an adverse action based on information obtained in a background check. Employers may also consider reviewing arbitration agreements to ensure individuals who undergo background checks sign arbitration agreements that contain class action waivers.

As previously reported, on November 22, 2016, the United States Department of Labor (“DOL”) was enjoined nationwide from implementing regulations that would have more than doubled the minimum salary requirement for the overtime pay exemptions under the Fair Labor Standard Act’s executive, administrative and professional exemptions, also known as the “white collar” exemptions. The injunction is now on appeal before the United States Court of Appeals for the Fifth Circuit. Recently, the Department of Labor filed its reply brief on appeal, which raises new questions about the amount and timing of potential increases in the minimum salary threshold. To recap, the enjoined amendments to the white collar overtime exemptions included the following key features: • Increasing the minimum salary to meet the white collar exemption from $455 per week (approximately $23,660 annually) to $913 per week ($47,476 annually). • Increasing the total annual compensation for highly compensated employees from $100,000 to $134,004. • Installing procedures that would update these salary thresholds every three years starting January 1, 2020. The District Court’s ruling not only enjoined the proposed salary threshold increases, but also called into question whether the Department of Labor has the authority to set any minimum salary thresholds in the first place. In its Reply Brief to the Fifth Circuit, the DOL stated that it has “decided not to advocate for the specific salary level” set by the prior administration’s rule, but argued that it is empowered to set minimum salary thresholds for the white collar overtime exemptions. The DOL further stated that a new rulemaking process will not begin unless and until the Fifth Circuit confirms the DOL’s authority to set a minimum salary threshold for the white collar overtime exemptions. Meanwhile, the DOL has submitted a Request for Information regarding the overtime rules for review by the Office of Information and Regulatory Affairs, to seek “public input on several questions that will aid in the development of” a future proposed rulemaking. It remains unclear at this time whether the minimum salary threshold will increase, by what amount, and when. Polsinelli attorneys will continue to monitor this issue.

Last week, the Northern District of Texas weighed in on the proper application of Article III standing requirements in light of the Supreme Court’s 2016 decision in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), and delivered a win to employers in Fair Credit Reporting Act (FCRA) cases. In Dyson v. Sky Chefs, Inc., 2017 WL 2618946 (N.D. Tex. June 16, 2017), the court held that the plaintiff in a putative class action who alleged the improper inclusion of “extraneous” information in a FCRA disclosure, lacked Article III standing.  The employer’s document did not “consist solely of the disclosure” because it contained: (a) an “ongoing authorization” clause; (2) state and municipal law notices; (3) a summary of rights; and (4) a legal disclaimer.  While the employer’s disclosure was not a standalone document (as required by the statute) it provided the plaintiff with all of the statutorily-required information. The employer moved to dismiss the action, contending that the inclusion of extraneous information was a procedural rather than a substantive violation and thus did not constitute injury in fact.  The court agreed, concluding that the plaintiff did not allege a concrete informational or privacy-based injury. In reaching this conclusion, the court distinguished the substantive right to information from the procedural right to receive it in a specified format, and made clear that the allegations in Dyson fell squarely in the latter box: “Plaintiff does not allege that he did not receive a disclosure or that he failed to understand it, he just attacks the fact that it wasn’t on its own sheet of paper.  Where … plaintiffs do not allege that they did not see the disclosure, or were distracted from it, the allegations amount to no more than a bare procedural violation of the stand-alone requirement. … Plaintiff’s allegations therefore do not confer standing on an informational injury theory.” Id. at *7 (internal citations and quotation marks omitted). The court also rejected the contention that the employer obtained the background check with “no legal right to do so” and thus caused a privacy-based injury.  Embracing the principle that violating the standalone disclosure requirement necessarily renders the background check unauthorized would “negate the entire procedural/substantive distinction” articulated in Spokeo. According to the court, the existence of a privacy and informational injury in a FCRA case turns on the same central question: whether the plaintiff received the requisite information (even if provided in an improper format) prior to knowingly authorizing the background check.  Because the plaintiff signed the authorization and did not claim ignorance regarding its content or import, he did not allege an invasion of privacy. What This Means For Employers Courts throughout the country continue to wrestle with the impact of the Supreme Court’s decision in Spokeo and are reaching divergent conclusions.  Indeed, the Dyson court explicitly declined to follow a recent contrary decision from a Virginia federal court.  Because of the unsettled nature of the law and the proliferation of high-dollar FCRA class actions predicated on highly-technical statutory violations, employers should evaluate their FCRA compliance by: • Updating FCRA documents, including disclosures, authorizations, and state and locality-specific notices. • Training managers and human resources professionals regarding background check processes such as how to present information to applicants and employees (e.g., disclosures, authorizations, etc.) and providing appropriate notices when taking an adverse action based on information obtained in a background check.

Employers must be aware of and comply with a host of state and federal laws related to employee pay.  Below, we detail five common mistakes that employers make, and how to avoid them. 1. “Exempt” Employees Misclassified. Employees must meet both a salary basis and duties test to be properly classified as “exempt” from Fair Labor Standards Act (“FLSA”) overtime pay requirements. The U.S. Department of Labor (“DOL”) proposed to more than double the salary required to qualify as “exempt” in 2016.  A decision blocking the DOL’s new rule from going into effect is currently on appeal.  The DOL recently advised that, while it is reconsidering the threshold salary level for “exempt” employees, it continues to assert its right to set a minimum level.  Employers should be prepared for the DOL’s right to regulate pay to be upheld, and must also remember the “duties” test is alive and well.  Wages, penalties, and attorneys’ fees associated with misclassification are typically significant. With an estimated 8 million employees incorrectly classified as “exempt,” neither the DOL nor private attorneys have slowed their attacks.  Employers should audit (pay attention to) the duties their exempt employees actually perform, as well as all descriptions of the employees’ duties to ensure employees are properly classified.   2. Independent Contractors Misclassified.  Employers may only classify a given worker as an “independent contractor” if the relationship between the employer and the worker in question satisfies certain tests, such as the Internal Revenue Service’s (“IRS”) “Right to Control” test, among others. The IRS, the DOL, the National Labor Relations Board, state governments, and plaintiff attorneys are highly likely to continue their high priority challenges on the misclassification of W-2 employees as independent contractors. Wages, fines, penalties, back taxes, benefit payments, and attorneys’ fees add up quickly, and more often than not, reach the six figure range.  Employers should audit (pay attention to) all independent contractor relationships in light of their employee benefit plans and all applicable laws to ensure workers are properly classified.   3. Rounding Policies. Many employers round their employees’ clock in and out times to the nearest five, ten, or fifteen minute interval, and pay employees based on the rounded time.  Rounding policies, in and of themselves, are not unlawful.  Employee attorneys continue to file suit against employers who round clock in and out times.  These attorneys point to restrictive clock in and out policies, tardiness policies, unpaid pre- or post-shift meetings, disciplinary policies, and unpaid pre- or post-shift work in an effort to prove the employer’s practice of rounding time did not equally benefit the employer and employee over time, as required by law. Employers that round time need to pay attention to their policies, create clear communications in relation to work and personal time, and ensure whether rounding benefits the employer and employee equally over time. 4. Timekeeping Auto-deductions. Employers are not required to pay employees for non-working time. Accordingly, some employers automatically deduct time when they know an employee is not working. Employee meals continue to be the most frequent period of time subject to auto-deduction.  Employees challenge such deductions when meal periods are skipped or interrupted with no change to the auto-deduction (and, accordingly, no change to the employee’s pay).  Some employers auto-deduct other periods of time at the beginning or end of a shift as well.  It is critical that employers pay attention to the language in their auto-deduct policies and provide employees with a clear and simple mechanism to override any improper deductions. 5.  Required Notices. Congress and the DOL require that employers provide employees with certain notices regarding certain aspects of their pay. Such required notices range from posters (e.g., WH 1088, “EMPLOYEE RIGHTS UNDER THE FAIR LABOR STANDARDS ACT”), to tip credit notices and other designations when employers pay their tipped employees a cash wage that is lower than the minimum wage.  Many states also have similar, specific notice or written agreement requirements. For example, specific, written agreements are required when California employees are paid commissions.  In some circumstances, employees who are properly paid, regardless of whether a notice is given, may bring claims for damages or penalties.  Employers should pay attention to (audit) the notices, forms, and designations required for each type of payment used with employees, including the date of the most recent notice, its contents, and whether new notices need to be issued and new pay designations need to be added.

On June 27, 2017, the U.S. Department of Labor (DOL) announced that “Opinion Letters are back!” During a hearing before the Senate Appropriations Subcommittee on Labor, Health, and Human Services, Labor Secretary Alexander Acosta announced that DOL will once again provide Opinion Letters to employers regarding specific compliance questions. Opinion Letters are official written opinions issued by the DOL’s Wage and Hour Division that explain how the DOL enforces the Fair Labor Standards Act (“FLSA”) in specific circumstances presented by employers, employees, or other entities requesting the Opinion Letter. Secretary Acosta’s announcement is a reversal of the March 2010 position of the DOL decision to no longer issue Opinion Letters. The DOL’s renewal of its Opinion Letter program opens the door for employers to raise specific wage-and-hour compliance situations to the DOL and seek the DOL’s opinion regarding the employer’s intended approach. Reliance on an Opinion Letter may enable an employer, when faced with a subsequent lawsuit under the FLSA, to plead and establish the complete affirmative defense that it acted in “good faith conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation” of the Wage and Hour Division. 29 U.S.C. § 259. In addition, it may also help an employer establish that any violation of the FLSA established after relying on an Opinion Letter was non-willful, thereby limiting a plaintiff’s damages to a two-year period (instead of three years for a willful violation). The type of clarity provided by Opinion Letters cuts both ways, of course. The DOL may determine that a presented pay practice violates the FLSA, in which case the employer would be wise to modify its actions to comply with the DOL’s view of the law. From a planning perspective, employers should anticipate lengthy waits for responses to requests for Opinion Letters. The DOL exercises its discretion when deciding which Opinion Letter requests it will consider, and with anticipated cuts in resources at DOL, the timeline for receiving a response may be protracted. Nevertheless, employers should welcome the return of this practical compliance guidance from official channels and should consider availing themselves of this additional option for obtaining certainty for those gray areas of wage-and-hour law.

School’s out for summer. While some students will sit by the pool, others are seeking summer employment. Youth employment may provide a relatively simple and cost-effective resource that can help fill seasonal staffing needs. However, employers should be mindful of federal and state laws that regulate the employment of minors (generally individuals under 18 years of age) to avoid being subject to considerable penalties. For instance, the Fair Labor Standards Act (“FLSA”) sets federal wage, hours worked, and safety requirements for minors. The regulations vary based on the minor’s age and the particular job involved. Generally, the FLSA provides: Minors under 14 years of age can only be employed in certain jobs such as babysitting on a casual basis, working for a parent, or delivering newspapers; Minors ages 14 to 15 can only work a limited number of hours outside of school time in certain jobs including, but not limited to, retail occupations, errands or delivery work, and work in connection with cars and trucks such as dispensing gasoline or oil and washing or hand polishing. Minors ages 14 to 15 must be paid at least the federal minimum wage; and Minors ages 16 to 17 may work unlimited hours in any nonhazardous occupation and must be paid at least the federal minimum wage. Additionally, many states regulate the employment of minors, and employers are required to comply with both state and federal law. In instances where state law provides more stringent protections than the FLSA, the employer must adhere to the state law to ensure compliance. Finally, the Occupational Safety and Health Act (“OSHA”) provides that employers of minors must: Ensure that minors receive training to recognize hazards and are competent in safe work practices. Training should be in a language and vocabulary that minors can understand and must include prevention of fires, accidents, and violent situations and what to do if injured. Implement a mentoring or buddy system for minors. Have an adult or experienced young worker answer questions and help the new minor employee learn the ropes of a new job. Encourage minors to ask questions about tasks or procedures that are unclear or not understood. Tell them whom to ask. Remember that minors are not just "little adults." Employers should be mindful of the unique aspects of communicating with minors. Ensure that equipment operated by minors is both legal and safe for them to use. Employers must label equipment that minors are not allowed to operate. Tell minors what to do if they are injured on the job. In light of the various regulations surrounding youth employment, employers should consider the following best practices: Consider requesting age certificates from minors as a document for proof of age. Implement training directed to minor employees regarding safety, emergency, and workplace standards. What may be obvious to an adult employee may not be clear to a minor employee entering the workforce for the first time. Clearly communicate workplace policies, practices, and procedures. Ensure minor employees are completing tasks safely. Once a minor employee demonstrates that they can complete a task safely, check again later to be sure they are continuing to do so.

Earlier this week, the Eleventh Circuit Court of Appeals held that the Fair Labor Standards Act (“FLSA”) does not provide for a private right of action for withheld tips when minimum wage and overtime claims are not in play. The district court dismissed a proposed collective action brought by a valet driver who claimed that her employer took a portion of all valets’ tips to pay for business expenses in violation of the tip credit provisions of the FLSA. The valet driver’s collective claims relied exclusively on a 2011 U.S. Department of Labor regulation (29 C.F.R. § 531.52), which states that “[t]ips are the property of the employee whether or not the employee has taken a tip credit.” The claims were not supported by any specific statutory language in the FLSA authorizing a private right of action for withheld tips. The U.S. Department of Labor (“DOL”) agreed, in amicus briefs, that there is no statutory authority for a private suit by employees who claim only that tips were withheld, but who do not also allege that they received less than the minimum wage or unpaid overtime. For these reasons, the Eleventh Circuit Court of Appeals affirmed the district court’s ruling and upheld the dismissal of the proposed collective action. The Eleventh Circuit’s decision noted, however, that “nothing about our present holding undermines the DOL’s ability to investigate or enforce violations of the FLSA or a plaintiff’s ability to collect unpaid tips through an appropriate state law claim.” Thus, it appears that withheld tip class action claims must be brought under applicable state law, which means that they could be litigated under state equivalent Rule 23 procedures and not FLSA collective action “opt-in” procedures.

Recently, the Fourth Circuit reversed an $11.7 million verdict in a 69,000 member Fair Credit Reporting Act (FCRA) class action. In Dreher v. Experian Info. Solutions, Inc., 856 F.3d 337 (4th Cir. 2017), the Fourth Circuit applied the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016) and concluded that the plaintiffs failed to demonstrate a concrete injury and thus lacked Article III standing to pursue the claims. The plaintiff in Dreher underwent a background and credit check to obtain a federal government security clearance, which revealed a delinquent credit card account. The plaintiff alleged that Experian violated the FCRA by listing the incorrect name (but the correct address) of the delinquent account holder on his credit report. The district court, in a decision pre-dating Spokeo, awarded summary judgment to the plaintiff. When finding that plaintiff had standing, the district court reasoned that “any violation of the [FCRA] sufficed to create an Article III injury in fact.” The Fourth Circuit – applying Spokeo – reversed, concluding that the plaintiff failed to demonstrate a concrete injury. While Experian may have denied plaintiff access to statutorily-required information (i.e., the correct name of the account holder), that was insufficient to satisfy Article III. Rather, a plaintiff must demonstrate an injury cognizable at common law, or a statutory violation coupled with the kind of injury Congress sought to prevent by enacting the statute in question. The plaintiff in Dreher demonstrated neither. Specifically, the misidentification of the account holder did not impede the credit resolution process, or plaintiff’s ability to obtain a security clearance. The plaintiff’s mere “nebulous frustration resulting from a statutory violation” that was “divorced from any real world effect” did not satisfy Article III. What Does This Mean for Employers? The Fourth Circuit is the latest appellate court to weigh in on standing under the FCRA after the Supreme Court’s decision in Spokeo. Dreher may serve as useful ammunition for employers defending against increasingly common FCRA class actions which seek to predicate standing upon technical statutory violations, such as: Including “extraneous” information in FCRA disclosures. Failing to follow statutory procedures before taking an adverse action based on information contained in a background check (e.g., providing a pre-adverse action notice). Failing to provide the FCRA “notice of rights.”

On June 7, 2017, the Department of Labor (“DOL”) announced that legal guidance promulgated during President Obama’s term in office regarding both joint employment and the classification of workers as independent contractors has been withdrawn. In July 2015, the DOL’s Wage and Hour Division issued a 15-page Administrator’s Interpretation regarding the determination of workers as independent contractors or employees. Specifically, the Administrative Interpretation considered the Fair Labor Standards Act’s (“FLSA”) definition of “employ,” meaning to “suffer or permit” work, and the impact of the legal test for whether workers are considered employees or independent contractors. At that time, the DOL’s Wage and Hour Division took the position that, under the FLSA, “most workers are employees.” In January 2016, the Wage and Hour Division released another Administrator’s Interpretation, which indicated that “[t]he concept of joint employment, like employment generally, should be defined expansively under the [Fair Labor Standards Act] and [Migrant and Seasonal Agricultural Worker Protection Act].” In this guidance, the Wage and Hour Division considered the concept of “vertical joint employment”, where an employee has a relationship with an intermediary employer and the entity that engages the intermediary in providing labor. In the Administrator’s Interpretation, the Wage and Hour Division explained that its joint employer regulations would not be considered when analyzing whether vertical joint employment exists. Instead, the Wage and Hour Division adopted an “economic realities test.” When rescinding these Administrator’s Interpretations, the DOL stressed that its actions do not “change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.” Accordingly, it is unclear what effect, if any, rescinding these Administrator’s Interpretations may have. By contrast, the National Labor Relations Board continues to press its expansive definition of “joint employer” as two or more entities that possess 1) a common law relationship and 2) those entities share or codetermine matters governing employees’ essential terms and conditions of employment. As such, employers cannot rely exclusively on the DOL’s decision to withdraw the Administrative Interpretation as sounding the all clear. The law with respect to joint employment issues and whether a given worker is an independent contractor is currently in flux. We will be following these and other legal developments closely.

On May 8, 2017, the California Supreme Court provided clarification on three important issues related to California’s mandatory day of rest that have long been murky under existing California law: 1.    The Seven Day period for determining the “Day of Rest” is Calculated by the Workweek and Not a Rolling Seven-Consecutive Day Period California’s Labor Code prohibits employers from requiring employees to work more than six days in a seven-day period--entitling every employee to a day of rest in every seven days. However, the Labor Code does not specify if this mandatory rest day is based on the workweek or a calendar week. See Labor Code §§551, 552. In February 2015, the Ninth Circuit asked the California Supreme Court to clarify this issue, and the California Supreme Court provided the answer in Mendoza v. Nordstrom, Inc. (Cal. S.Ct. May 8, 0217) S224611. The Court held that a day of rest is guaranteed for each workweek and that where periods of more than six consecutive days of work stretch across more than one workweek, there is no per se violation of Labor Code §§ 551 or 552. As a result, if an employer staggers its workweek to cross two consecutive calendar weeks, it is possible that an employee may not accrue the required day of rest until after twelve consecutive days of work. It is important for employers utilizing staggered workweek schedules to remember that Labor Code § 554 requires that an employee receives the equivalent of one day’s rest in seven, or at least four days of rest each calendar month. Therefore, if an employer is taking advantage of the staggered workweek, it needs to make sure employees are still receiving the mandatory days off on a monthly basis for compliance. 2.    Labor Code §556 Exemption for Workers Employed Six Hours or Less Only Applies to Employees Who Never Exceed Six Hours of Work on Any Day of the Workweek Labor Code §556 provides an exemption to the mandatory day of rest for workers employed six hours per day or less. It has been an open question whether the §556 exemption applies when an employee works six hours or less on at least one day of the applicable workweek, or if it only applies when an employee works no more than six hours on each and every day of the workweek. In Mendoza, the California Supreme Court clarified that, while employees who work schedules of less than six hours per day are exempt from the seventh day of rest requirement, if the employee works even one single shift of more than six hours in the workweek, they are not exempt. 3.    An Employer Must Not “Cause” an Employee to Go Without a Day of Rest Labor Code §552 requires that an employer not “cause” an employee to go without a day of rest. When determining whether the employer has “caused” an employee to work the seventh day in a workweek, the Court in Mendoza stated that an “employer‘s obligation is to apprise employees of their entitlement to a day of rest and thereafter to maintain absolute neutrality as to the exercise of that right. An employer may not encourage employees to forgo rest or conceal the entitlement to rest, but is not liable simply because an employee chooses to work the seventh day.” However, it is important for employers to remember that if an employee does work the seventh day in a work week, then the employer may be liable for a day of rest violation and any associated penalties. Additionally, California’s overtime laws require that the entire seventh day of work be paid as overtime consistent with state and federal pay requirements. In light of this recent guidance by the California Supreme Court, employers should (1) review their workweek and scheduling policies and update as necessary for compliance; and (2) consider conducting an internal audit to determine whether any seventh-day violations are occurring and corrections with the benefit of these new clarifications.

On May 2, 2017, the U.S. House of Representatives passed the Working Families Flexibility Act (the “Act”), which would extend the option of accruing compensatory time to private sector employees. Presently, and for many years under the Fair Labor Standards Act (“FLSA”), only public sector employees were entitled to receive compensatory time in lieu of overtime for hours worked in excess of 40 in a work week. That is, public sector employees can elect to receive compensatory time off at a rate of not less than one and one-half hours for each overtime hour worked, instead of cash overtime pay. Law enforcement and fire department employees can accrue up to 480 hours, and other government employees can accrue up to 240 hours of compensatory time. Public sector employees are entitled to use compensatory time on the date requested unless doing so would “unduly disrupt” the public entity’s operations, and upon termination, all accrued compensatory time must be paid to an employee. The Working Families Flexibility Act, proposed as an amendment to the FLSA, would entitle private sector employees to accrue up to 160 hours of compensatory time in a year at a rate equal to one and one-half hours of compensatory time for each overtime hour worked. The 40 hour work week remains, and only after working 40 hours in a given workweek would compensatory time become available in lieu of overtime pay. The Act would apply to employees who worked at least 1,000 hours in a period of continuous employment with the employer during the preceding 12-month period. The Act would also require a mutual, written agreement between an employee and their employer evidencing the employee’s acceptance of compensatory time in lieu of overtime pay for hours worked over 40 in a work week. Critically, that agreement may not be made a condition of employment. If the employee is represented by a union, the provision for use of compensatory time must be made part of a written collective bargaining agreement. Further, whether to accrue compensatory time or to be paid overtime would, under the Act, be the employee’s choice, and employers are forbidden from requiring employees to use compensatory time. Democratic members of the House opposed the Act on the grounds that it would weaken the overtime requirements of the FLSA and diminish take-home pay for working families. We will monitor the Act’s progress as it moves through the Senate.

In two unpublished decisions this month, the Ninth Circuit ruled in Wulfe v. Valero Refining Co. California and Valdez v. Terminix International Company, et al. that California Private Attorney General Act (PAGA) claims can be forced into arbitration based on arbitration clauses in employees’ contracts to which the State of California is not a party. While the Wulfe and Valdez decisions are unpublished and without precedential value, they do provide guidance on the Federal Court’s interpretation of how individual arbitration agreements impact potential PAGA claims in California. In Wulfe, an employee asserted wage claims against his employer, including a PAGA claim. He signed a mandatory arbitration agreement as a condition of employment. The employer moved to compel arbitration of the entire case, including the PAGA claim. The District Court granted the motion to compel arbitration and left the scope of the agreement to arbitrate, including whether the PAGA claim could be heard in arbitration, up to the arbitrator. The Ninth Circuit affirmed. The Court recognized the ruling of the California Supreme Court in Isakanian v. CLS Transportation Los Angeles, LLC and its own recent ruling in Sakkab v. Luxottica, in which both courts held that “pre-dispute agreements to waive the right to bring a representative PAGA claim are unenforceable and that this rule is not preempted by the FAA.” Nonetheless, the Ninth Circuit held that “the district court’s order compelling arbitration did not run afoul of Sakkab and Iskanian because the order did not prevent Wulfe from bringing a representative PAGA claim in arbitration…” Similarly, in Valdez, Terminix appealed from the District Court’s order denying its motion to dismiss or compel arbitration of the Plaintiff’s representative PAGA claim. The Ninth Circuit reversed the lower court’s ruling finding that an individual employee, acting as an agent for the government, can agree to pursue a PAGA claim in arbitration. The Court addressed the holdings of Isakanian and Sakkab, but found that Isakanian and Sakkab “clearly contemplate[d] that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum.” Further, the Ninth Circuit held that “[a]n individual employee, acting as an agent for the government, can agree to pursue a PAGA claim in arbitration. Iskanian does not require that a PAGA claim be pursued in the judicial forum; it holds only that a complete waiver of the right to bring a PAGA claim is invalid.” The Ninth Circuit’s decisions in Wulfe and Valdez demonstrate a clear split in authority between Federal and California State Court. While the Ninth Circuit held in Wulfe and Valdez that PAGA actions can be compelled to arbitration in Federal Court, several California State Courts have held otherwise. On March 7, 2017, the Fourth Appellate District of the California Court of Appeal held in Betancourt v. Prudential Overall Supply, that “a defendant cannot rely on a predispute waiver by a private employee to compel arbitration in a PAGA case, which is brought on behalf of the state.” Betancourt is consistent with two other California Court of Appeal cases in which the courts also held that PAGA claims are not subject to pre-dispute mandatory arbitration agreements – Tanguilig v. Bloomingdale’s, Inc. and Hernandez v. Ross Stores, Inc. The practical impact of these decisions and this split in authority is significant and much will unfold in the coming months, especially as the United States Supreme Court considers the enforceability of class action waivers in the next term. For example, an individual employee subject to an arbitration agreement who brings a PAGA claim can theoretically be compelled to prosecute that representative action in arbitration, at least in federal court. The arbitration of those PAGA claims would impact the rights of other individual employees who may not have agreed to arbitrate employment claims. And employers may decide the prospect of arbitrating a PAGA claim is not so attractive after all. Accordingly, employers should review their arbitration agreements carefully to determine whether PAGA claims are excluded and discuss with experienced counsel whether it is advantageous to have PAGA claims litigated in arbitration and whether edits to current agreements are necessary.

Third-party litigation funding is marketed as a means of broadening access to justice by providing plaintiffs with resources to litigate in exchange for a cut of any monetary recovery. Some commenters have rebuked third-party litigation funding as an ethical quagmire and illegal champerty—stirring up litigation merely for a share of the proceeds. But where the plaintiff, at least on paper, remains in control of the litigation, courts have generally permitted third-party litigation funding. With presently few legal restrictions, third party litigation funding has the potential to fund almost any lawsuit, including employment class and collective actions. How can employers sued on the back of third-party litigation funding discover this fact and use it to their advantage in litigation? One federal court—the Northern District of California—requires disclosure of third-party litigation funding in class and collective actions as part of the Joint Case Management Statement. In the absence of such automatic disclosure rules, an employer may request that the Case Management Order require the plaintiff to disclose any third-party litigation funding. See  Fed. R. Civ. P. 26(f)(3)(F). Once disclosed, the existence of third-party litigation funding could be leveraged by an employer to reduce litigation costs and gain strategic advantages: Scope of Discovery:The “parties’ resources” is one factor in defining the scope of discovery. See Fed. R. Civ. P. 26(b)(1). A plaintiff’s resources fairly include any available third-party litigation funding, which may reduce the scope of discovery shouldered by the employer. Discovery Cost Shifting: Third-party litigation funding may erode a plaintiff’s claimed inability to pay for requested discovery. SeeFed. R. Civ. P. 26(c)(1)(B). Adequacy of Representation of Putative Class: Courts must examine the resources that putative class counsel will commit to the class and “any other matters pertinent to counsel’s ability to fairly and adequately represent the interests of the class.” Fed. R. Civ. P. 23(g)(1)(A)(iv), (B). Class certification should be denied where the plaintiff fails to carry the burden of proving that third-party litigation funding will not conflict with or adversely impact class members’ interests. Sanctions:A third-party litigation funder playing a role in litigation misconduct may be subject to sanctions. See Fed. R. Civ. P. 37(a)(5)(A). Settlement:Settlement efforts may be complicated by a third-party litigation funder influencing a party’s settlement posture. A mediator should be apprised of this fact. As the wave of third-party litigation funding rises, employers should work with competent counsel to determine whether any of the above tools could bolster their case.

In an important decision for the airline industry and its contractors, the United States Court of Appeals for the DC Circuit in ABM Onsite Services – West, Inc. v. NLRB overturned a decision by the National Labor Relations Board (NLRB) asserting jurisdiction over an airline contractor in a representation dispute involving baggage handlers at the Portland airport. The Court specifically held that by adopting the National Mediation Board’s “whittl[ed] down version of its “control test,” the NLRB acted arbitrarily and capriciously when asserting jurisdiction over an entity that is a contractor for airlines (which historically have been subject to the RLA, not the NLRA). As a result, the Court remanded the case to the NLRB to either offer a reasoned explanation for departing from the traditional six-factor jurisdictional test, or refer the matter to the NMB to explain why it changed its jurisdictional analysis so the NLRB could determine whether it (the NLRB) agreed with the NMB’s modified approach. The case initially arose when the International Association of Machinists and Aerospace Workers (IAM) sought to organize a group of ABM Onsite Services – West, Inc. (ABM) employees. A consortium of airlines at the Portland airport hired ABM to handle baggage at the airport. In response to the IAM’s petition to represent the baggage handlers, ABM objected to the NLRB’s jurisdiction and argued it is subject to the Railway Labor Act (RLA), not the National Labor Relations Act (NLRA), since ABM is controlled by airlines. The Regional Director of the NLRB rejected this argument, which was affirmed by the NLRB, and ordered an election. The IAM won the election, which required ABM to bargain with the union. ABM refused to bargain, to challenge the jurisdictional decision, and the IAM filed an unfair labor practice charge. The NLRB granted summary judgment against ABM and this appeal followed. When determining whether a given company is “controlled by” an airline, the NMB considers:(1) the extent of the airline’s control over the manner in which the contractor conducts its business, (2) the airline’s access to the contractor’s operations and records, (3) the airline’s role in the contractor’s personnel decisions, (4) the degree of supervision by the airline over the contractor’s employees, (5) whether the contractor’s employees are held out to the public as the airline’s employees, and (6) the extent of the airline’s control over employee training. Air Serv Corp., 33 NMB 272, 285 (2006). The NLRB adopted this test as its own when deciding cases before it. However, since 2013, without overruling its traditional test or prior precedent, the NMB has required airlines to exercise a “substantial ‘degree of control over the firing[] and discipline of a company’s employees’ before it would find that company subject to the RLA.” Following the NMB’s lead, the NLRB adopted this heightened test when finding that the airlines did not exercise sufficient control over ABM. The DC Circuit explained that the NLRB’s decision was arbitrary and capricious because once the NLRB “adopted and applied the NMB’s traditional test, it bound itself to continue doing so; any deviation would require a reasoned explanation.” When asserting jurisdiction over ABM, the NLRB relied exclusively on the NMB’s more stringent control test without explaining its departure from the standards the NLRB has previously adopted. Overturning the NLRB’s order, the Court held “when the Board fails to explain – or even acknowledge – its deviation from established precedent, ‘its decision will be vacated as arbitrary and capricious.’” This case is important for airlines and airline contractors because by requiring the NLRB to continue to follow its precedent or justify its departure from the traditional application of the jurisdictional test, the NLRB may be more likely to find RLA jurisdiction applies -- particularly given the shifting composition of the NLRB in today’s political landscape. The unique protections of RLA jurisdiction -- chief among them system-wide bargaining units and procedural obstacles to work stoppages-- are important for airline contractors to provide greater stability in labor relations in the airline industry.

On February 28, 2017 the California Court of Appeals confirmed in Vaquero v. Stoneledge Furniture LLC, that non-exempt commissioned employees are entitled to enhanced compensation during rest and recovery periods.  This ruling brings commissioned employees into alignment with the recent statutory changes for “piece-rate” employees in California. AB 1513, codified as Labor Code §226.2 is known as California’s “piece rate law.”  The piece rate law took effect on Jan. 1, 2016 and requires employers to pay piece-rate employees for rest and recovery periods and other nonproductive time.  For employees who qualify, the law mandates that they shall be compensated for rest and recovery periods at a regular hourly rate that is no less than the higher of: (i) an average hourly rate determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods; or (ii) The applicable minimum wage. Labor Code §226.2(a)(3)(A) Labor Code §226.2 explicitly states that it shall apply to employees who are compensated on a piece-rate basis.  However, in a case of first impression, the Second District Court of Appeals in Vaquero clarified that the need to compensate legally mandated rest and recovery periods at an enhanced rate also applies to non-exempt employees compensated on a commission basis. Specifically, the Court stated: “the DLSE Manual treats commissioned and piece-rate employees alike for purposes of applying the minimum wage requirement to non-productive working hours. There is no reason California law should not treat these categories of workers the same for purposes of complying with the requirement to provide paid rest periods.” The Vaquero decision is a cautionary reminder to employers with non-exempt commissioned employees that rest periods –the 10 minute breaks required by California law - must be separately tracked and compensated at the rates dictated by the statute. Concerned employers should consult with counsel to determine whether commission agreements adequately compensate non-exempt commissioned employees for non-productive time and reflect the proper method of calculation for the employees’ wage statements.  Failure to comply with this new guidance may create significant potential wage and hour liability for California employers.

On February 28, 2017, the Missouri Supreme Court issued its long-awaited opinion in Cooperative Home Care, Inc., et al. v. City of St. Louis, Missouri, et al., ruling that the City of St. Louis can proceed with a citywide local minimum wage increase under Ordinance 70078 of its revised city code (the “Ordinance”). The Ordinance provides a series of four graduated increases to the minimum wage for employers with employees working within the physical boundaries of the City of St. Louis. Background The Ordinance was enacted by the Board of Aldermen of the City of St. Louis on August 28, 2015.  The Ordinance provides a series of four graduated increases to the minimum wage for employees working within the physical boundaries of St. Louis, which were to be phased in beginning on October 15, 2015 at $8.25 per hour and rising to $11 per hour on January 1, 2018.  In addition, beginning January 1, 2021, the minimum wage rate in St. Louis will increase annually on a percentage basis to reflect the rate of inflation.  The Ordinance further provides: “If the state or federal minimum wage rate is at any time greater than the minimum wage rate established by this ordinance, then the greater shall become the minimum wage rate for purposes of this ordinance.” Shortly after the Ordinance was enacted, business groups in St. Louis filed a Petition seeking (1) a declaratory judgment that the Ordinance was invalid; and (2) injunctive relief to prevent enforcement of the Ordinance.  The business groups alleged that local minimum wage ordinances are preempted by Sections 290.502 and 67.1571 of the Revised Statutes of Missouri (R.S.Mo.) and that the Ordinance exceeds the charter authority granted to the city of St. Louis. Based on principles governing preemption and the Missouri Constitution’s single subject rule, the Court held that state law does not preempt the Ordinance and that the Ordinance is not beyond St. Louis’s charter authority. Looking Forward As set forth above, the minimum wage in St. Louis was scheduled to rise over the course of three years beginning on October 15, 2015.  Under the Ordinance, the minimum wage in St. Louis was scheduled to increase to $10.00 as of January 1, 2017.  While the Ordinance is effective as of the date of the Court’s ruling, Mayor Francis Slay has said he will give businesses a “reasonable grace period” to adjust to the new minimum wage.  Mayor Slay did not specify how long the grace period will last, and the City has not established a new phase-in schedule. Mayor Slay’s director of communications has stated that enforcement of the Ordinance will be complaint-driven.  The City plans to post a complaint form online for employees to alert city officials about employers who are not in compliance with the Ordinance.  Employers who do not comply with the new minimum wage are subject to prosecution in Municipal Court and could have their business license or occupancy permit revoked, in addition to the award to an employee of back wages plus interest from the date of non-payment or underpayment.  Each day that an employer pays an employee a wage below the minimum wage counts as a separate violation.

With the New Year, minimum wage increases have taken effect in nineteen states. Two of these states, Massachusetts and Washington, now require employers to pay $3.75 more per hour than the federal minimum wage of $7.25, which has remained static since 2009. Employers in the below-listed states should ensure that employees are paid in accordance with these new standards for pay periods beginning January 2017. The following states have a new minimum wage, effective January 2017: Alaska  -  $9.80 Arizona  -  $10.00 Arkansas  -  $8.50 California*  -  $10.50 Colorado  -  $9.30 Connecticut  -  $10.10 Florida  -  $8.10 Hawaii  -  $9.25 Maine  -  $9.00 Massachusetts  -  $11.00 Michigan  -  $8.90 Missouri  -  $7.70 Montana  -  $8.15 New Jersey  -  $8.44 New York*  -  $9.70 Ohio  -  $8.15 South Dakota  -  $8.65 Vermont  -  $10.00 Washington  -  $11.00 The minimum hourly wage a given California employer must pay depends upon the employer’s headcount. Employers with 25 employees or fewer must pay employees at least $10.00 per hour. Employers with 26 employees or more must pay employees at least $10.50 per hour. Similarly, New York has enacted a minimum wage law that takes into account both an employer’s size and where the employer is located. Employers in New York City with 10 employees or fewer must pay employees at least $10.50 per hour. Employers in New York City with 11 employees or more must pay employees at least $11.00 per hour. Employers in Nassau, Suffolk, and Westchester counties, no matter how large the workforce, must pay employees at least $10.00 per hour. Employers in the rest of New York state, no matter how large the workforce, must pay employees at least $9.70 per hour.    In addition to state minimum wage laws, employers must be aware of municipalities that require employers to pay a higher minimum wage than state or federal law. Employers concerned about their pay obligations should speak with able counsel to avoid any potential wage-related liability.

On December 22, 2016, the California Supreme Court issued its decision in Augustus v. ABM Security Services, Inc. and held that, during required rest breaks, “employers must relieve their employees of all duties and relinquish any control over how employees spend their break time.” The Court interpreted the California Labor Code and IWC Wage Orders and its decision in Brinker Restaurant Corp. v. Superior Court(2012) 53 Cal.4th 1004 — which addressed meal break requirements — and determined that meal breaks and rest breaks should receive parallel treatment by employers. ABM required security guards, while on break, to keep radios and pagers on and to respond to tenant calls while on break. In a split opinion, the majority of the Court held that even though state law and regulations don’t mention this sort of on-call time, “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest periods.” Specifically regarding rest breaks, the Court determined: On-call rest breaks do not meet the requirements of Labor Code §226.7 or the IWC Wage Orders. An employer must ensure rest breaks are provided and no work is required during that time, in the same way that meal breaks are required under Brinker. How can your business comply with Augustus? Your business may be unintentionally subject to liability for these rest break claims. Below are five tips employers should consider to avoid running afoul of the Augustus decision: Check your handbooks and policies and review your rest break provisions; Relieve employees of allduties during their rest breaks; Have employees separately clock their time during their rest breaks; Train managers and supervisors to not disturb employees taking their rest breaks; and Discontinue the use of on-call duties during rest breaks. By aligning rest break requirements with meal break requirements, the California Supreme Court is sending a message that businesses should manage their rest breaks in the same way they manage meal breaks. Given this signal, we expect there to be an uptick in California litigation on the provision of off-the-clock rest breaks. If you have concerns that your business may have unintended liability under Augustus or you have concerns about remaining compliant with the California rest break requirements, please contact your Polsinelli attorney.

After the inauguration in January 2017, President-elect Trump will be presented with a number of regulatory issues that can change the labor and employment landscape. Congressional and administrative action are not required to effect all such changes in the way the federal government regulates private employers. Rather, the new administration can make significant and lasting changes in employment enforcement at certain federal agencies, including the Equal Employment Opportunity Commission (EEOC), the Department of Labor (DOL), the Occupational Safety and Health Administration (OSHA), and the National Labor Relations Board (NLRB). In this and upcoming blogs, we will examine ways in which the new administration can quickly and dramatically pivot the landscape of labor and employment laws simply by changing enforcement and litigation priorities. This first blog focuses on changes that might be made at the U.S. Department of Labor. Department of Labor Mr. Trump named Andrew Puzder as his pick to lead the U.S. Department of Labor (DOL). Mr. Puzder, the chief executive officer of the company that owns Carl’s Jr and Hardee’s restaurant chains, in his role as a business owner, has criticized higher overtime pay rules and opposed increasing the minimum wage to $15 per hour. The DOL could alter course for key priorities of the prior Obama administration: the Fair Labor Standards Act (FLSA) overtime rules, the “persuader rule,” and the fiduciary duties for retirement advisors. FLSA Overtime Rule On May 18, 2016 the Department of Labor published a new final rule updating the nation’s overtime regulations, which would automatically extend overtime pay protections to over 4 million workers if fully implemented. In November, 2016, a federal judge in Texas issued a nationwide injunction halting enforcement of the rule. That decision is currently being appealed by the Obama administration to the 5th Circuit Court of Appeals. The Trump administration could effectively terminate the litigation and end the overtime rule by withdrawing the government’s appeal, and thus leave the lower court’s decision intact. This course of action may be in the cards. Mr. Puzder has expressed his dislike of the new rule and “has argued that the Obama administration’s recent rule expanding eligibility for overtime pay diminishes opportunities for workers.”  The U.S. Court of Appeals for the Fifth Circuit granted an expedited appeal on the issue, with oral argument to be scheduled after January 31, 2017. With oral argument scheduled after the inauguration, the DOL, under the leadership of Mr. Puzder, could reverse position and withdraw the appeal before the court hears oral argument. If so, the injunction would stand and the new overtime rule would not take effect. Persuader Rule Similar to the overtime rule, the DOL currently faces an injunction barring the “persuader rule” from taking effect. The persuader rule “requires that employers and the consultants they hire file reports not only for direct persuader activities – consultants talking to workers – but also for indirect persuader activities – consultants scripting what managers and supervisors say to workers.” The U.S. District Court for the Northern District of Texas issued a preliminary injunction on June 27, 2016 and recently issued a nationwide permanent injunction against the rule on November 16, 2016. The DOL can appeal the permanent injunction to the Fifth Circuit, but even if it does, the Trump administration will have time to withdraw the appeal before it reaches a decision by the appellate court. Fiduciary Rule The Trump administration could also change course for the DOL’s new fiduciary rule, which requires financial advisors to act in the best interest of their clients with respect to retirement accounts. The DOL issued the final rule on April 6, 2016, to be applicable April 10, 2017. Although Mr. Puzder has not yet voiced an opinion on the fiduciary rule, his general remarks about less government regulation makes some experts believe the new administration “will kill or significantly weaken the fiduciary rule.” Edward Mills, an analyst at FBR & Co., “predicts the new administration will first delay the implementation of the rule through an administrative action and then repeal or overhaul it.”  Since the DOL has already issued a final rule, the new administration would have to go through the onerous public notice and comment process prior to making any changes. Although the fiduciary rule was not directly addressed during the campaign, an advisor to President-elect Trump suggested the President-elect could seek to reverse it. Republicans in Congress have expressed their desire to do so as well.

In a decision issued December 5, 2016, the Seventh Circuit ruled that Division I student athletes are not entitled to minimum wage under the Fair Labor Standards Act (“FLSA”). (Berger, et al., v. National Collegiate Athletic Association, et al., No. 16-1558.) Former track and field athletes at the University of Pennsylvania (“UPenn”) initiated the case against UPenn, the National Collegiate Athletic Association (“NCAA”), and more than 120 Division I universities and colleges, arguing that they were entitled to minimum wage under the FLSA. The district court disagreed, and the Seventh Circuit upheld the district court’s ruling in a rather straightforward opinion. “Simply put, student-athletic ‘play’ is not ‘work,’ at least as the term is used in the FLSA,” the Seventh Circuit held. Instead, the Seventh Circuit stated that student participation in collegiate athletics “is entirely voluntary,” and emphasized there was a long standing and revered tradition of amateurism in college sports which did not include any real expectation that student athletes should earn income. Indeed, the Seventh Circuit refused to find any analogy between student athletes and private-sector interns and the multifactor test for paid interns established by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc. The Seventh Circuit also interpreted DOL guidelines regarding students who participate in work-study programs and those who participate in extracurricular activities, finding that NCAA-regulated sports are “extracurricular” in nature and therefore are not considered “work” under the FLSA. This opinion effectively strikes down student athlete petitions for compensation under the FLSA in the Seventh Circuit, but perhaps leaves the question open in other Circuits that could utilize a rigid multi-factor test, such as the Second Circuit. It also presents an interesting question should the NCAA or other college-affiliated conferences decide to compensate student athletes in some form, which in turn could effectively alter the landscape of the long-standing tradition of amateurism.

The California legislature has given employers a slew of reasons to be nervous in recent years. From mandatory paid sick leave to the Fair Pay Act, the waters remain treacherous for California employers. The following summarizes the notable legal changes for 2017 employers should prepare for in the New Year. 1. Wage and Hour Increased Minimum Wage: Effective January 1, 2017, the California minimum wage will increase to $10.50 per hour for employers with more than 25 employees. Employers with 25 or fewer employees are not subject to the increase until 2018. The statute provides for annual increases until the minimum wage reaches $15.00 per hour for large employers in 2022 and for small employers in 2023. Increases in the minimum wage will also increase the minimum salary requirements for exempt employees, because exempt employees in California must generally earn a minimum salary of at least twice the state minimum wage for full-time work. Thus, employers should review and, if necessary, adjust the salaries of their exempt employees to avoid losing their exempt status. Notably, a number of localities, including Berkeley, San Jose, and Los Angeles will also increase the required minimum wage in 2017. Employers must consider the increasing number of local minimum wage ordinances when reviewing their wage and hour practices . Overtime for Private School Faculty: Presently, the faculty at private elementary or secondary academic institutions are generally exempt from overtime if, among other things, they earn a monthly salary of at least twice the state minimum wage for full-time employment. AB 2230 provides that effective July 1, 2017, the salary requirement for the overtime exemption will be tied to the salary paid to public school employees in the district or county in which the private school is located. Note that AB 2230 does not apply to tutors, teaching assistants, instructional aides, student teachers, day care providers, vocational instructors, or similar employees. Posting Requirements for Salons: AB 2437 requires that any entity regulated by the Board of Barbering and Cosmetology post a notice in English, Spanish, Vietnamese, and Korean regarding misclassification, minimum wage and overtime, tips, and other wage and hour issues. The Board is required to ensure compliance with the posting requirements when it conducts facility inspections. AB 2437 further directs the Labor Commissioner to create a model notice on or before June 1, 2017. The posting requirement is effective July 1, 2017. Other Legal Changes: The legislature made other changes to existing law regarding wages, including: Effective January 1, 2017, AB 2535 clarifies that itemized wage statements issued to employees exempt from minimum wage and overtime need not indicate the number of hours worked. Effective July 1, 2018, SB 3 expands the Healthy Workplaces, Healthy Families Act of 2014 to provide paid sick leave to providers of in-home support services. 2. New Requirements Regarding Fair Pay In 2015, California passed landmark legislation intended to address sex-based pay disparities. See Lab. Code § 1197.5. Critically, the law made it more difficult for employers to legally justify sex-based pay differences. SB 1063, which is effective on January 1, 2017, expands the new Fair Pay Act’s standards to race and ethnicity-based pay disparities as well. 3. Employment Agreements and Forum Selection SB 1241 imposes significant limits on forum selection and choice of law provisions in employment agreements. Effective January 1, 2017, employers cannot require, as a condition of employment, that employees agree to: Adjudicate a claim arising in California outside of the state; Forfeit any substantive protection of California law with respect to a controversy arising in California. These limits do not apply if the employee is represented by legal counsel when negotiating the disputed contract. SB 1241 permits a court to award attorneys’ fees to an employee enforcing his or her rights under the new law. 4. Notice, Record-Keeping, and Background Checks The legislature created numerous new record-keeping and notice requirements in 2016, including: AB 1978 imposes new training and record-keeping requirements on employers in the janitorial industry related to wages and sexual harassment. California law requires employers to notify employees that they may be eligible for the Federal Earned Income Tax Credit. AB 1847 requires employers to also provide employees with a specified notice regarding potential eligibility for the California Earned Income Tax Credit. AB 2337 requires employers with 25 or more employees to provide a notice of rights regarding leave for victims of domestic violence, sexual assault, or stalking and related protections against retaliation. The new law directs the Labor Commissioner to prepare a notice satisfying the requirements of AB 2337 on or before July 1, 2017. The employer is not obligated to provide notice until the Labor Commissioner posts the required form. Finally, the legislature imposed a new limitation on employer background checks. AB 1843 prohibits employers from asking an applicant to disclose “any adjudication by a juvenile court or any other court order or action taken with respect to a person who is under the process and jurisdiction of the juvenile court law.” Employers further may not utilize such an adjudication as a factor in determining a condition of employment. The law provides a limited exception to this rule for certain health care facilities. In conclusion, compliance-minded employers should consult with experienced employment counsel to ensure they are ready for the New Year. Contact Michele, Brian, or the Polsinelli Labor and Employment practice for advice on complying with new laws in 2017.

With the gift-giving season upon us, many employees are looking for opportunities to work extra hours to earn more money. This raises questions regarding the proper treatment, classification, and compensation of employees performing both non-exempt and exempt work, as well as how to treat non-exempt employees working jobs at different rates of pay for the same employer. How to Properly Classify Employees Pursuant to FLSA regulations, an employee cannot hold multiple statuses: he or she is classified as either exempt for all purposes or non-exempt for all purposes. The employer must determine whether exempt duties or non-exempt duties constitute the employee’s “primary duty.” “Primary duty” is defined by the FLSA as “the principle, main, major or most important duty that the employee performs.” Determining an employee’s primary duty is accomplished by considering all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole. Because an employee can only hold one status, a non-exempt employee (i.e., whose primary duty is performing non-exempt work) still will be considered non-exempt under the FLSA when performing exempt duties. Similarly, an employee whose primary duty is exempt will still be exempt even when performing non-exempt duties. The percentage of time spent performing either exempt or non-exempt duties is important, but does not necessarily determine exempt status under federal law. While the FLSA provides that employees who spend more than 50% of their time performing exempt duties will generally be exempt, there is no regulation requiring that employees spend more than 50% of their time performing exempt duties. Keep in mind, however, that some state laws impose a requirement that an employee perform exempt duties for a particular percentage of time to qualify for an exemption. Determining Lawful Compensation Generally, if an employee is an exempt employee working more than 40 hours in a week, he or she is exempt from overtime and is not entitled to additional compensation. But, FLSA regulations state that an employer may provide exempt employees with additional compensation without losing the exemption or violating the salary basis requirement under certain circumstances. For example, if an exempt employee has a salary of $1,000.00 per week, but an employer agrees to pay the employee $25.00 per hour any time the exempt employee works over 50 hours in a work week, the employee is not automatically converted to non-exempt. This assumes that the employee’s duties meet an FLSA exemption and that the employee is paid the $1,000.00 on a true salary basis. If a non-exempt employee works extra shifts at their same rate of pay and the employee works over 40 hours in a work-week, the calculation of overtime is required – the employee is paid time and a half their hourly rate for time over 40 hours. But what happens if a non-exempt employee picks up an extra shift for the same employer, and that shift pays a different rate of pay than the employee’s normal hourly rate? The FLSA provides multiple solutions. The employer can calculate a modified regular rate to which overtime is calculated. For example: If Employee works 40 hours a week at his normal job at $10/hr, and works 20 hours in the same week in an extra shift for a job that week at $7.50/hr, The Employee’s pay would be calculated as follows: ($10 x 40 hrs) + ($7.50 x 20 hrs) = $400 + $150 = $550 $550/60 hrs = $9.17 (this is the new regular rate) Employee worked 60 hours total, so has 20 hours of overtime. ($9.17 x 20)/2 = $91.70 $91.70 (overtime pay) + $550 (pay at Employee’s regular hourly rate) = $641.70 So Employee’s paycheck for that week is $641.70 Alternatively, where an employee performs two or more different kinds of non-exempt work for which different straight time hourly rates are established, the employee may agree with their employer in advance that she or he will be paid during overtime hours at a rate not less than one and one-half times the regular rate established for the type of work she or he is performing during such overtime hours. In other words, the employee may agree with their employer in advance that any overtime the employee works will be paid at the applicable overtime rate for the job performed. It is imperative to properly classify employees to ensure they are compensated properly for all time worked. Of course, it is recommended to engage qualified wage and hour counsel to help you identify your employees’ “primary duties” so you can compensate them appropriately.

With the New Year just weeks away, employers with Illinois employees should be aware of several new statutory sick leave provisions that will go into effect in 2017. Specifically, Chicago, Cook County (which encompasses Chicago and many of its surrounding suburbs), and the State of Illinois have each provided employees with various sick leave protections scheduled to go into effect: Chicago – The Chicago Minimum Wage Ordinance was amended to provide eligible employees up to 40 hours of paid sick leave during each 12-month period. The eligibility threshold is relatively low: an employee need only (a) perform 2 hours of compensable work within the City of Chicago, and (b) work at least 80 hours for a covered employer within any 120-day period. To qualify as a “covered employer”, an entity must maintain a business facility within the City limits or be subject to any of the City’s licensing requirements. There is no minimum employee threshold. The leave provided is not in addition to any leave already provided by an employer, but any plan already in place must meet the Ordinance’s minimum requirements. Qualifying employees accrue one hour of leave for every 40 hours worked, up to the 40 hours during each 12-month period. The amendment goes into effect on July 1, 2017, and can be found here. Cook County – The Cook County Earned Sick Leave Ordinance also goes into effect on July 1, 2017, and largely mirror’s Chicago’s ordinance. A covered employee is anyone who, in any particular two-week period, performs at least two hours of work for an employer while physically present within the geographic boundaries of Cook County. Because Cook County encompasses the suburbs surrounding Chicago, a significant number of additional employees will qualify for the benefit. As with the Chicago Ordinance, employees can carry over 20 hours of accrued, but unused sick leave into the following year; provided, however, that if the employer is subject to the federal Family Medical Leave Act, the carryover limit is raised to 40 hours. The Cook County Ordinance can be found here. Illinois – The Illinois Employee Sick Leave Act does not establish a minimum sick leave benefit; rather, it allows employees to use accrued sick leave to care for a family member. An employee may use up to half of the employee’s accrued sick leave for absences related to the illness, injury, or medical appointments of a family member. The term “family member” is defined to include the employee’s child, spouse, domestic partner, sibling, parent, mother or father-in-law, grandchild, grandparent, or stepparent. The statute becomes effective on January 1, 2017, and can be found here. There are various exceptions and qualifications applicable to each provision. Employers should evaluate their coverage under each if they maintain employees and facilities in any of these locations.

Employers in Silicon Valley now face another local hike in the minimum wage. On Tuesday, the San Jose City Council unanimously approved a multi-year increase in the City’s minimum wage, which will reach $15.00 per hour on January 1, 2019 after increasing in annual $1.50 increments. San Jose joins the Silicon Valley cities of Mountain View, Sunnyvale, Los Altos, Palo Alto, and Cupertino to adopt a $15.00 minimum wage in effect in either 2018 or 2019. The municipalities of Campbell, Milpitas, Santa Clara, and Saratoga are also considering similar increases. The Silicon Valley increases come on the heels of the upcoming increase in California’s state-wide minimum wage that takes effect on January 1, 2017 and will ultimately reach $15 per hour in January 2022. (See Polsinelli’s update on the California minimum wage legislation here). San Jose's minimum wage increase will come in four phases: a hike to $10.50 in January 2017, $12.00 per hour in July 2017, to $13.50 in January 2018 and to $15.00 by January 2019. After 2019, the San Jose minimum wage will increase annually based on the consumer price index, with increases capped at 5 percent. The San Jose City Council rejected a more conservative timetable proposed by city staff, which suggested that the minimum wage reach $15.00 in 2020. A city-commissioned study found that the minimum wage increase will have a significant impact on San Jose workers and employers. Notably, the study found: The minimum wage increase will generate “an average pay increase of $3,000 (18 percent of annual earnings) for 115,000 San Jose workers (31 percent of workforce).” While the study anticipates a small 1.3 percent increase in payroll cost across industries, it anticipates a 10.1 percent increase for restaurant employers. California employers should be mindful of city and county ordinances, as an increasing number of local jurisdictions require minimum wages in excess of California state law. As the minimum wage increases in California, employers should evaluate the salaries of their exempt employees to ensure compliance with all exemption salary requirements tied to the minimum wage. Contact your Polsinelli lawyer for advice on complying with the myriad of state and local wage and hour laws, including the applicable minimum wage.

On November 8, 2016, voters in Arizona approved a ballot measure requiring Arizona businesses to provide employees with paid sick leave. In approving the new Minimum Wage and Paid Time Off Initiative, Arizona joins a handful of states (as well as some municipalities) that have enacted paid sick leave laws. Below are five things Arizona employers need to know prior to the law taking effect on July 1, 2017. 1. How much paid sick leave must be provided? Most private sector employers in with operations in Arizona are subject to the new law. The minimum paid sick leave requirements are as follows: Employees working for employers with 15 or more employees are entitled to accrue up to 40 hours of paid sick leave per year. Employees working for employers with fewer than 15 employees are entitled to accrue up to 24 hours of paid sick leave per year. 2. How does sick leave accrue? Regardless of the size of the employer, employees must accrue paid sick leave at the rate of at least one hour for every 30 hours worked. 3. How can employees use paid sick leave? Employees can use their paid sick leave hours for a variety of reasons, including: Their own mental or physical illness, injury, or health condition; The mental or physical illness, injury, or health condition of a family member; Absences related to abuse, stalking, sexual violence, or domestic violence of either the employee or the employee’s family member; and/or When a public health emergency causes the employee’s workplace to close, or the employee’s child’s school or daycare to close. 4. Who is a “family member”? The new law defines a “family member” broadly to include: Children of any age (including biological, adopted, or foster children, as well as legal wards and children of a domestic partner); Parents (including biological, foster, stepparents, adoptive parents, and legal guardians of the employee or the employee’s spouse or domestic partner); Spouses and domestic partners; Grandparents, grandchildren, or siblings of the employee or the employee’s spouse or domestic partner; or Other individuals related by either blood or affinity whose close association with the employee is the equivalent of a family relationship. 5. What happens when an employee leaves their job? Employers need not pay out unused and accrued paid sick leave time to employees whose employment ends for any reason. However, employees who are rehired by the same employer within nine months of termination are entitled to reinstatement of all accrued paid sick leave time. So for example, employers who conduct temporary layoffs and bring back employees within nine months must reinstate all of those employees’ accrued sick leave time. Arizona employers take note: the new Minimum Wage and Paid Time Off Initiative also contains important notice and record keeping requirements. Please contact Polsinelli attorneys with any questions regarding compliance

On November 22, 2016, U.S. District Judge Amos Mazzant enjoined the Department of Labor (DOL) from implementing amendments to certain overtime rules, including an amendment that would approximately double the minimum salary requirement for an employee to be considered for the Fair Labor Standard Act (FLSA) “white collar” or executive, administrative and professional (“EAP”) exemption to overtime requirements.   The injunction applies nationwide. To recap, as previously written, the DOL final regulations included the following key features: Increasing the minimum salary to meet the white collar exemption from $455 per week (approximately $23,660 annually) to $913 per week ($47,476 annually). Increase the total annual compensation for highly compensated employees from $100,000 to $134,004. Install procedures that would update these salary thresholds every three years staring January 1, 2020. While the final DOL regulations were set to take effect on December 1, 2016, the injunction prevents implementation of the regulations indefinitely, pending further Court proceedings. In its analysis, the Court agreed with the twenty-one (21) Plaintiff States and associated business organizations that they had satisfied the requirements for a preliminary injunction: (1) a likelihood of success on the merits, (2) the threat of irreparable harm, (3) that the threatened harm outweighs any damage to the Government, and (4) the injunction will not disserve the public interest. The good news for employers is that they do not have to implement salary increases for white collar/EAP employees or consider re-classifying any employees (if applicable) by December 1.  Employers should, however, continue to prepare to potentially implement the new regulations in the event the preliminary injunction is lifted, which could occur based on the Court’s decision on the Plaintiff States’ pending motion for summary judgment.  It is unknown when the Court may decide the summary judgment motion, when the decision might be appealed, or whether the new Congress may take action. Stay tuned, as we continue to monitor this case and provide updated information and analysis as it becomes available.  The case is State of Nevada et al. v. United States Dep’t of Labor, et al., Case No. 4:16-cv-00731 (E.D. Tex. 2016).

The number of collective class actions filed continues to rise year after year. Employers should be vigilant in ensuring compliance with the Fair Labor Standards Act (“FLSA”). With the new Department of Labor (“DOL”) regulations going into effect December 1, 2016, now is an optimal time for employers to review pay classifications and pay practices. Here are six steps to address when conducting an FLSA audit: 1) Employee duties: The first step of the audit is to monitor employee duties and responsibilities. It is important to identify the exact job duties and responsibilities employees actually perform, prior to assessing whether employees are classified and compensated properly. 2) Job descriptions: The next step of the audit is to review employee job descriptions to match the duties employees are actually performing. Because job responsibilities may change over time, employers should make sure that they regularly monitor and update job descriptions. 3) Job classification: After job descriptions have been updated, employers should analyze whether employees are properly classified as independent contractors, non-exempt employees, or exempt employees. Misclassification of employees as exempt from overtime pay may subject employers to liability under state law (minimum wage, unemployment insurance, workers’ compensation funds,  and state taxes) and federal law (overtime compensation, benefits, including health insurance or FMLA, and minimum wage). 4) Compensation review: Effective December 1, 2016, the salary threshold for “white collar” overtime exemption increases from $455 to $913 per week, and the annual compensation requirement for highly compensated employees increases from $100,000 to $134,004 annually. Employers must review exempt employee salaries to ensure compliance with the new regulations. Employers may use non-discretionary bonuses and incentive payments, including commission, to satisfy up to 10% of an exempt employee’s salary, as long as payments are made on a quarterly or more frequent basis. 5) Record keeping: Next, employers should review whether they are maintaining required time and pay records for employees, including potential overtime. Employers need to put systems in place to track potential time off of the clock such as 1) access to company email, 2) automatic lunch deductions for breaks that employees may not have taken, 3) instant messaging or text messages on company issued cell phones, 4) donning and doffing time or 5) whether an employee has to log into computer systems before clocking in. Employers should retain records for a minimum of three years. 6) Safe harbor policy: Finally, employers should implement a policy in employee handbooks or manuals clearly prohibiting off-the-clock work by non-exempt employees and improper pay deductions, along with a complaint mechanism, reimbursements for mistakes, and a good faith commitment to comply with all applicable pay laws. It is important to note that the Safe Harbor Provision of the FLSA does not protect employers who willfully violate the statute after employees have complained about pay practices. Conducting an audit can be daunting and tedious while leading to many twists and turns. Because many of the regulations may be difficult to interpret, contact the wage and hour attorneys at Polsinelli with any questions.

With some of the strongest equal pay laws in the country, California recently expanded its equal pay protections with the passage of two new bills which will take effect on January 1, 2017:  (1) The Wage Equality Act of 2016 (California SB 1063) and (2) AB 1676, Concerning the use of prior salary to justify wage disparities. (1)  Wage Equality Act of 2016—California SB 1063 California’s Fair Pay Act (CFPA) provides that employers must not pay employees of the opposite sex less wages for “substantially similar work, when viewed as a composite of skill, effort and responsibility and performed under similar working conditions.” Effective January 1, 2017, Senate Bill 1063, also known as the “Wage Equality Act of 2016,” will extend the equal pay requirements of the Fair Pay Act amendments to Labor Code §1197.5 to cover race and ethnicity, in addition to gender. With these recent amendments, employers must not compensate employees at a rate less than that paid to employees of a different race or ethnicity for “substantially similar work.” These new amendments supplement existing protections under the Fair Employment and Housing Act (FEHA) for potential claims of discrimination for race and ethnicity. However, similar to last year’s amendments to the CFPA, employers may utilize a successful defense if they can establish that any wage differential is based upon a seniority system, merit system, or system that measures earnings by quantity or quality of production, or bona fide factor other than sex, race or ethnicity, such as education, training or experience.  Employers relying on a bona fide factor other than sex, race or ethnicity must demonstrate that the factor is: (1) not derived from a differential in compensation based on the protected category; (2) job related to the position at issue and; (3) consistent with “business necessity.” The employer has the burden of proof, so employers should retain statistics and give thought to how they will prove and can justify pay differentials, both on an individual and systemic basis. (2)  AB 1676—California’s Twist on Salary Inquiries Not for lack of trying, California has not been able to match Massachusetts’s recent law prohibiting employers from inquiring as to an applicant’s salary history. In fact, AB 1017, a predecessor bill to AB 1676, attempted to prohibit such inquiries only to be vetoed by California Governor Brown last year on the grounds that the bill prohibited employers from obtaining relevant information with “little evidence” that it would result in more equitable compensation. Accordingly, as a compromise, the Legislature passed AB 1676 which amends Labor Code §1197.5 to prohibit employers from using prior salary as the sole justification for a current pay disparity. While in California, employers can technically still request salary history information from applicants, they should tread carefully and err on the side of open ended questions to the applicant about their salary expectations as opposed to history. Employers who utilize a nationwide application form will still need to review in light of the recent prohibition in Massachusetts. Next Steps With the enactment of the Fair Pay Act and the anticipated rise in equal pay litigation in California, many employers have been conducting reviews of their compensation structures and written policies to ensure compliance. Such reviews should be continued and these additional amendments to the Fair Pay Act should also be considered for compliance as these new laws go into effect on January 1, 2017. Companies that have already completed equal pay audits and/or reviews regarding gender should now review their policies and practices with a focus on race and ethnicity to ensure compliance and that any wage disparities are justified under these newest amendments to the CFPA. Employers should conduct these reviews with the assistance of counsel in order to protect the results under the attorney work product doctrine and attorney client privilege.

Time off is important to employee morale and productivity. However, because the Colorado Wage Act requires employers to pay for accrued but unused vacation time in an employee’s final paycheck, overly generous policies can be costly. Accrued unused vacation time is not “priceless,” and we offer three legal developments and reasons for Colorado employers to re-visit their vacation and time off policies now. 1. School Activities In 2009, the Colorado legislature passed the Parental Involvement in K-12 Education Act. The legislation requires employers to provide employees with 18 hours of unpaid leave per academic year to attend certain school activities. Many employers made one of three revisions to policies in response:  provisions creating school activities leave; statements that the existing policy was sufficient to meet the statutory requirements; or increased vacation or time off allowances to provide additional time that could be used, among other things, for school activities. Because the statute included an automatic repeal provision, it ended relatively quietly on September 1, 2015. However, many employers did not revise the changes they made to their policies. 2. “Use-it-or-Lose-it” To avoid paying out large amounts to employees at separation, many employers adopted “use-it-or-lose-it” policies. Plaintiffs’ attorneys have long taken the position that such policies violate the Wage Act by forfeiting vacation time that has been earned. In late 2015, the Department of Labor informally announced that it would target employers with “use-it-or-lose-it” policies for enforcement actions. A month later, the Department of Labor issued written guidance that seemed to temper that announcement. The guidance starts with a broad statement that “use-it-or-lose-it” policies are permissible. However, the guidance later clarifies that such a policy violates the Wage Act if it deprives employees of earned vacation time and/or wages in lieu of that time. Since most “use-it-or-lose-it” policies provide no compensation for unused vacation time that is “lost,” the guidance signifies that the Department of Labor will consider such policies to be a violation of the Wage Act. Based on the language of the Wage Act, there is a significant risk that a court would agree. 3. Final Pay Many Colorado employers have abandoned traditional sick and vacation time distinctions for paid time off that can be used for any reason. Because those policies do not distinguish between sick and vacation time, the entire paid time off allowance is considered vacation time that must be paid out in an employee’s final pay check. However, many people involved with payroll and developing policies do not realize the legal impact of such policies. Action Items for Employers Review policies for references to the Parental Involvement in K-12 Education Act, which can now be removed. Consider whether to end school activities leave policies or return time off allowances to the pre-legislation levels. Review “use-it-or-lose-it” policies with counsel and assess risks and alternatives. Consider whether alternatives to lump-sum paid time off policies will better control payouts at separation.

The impending change to the salary threshold for the “white collar” overtime exemptions under the Fair Labor Standards Act (“FLSA”) (from $23,660 to $47,476) has employers making tough decisions—“Should we raise an employee’s salary above the threshold?” “Do our employees still qualify for the exemption, even with a raise?” “Can we keep our employees’ pay the same?” Some employers, unable to make significant salary increases or concerned that an employee may not meet the exemption requirements, are increasingly considering the “fixed salary for fluctuating hours” method of compensation for non-exempt employees. This so-called fluctuating workweek method allows a previously exempt employee to continue to receive a regular salary, but does not require the employer to raise the once-exempt employee’s salary to the new threshold. Under this method, the employee will receive a fixed salary as straight-time pay for whatever number of hours he or she works in a workweek (whether 30 or 50 hours). The employee must receive extra compensation (½ times the regular rate for that workweek) for any hours worked over 40 in the workweek. In most cases, bonus or incentive compensation must be included in overtime calculations. This typically requires employers to allocate bonus or incentive compensation to the workweek(s) to which it relates, and then recalculate and pay the employee additional amounts. The fluctuating workweek method is permissible only if: The salary is sufficiently large to ensure that no workweek will be worked in which the employee’s earnings from the salary will fall below minimum wage (no matter how many hours are worked in a workweek); and The employee clearly understands that the salary covers whatever hours the job may demand in a particular workweek and that the employer pays the salary even if the workweek is one in which only a small number of hours is worked. To meet this requirement, it is always helpful to have this understanding in a memorandum or letter that the employee signs. If your company is considering its options as the December 1, 2016 change to the salary threshold looms, the fixed salary for fluctuating hours is worth a look. But, employers should be aware that it is not without its drawbacks. As with all other non-exempt employees, employers compensating employees on the fixed salary for fluctuating hours method must require employees to accurately track their time. For employees who have historically been treated as exempt, this is not as easy as it sounds. Moreover, it is crucial to have an estimation of the amount of overtime the employees in question work. If the employees often work more than 40 hours in a workweek, it may make more financial sense to increase their salary (assuming they also meet the requirements of an exemption). While it may not be a panacea, the fixed salary for fluctuating hours could be a possible solution for some recent and future FLSA headaches.

Are employer/employee arbitration provisions containing class/collective action waivers enforceable? The law on this issue is anything but settled at this point. For now, it may depend upon where a case is filed, and the Supreme Court likely will resolve the conflicting lower court decisions on the issue. Five years ago, the United States Supreme Court in AT&T Mobility LLC v. Concepcion ruled, in a 5-4 decision written by Justice Scalia, that state laws prohibiting the enforcement of consumer contracts containing an arbitration provision with a class action waiver were contrary to the Federal Arbitration Act. Within a year of that decision, the National Labor Relations Board in D.R. Horton ruled that Concepcion did not apply in the context of employee rights under the National Labor Relations Act, specifically § 7 which vest employees with the right to engage in “concerted activities.” The NLRB found that D.R. Horton’s arbitration agreement which precluded class/collective actions was an unfair labor practice. D.R. Horton appealed the NLRB’s decision to the Fifth Circuit, which rejected the Board’s conclusion that § 7 of the NLRA prohibited class/collective action waivers in arbitration agreements with employees. In addition to the Fifth Circuit, the Second (Sutherland v. Ernst & Young LLP), Eighth (Owen v. Bristol Care, Inc.) and Eleventh Circuits (Walthour v. Chipio Windshield Repair) have ruled that class/collective action waivers in employer-employee arbitration agreements are enforceable. In June 2016, the Seventh Circuit in Lewis v. Epic Systems Corp. turned the tide, becoming the first federal court of appeals to adopt the NLRB’s rationale in D.R. Horton. The Court ruled that the class/collective action waiver in an arbitration provision which would have precluded plaintiff from pursuing a collective under the Fair Labor Standards Act violated the NLRA, and thus, was not enforceable. On August 22, 2016, the Ninth Circuit in Morris v. Ernst & Young, LLP, adopted the reasoning of the Seventh Circuit, becoming the second federal court of appeals to find that class/collective action waivers in an arbitration provision violates the NLRA. In those Circuits that have not opined on the issue, the federal district court decisions indicate the same conflicting views. Within the last week, Epic Systems Corp. and Ernst & Young have filed petitions for writ of certiorari to the Supreme Court. Given the conflicting court of appeals decisions, the Court will likely take the case. But, predicting how the Court might decide the issue is another matter. While Concepcion may support enforcement of class/collective action waivers, the 5-4 decision was written by the late Justice Scalia. When and how the Court decides this issue will likely depend on who fills Justice Scalia’s seat and when the new justice is confirmed.

Litigation challenging the new DOL regulations that, among other things, set a minimum salary threshold of $47,476 for exempt status, white-collar workers, was recently filed in U.S. District Court for the Eastern District of Texas. A group of 21 states filed suit: Alabama, Arizona, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Utah, and Wisconsin. The states claim that the new salary threshold rule will force local and state governments to unfairly increase the costs of employment. The chief argument appears to be that the new rule, by more than doubling the previous minimum of $455 per week to $913 per week (or $23,660 changed to $47,476, annualized), will wreak havoc on State budgets and is in violation of the Tenth Amendment to the U.S. Constitution. (The Tenth Amendment reserves for the States all powers not specifically delegated to the federal government.) The lawsuit claims that the new DOL rule constitutes an effort to “commandeer, coerce, and subvert the States.” Although the more than doubling of the salary minimum also certainly impacts the bottom line for private businesses, this Tenth Amendment argument does not offer much of anything, at least on paper, to private employers. Most commentators are not optimistic about this argument’s impact on governmental employers, either. Governmental employers also generally have the option to provide compensatory time in lieu of time and one-half pay for non-exempt workers, an option that is not available to private employers. In 2014, President Obama directed the Department of Labor to update its regulations concerning the so-called “white collar” exemptions to overtime under the Fair Labor Standards Act. In July of 2015, proposed regulations were made public for notice and comment. More than 270,000 comments were filed. The new regulations’ impact has generated heated debate.   Despite the current litigation, it is not advisable for employers to stop their current efforts geared to December 1, 2016 compliance (or budget reviews and other planning for compliance purposes). As previously noted in blog posts on March 17, 2016, April 21, 2016, and July 5, 2016, the new salary minimum for exempt status deserves some significant thought and planning for most employers. The rule is still scheduled to go into effect on December 1, 2016, and most commentators believe that this litigation will not impact implementation of the new salary threshold for exempt status. There is some hope, however, that the litigation may alleviate the regulation’s current automatic adjustments that are slated to occur every three years, starting in January 2020. The automatic adjustments are pegged to the fortieth percentile of salaried workers in the lowest-wage Census region. The DOL has estimated that the initial increase in 2020 will be set the minimum salary amount for the white-collar exemptions at approximately $51,168. Although some employers may have been holding out hope for litigation efforts to “ride to the rescue” and save the day by December 1, 2016, this litigation is not generally anticipated to override the new $47,476 minimum rule for white collar workers. Employers should continue to prepare for the new regulations.

On August 1, 2016, Massachusetts became the latest State to pass a so-called “pay equity” law. Massachusetts’ new law, which is modeled after pay equity statutes already implemented in other states, also amends the Massachusetts Equal Pay Act (MEPA). Even though this new legislation only applies to employers with employees working in Massachusetts, all employers should take notice, as “pay equity” legislation is being enacted in an increasing minority of states. Below are three key takeaways for employers with respect to Massachusetts’ new law, which goes into effect in July 2018. 1.    Equal Pay For “Comparable Work” The currently-drafted version of MEPA prohibits employers from paying employees of a given gender less than employees of another gender for “comparable work,” which  term was not previously defined. Massachusetts’ new pay equity law fills in this gap, defining “comparable work” to include “work that is substantially similar” with respect to “skill, effort and responsibility” that is performed under similar working conditions. Whether two employees perform “comparable work” under the new statute will be based upon the facts and circumstances of a given case. 2.    No More “Pay Secrecy” Rules The new law also prohibits employers from enacting or enforcing “pay secrecy” rules, which typically prohibit employees from discussing their compensation with each other. However, companies will not be forced to reveal salary information to an employee who asks about another employee’s salary. Furthermore, an employee is not required to divulge her or his salary to another employee if asked. 3.    No More Questions About “Past Salaries” Once this legislation is effective, employers in Massachusetts will be prohibited from asking job candidates about their salary history. Massachusetts is the first state in the country to pass such a law, which is purportedly designed to “end the wage gap.” Note that employers can still ask a job candidate how much money they are hoping or expecting to earn if they receive an offer, but an employer cannot ask a prospective employee about their previous salaries. This provision creates a new limitation for Massachusetts employers, and employers should train interviewers and hiring managers to avoid impermissible inquiries about past salaries. Employers with employees in Massachusetts should review their hiring, pay, and confidentiality policies and should make any necessary changes in order to comply with the new law prior to its implementation in July 2018. Other employers should also take notice, as these provisions are popping up in state legislative sessions across the country.

Employers with nonexempt employees are familiar with the concept of regular rate of pay when calculating overtime for these employees. The regular rate of pay is more than just an employee’s hourly rate. Rather, the regular rate of pay includes the employee’s total pay for the pay period plus any additional compensation the employee earned over the total number of hours the employee works. The pitfall when conducting this analysis often occurs in determining what counts as “additional compensation.” Even if the employer has a policy to pay overtime, issues still arise when determining how to properly calculate and pay overtime. Here are four types of compensation that should be included when calculating the regular rate of pay: Nondiscretionary Bonuses.Nondiscretionary bonuses include all bonuses other than those that are truly at the discretion of the employer. The nondiscretionary bonus must be included in the regular rate of pay calculation over the entire period for which it is earned, whether weekly, monthly, quarterly, or annually. The “Gift Card” Bonus.Sometimes employers compensate employees with a gift card, or other goods, as a “good job” or “thank you.” However, if that gift card is provided based on the performance of the employee, it will be considered a bonus payment and must be included in the regular rate of pay calculation. Goods or Facilities.When non-cash payments are made to employees in the form of goods or facilities, the reasonable cost to the employer or fair value of such goods or facilities must be included in the regular rate. For example, if the employee’s wages include lodging provided by the company, the reasonable cost or the fair value of that lodging over the time period during which the lodging is provided must be added to the employee’s earnings before determining his/her regular rate. Non-overtime Premium Payments.Specific additional compensation, including premium pay for duties required by the job, such as night shift pay differentials and premiums paid for hazardous or dirty work, must be included when determining the regular rate. If you have questions about regular rate of pay compensation, please contact your Polsinelli attorney.

In an April 13, 2015 blog post, we discussed a Ninth Circuit ruling holding that the FLSA’s Dealership Exemption did not apply to individuals employed as service advisors. In Navarro v. Encino Motor Cars, LLC, the Ninth Circuit validated the Department of Labor’s 2011 regulations redefining the words “salesman,” “partsman” and “mechanic” to remove service advisors from the overtime pay exemption. The matter was appealed and heard by the United States Supreme Court earlier this year. On June 20, 2016, the Supreme Court held that the DOL’s 2011 redefinitions did not follow the basic procedural requirements of administrative rule-making and, thus, should not be considered when determining whether service advisors are exempt under the FLSA’s dealership exemption. In its decision, the Supreme Court recognized that when an agency is authorized by Congress to issue regulations and does so to interpret a statute, the interpretation receives deference if the statute is ambiguous and the agency’s interpretation is reliable. However, deference is not warranted when the regulation is “procedurally defective”—in other words, where the agency err by failing to follow the correct procedures in issuing the regulation. One procedural requirement is that an agency must give adequate reasons for its decision to change an interpretation. The Court stated that where an agency has failed to provide even a minimal level of analysis, its action is arbitrary and capricious and cannot carry the force of law. Agencies are free to change their existing policies and interpretations, but they must explain their changed position and must be cognizant of long-standing policies that have created reliance by various industries. In this case, the DOL’s 2011 regulation removing service advisors from the Dealership Exemption was issued without any reasoned explanation for the change. Before 2011, and since 1978, service advisors had been included in the exemption by the DOL. The DOL did not provide a reasoned explanation for change in an almost 30-year-old regulation, the Supreme Court held that the 2011 regulation did not receive deference and should not be considered by courts when determining if service advisors meet the Dealership Exemption. This ruling is important because the Supreme Court is explicitly requiring the DOL to provide detailed explanations when it changes its interpretations of the FLSA – interpretations that have been long relied upon by numerous industries. While dealerships may have a won this round, it may be short-lived. As the Court acknowledged, the DOL still has an opportunity to issue another regulation removing service advisors from the Dealership Exemption – and such a regulation may be given full deference if the DOL provides a sufficient rationale for the change. We will continue to monitor DOL actions following the Supreme Court’s ruling.

On June 27, 2016, Governor Jerry Brown signed the California budget for the upcoming fiscal year. This budget, approved by the legislature on June 15, 2016, makes a number of significant changes to the California Labor Code’s Private Attorneys General Act (PAGA) of 2004. Since the early months of 2016, Governor Brown emphasized publicly that he intended to use his budget proposal to “stabilize and improve the handling of PAGA cases,” in light of a recent surge in such actions. According to the Governor’s administration, Brown hoped to expand the Labor and Workforce Development Agency’s (LWDA) oversight of PAGA claims in order to “reduce unnecessary litigation” and lower “the costs of doing business” in the state. Of course, ensuring that California receives its fair share of any settlement may also be of interest to the state. California employers should take note of the changes to PAGA. Although the Legislature ultimately whittled down many of Brown’s more wide-reaching PAGA-related budget proposals, the following changes survived and will be in effect for all PAGA cases filed prospectively: An aggrieved employee must now submit his or her PAGA claim online rather than by certified mail, and must also submit a $75 filing fee with each claim. A copy of the claim is to be sent by certified mail to the employer. All employer cure notices or other responses to PAGA claims must be filed online, with a copy sent by certified mail to the aggrieved employee or the employee’s representative. An aggrieved employee cannot file a civil PAGA action until 65 days after providing online notice to the LWDA, rather than the current 33 days. The LWDA will have 60 days, rather than 30, to review PAGA notices and to inform parties that it is not planning to investigate an alleged violation. The LWDA may extend its time to investigate by an additional 60 days if the agency deems this additional time necessary, effectively giving the agency 180 days (previously 120 days) to investigate PAGA claims. Where a PAGA complaint is filed in court, the LWDA must be provided with a copy of the filed-stamped copy of complaint (applies only to cases in which the initial PAGA claim notice was filed on or after July 1, 2016). Parties must now provide a copy of a proposed settlement to the LWDA at the same time they provide it to the court for the court’s approval. A court must approve any settlement of a PAGA action, whether or not the settlement includes PAGA penalties. Any approved settlement must be provided to the LWDA through its online system within 10 days after the entry of judgment. A prevailing employee may be entitled to recover filing fees in certain circumstances. Employers must now submit PAGA cure notices to the LWDA online. Whether these changes ultimately affect the scope and volume of litigated PAGA claims is still uncertain. However, it is likely that the amendments will lead to heightened LWDA involvement in PAGA claims from initial filings through final, court-approved settlements. The extent to which the LWDA utilizes its newfound powers of review also remains to be seen, but will certainly add a new layer of administrative oversight and bureaucratic red tape to the investigation and resolution of a PAGA claim. In the meantime, employers should be prepared that these changes may increase the lifetime of a PAGA claim and potentially lead to increased complications and litigation costs.

Now that the DOL has released its salary threshold for “white collar” overtime exempt employees (from $23,660 to $47,476 annually, effective December 1, 2016), employers may be faced with decisions to change the pay classification of employees under the Fair Labor Standards Act. For example, will an employee who is currently classified as exempt from overtime receive a pay raise to meet the new salaried threshold, or will the employee be re-classified as nonexempt? The numbers are important. But, in addition to crunching the numbers – which typically involves weighing the economics of a salary increase versus having the employee on the clock at an hourly rate (and at time and one- half for potential overtime) - there is another, equally important issue to review for exempt employees: the job duties tests. The DOL did not change the job duties tests for white collar exemptions at this time. That said, it would be short-sighted to focus exclusively on numbers for decision making. Before any money is spent on a significant salary increase, employers should audit whether the employees being considered for potential pay increases actually are assigned and perform job duties that qualify them for the white collar exempt job they currently occupy. Job titles are not determinative. As companies transition to the new DOL regulation, they should not automatically assume that an exempt employee who was originally correctly classified continues to be. Unfortunately, sometimes, employees are just assumed to be continuously correctly classified because “we’ve always done it this way.” The “big three” white collar exemption categories are: the professional, the executive, and the administrative exemptions. The highly-compensated employee, the outside sales exemption, and the computer professional also have exempt status, but for the sake of space, this post focuses on these three categories, which can be challenging to analyze. Generally speaking, the professional exemption requires that the employee perform work that is predominantly intellectual and that required him or her to pursue lengthy, specialized instruction in an advanced field of science or learning. This type of work requires consistent exercise of professional skills and judgment. The executive exemption generally requires that the employee manage an enterprise or a department and that s/he direct the work of at least two or more employees, as well as have significant input into, or the authority to, hire and fire. To be within the administrative exemption, the employee should perform office or non-manual work that is directly related to the management of, or the general business operations of, the employer or the employer’s customers. This employee should exercise discretion and independent judgment over “matters of significance.” There are many other fine points that the DOL regulations fill in, but the above concepts can help determine whether an employee being considered for a salary increase was actually an exempt employee in the first place. If it is not an exempt position, paying an increased salary just to meet the new DOL salary threshold may not be the best step, economically speaking. For employees who meet the job duties tests and that the employer continues to treat as exempt, the new minimum salary amount must be met. Otherwise, the employee will be entitled to overtime pay for hours worked over 40 in each week.

Earlier this year, the United States Supreme Court, in Campbell-Ewald Co. v. Gomez, applied contract principles to hold that an unaccepted Rule 68 offer of judgment did not moot an individual’s claims or class or collective actions claims. The Court reasoned that an unaccepted offer remained a mere proposal with no binding effect on either party. However, the Court still has employers guessing. In April 2013, in Genesis Healthcare Corp. v. Symczyk, the U.S. Supreme Court was faced with a Rule 68 offer of judgment rejected before the plaintiff filed a motion for conditional certification in a putative FLSA collective action. The Court assumed that the Rule 68 offer mooted the individual’s claims, and then held that, absent a plaintiff with a live individual case (and absent any claimants opting in), the action could not be maintained. This left open the question of whether a Rule 68 offer really can moot an individual’s FLSA action. It also begged the question of what happens in a Rule 23 class action. The Supreme Court attempted to answer these questions in January 2016 in Campbell-Ewald Co. v. Gomez. The court was faced with a rejected offer of judgment in a Rule 23 class action. The majority applied contract principles to hold that a rejected offer is merely a proposal with no binding effect on either party. Therefore the parties remained adverse and the individual claims were not mooted by the rejected offer.  Thus, the class could also proceed. The Court in Gomezleft open two critical questions. Would the result be different if a defendant deposits the full amount of a plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount? If the individual’s claims were so mooted, what about Rule 23 class claims? Since Gomez, employers have tried a number of different ways to moot individual claims, and thereby moot Rule 23 claims. Such efforts have included requesting permission under Rule 67 to deposit the amount of an earlier Rule 68 offer into the court’s registry, delivering a certified check and making an offer to deposit funds with the court, depositing money into an escrow account for the plaintiff’s benefit, and tendering a simple check. District courts’ reactions are all over the board. Some have held that these actions are still insufficient to moot even an individual’s claim because the conduct is still a mere offer or because the plaintiff must be provided, under Gomez, “a fair opportunity to show that certification is warranted.” Some, courts, however, have mooted individual claims and even expanded Genesis to moot Rule 23 actions. Employers seeking to utilize Rule 68 to moot claims should survey cases in the applicable jurisdiction, but they still may be left guessing about the appropriate procedure and outcome.  Cutting off putative class and collective actions early through Rule 68 is not as clear as it used to be, if it ever was, in many jurisdictions. The future of Rule 68 offers may very well depend on the future composition of our Supreme Court bench.

As many employers are keenly aware, misclassification claims under the Fair Labor Standards Act (“FLSA”) are becoming more prevalent. Employers may face a number of pitfalls that can expose them to potential liability. First, whether or not an employee is “exempt” from overtime payments under the FLSA can be difficult to determine factually, and classification errors can subject employers to wage and hour claims to collect unpaid overtime. Employers of home care workers face an additional hazard under the FLSA: the uncertainty of the law. On October 1, 2013, the Department of Labor (“DOL”) issued the Home Care Final Rule (“Final Rule”) to extend minimum wage and overtime protections to almost 2 million home care workers, by revising the regulations defining companionship services so that many direct care workers are subject to the overtime pay provisions of the FLSA. The Final Rule also revised the DOL’s regulations concerning live-in domestic services workers. The Final Rule had an effective date of January 1, 2015. In June 2014, associations of home care companies filed a lawsuit in federal court challenging the Final Rule. In December 2014 and January 2015, the U.S. District Court for the District of Columbia issued orders vacating and revising certain portions of the Final Rule, thus affecting the applicability of the Final Rule to many employers. The DOL filed an appeal of the orders to the U.S. Court of Appeals for the District of Columbia Circuit. On August 21, 2015, the Court of Appeals issued a unanimous opinion affirming the validity of the Final Rule and reversing the District Court’s orders.  On October 13, 2015, the Court of Appeals’ opinion upholding the Final Rule became effective when the Court of Appeals issued its mandate. On November 24, 2015, the home care associations filed a petition for certiorariwith the U.S. Supreme Court. Given the effect of the pendency of the Final Rule on the DOL’s ability to enforce the Final Rule from the original “effective date” of January 1, 2015 to October 13, 2015, the date the Court of Appeals’ opinion became effective, there is a question as to whether employers affected by the Final Rule were required to follow the Final Rule during that interim period. In Beltran v. InterExchange, Inc., 2016 WL 1253622, No. 14-cv-03074-CMA-KMT (D. Col. Mar. 31, 2016), the U.S. District Court of the District of Colorado recently ruled that domestic service workers had viable claims for overtime for any work performed after January 1, 2015 due to the Final Rule. In contrast, in Foster v. Americare Healthcare Svcs, Inc., 2015 WL 8675518, No. 2:13-cv-658 (S.D. Ohio Dec. 11, 2015),  the U.S. District Court for the Southern District of Ohio held that the Final Rule was not effective until October 13, 2015. Despite the uncertainty of whether the Final Rule was effective as of January 1, 2015 or October 13, 2015, employers with home health workers should take steps to comply with the Final Rule. The DOL has increased its efforts to address wage and hour violations, including the development of a smartphone app to help employees track hours worked. Accordingly, if an employee is considered “non-exempt” in the wake of the Final Rule, it is critical that employers accurately record their time worked to ensure that they are paid overtime for all hours worked over 40 hours in a workweek.

Both federal and California agencies have long permitted employers to round employees’ start and stop work times to the nearest quarter-hour, so long as such policies are applied in a neutral manner.   Despite the widespread use of rounding, the legality of this practice in the Ninth Circuit remained unsettled.   On May 2, 2016 the Ninth Circuit addressed the issue in Corbin v. Time Warner Entertainment-Advance/Newhouse Partnership, affirming that neutral rounding practices are lawful. In Corbin, the plaintiff employee claimed that the employer’s timekeeping system, which rounded time entries up or down to the nearest quarter hour, unlawfully denied him compensation for all time  worked.  The court held that Time Warner’s timekeeping policy and use of rounding were valid methods of tracking employee time.  Although the plaintiff suffered a small net loss due to rounding, the evidence indicated he had actually gained compensation during other time periods, and this pattern of gains and losses proved that Time Warner’s method was neutral both facially and as applied. Dismissing the suit, the court took a common-sense stance towards rounding and emphasized that the primary issue is not whether an individual employee loses or gains time in a discrete time period, but rather whether the employer’s policy is intended to average out all employees’ gains and losses in the long-term.   The court made clear that the purpose of rounding is to allow employers a practical and neutral method of recording time without turning to tortuous timekeeping and accounting calculations.   However, a rounding policy which, for instance, solely rounded time punches down would likely be invalid. In light of the Ninth Circuit’s decision, employers currently utilizing timekeeping methods which round employees’ punch times may breathe a collective sigh of release.   We recommend that employers routinely audit their timekeeping methods to ensure that such practices are neutral in theory and in application.  Towards that end, rounding policies must round both up and down and must not serve to consistently benefit the employer over a period of time.

Unpaid internships can present perils for the unwary employer. Many employers are hesitant to establish unpaid internship programs for fear that they will be found to be in violation of the Fair Labor Standards Act. Conversely, students are eager to learn practical skills in an actual work setting and are motivated to seek internships. In the past, employers could simply look at the Department of Labor Wage and Hour Division’s Fact Sheet #71 for guidance on how to establish a program. Recently, numerous federal courts, including the 2nd and 11th Circuits and district courts in Illinois and California, have muddied the waters by implementing a new test for unpaid internships to comply with the FLSA. Despite the various tests, employers can still structure an unpaid internship program that is legally compliant. Here are the top 5 factors your unpaid internship program should have: The intern is the primary beneficiary of the internship, not the employer. Determine if the internship is more about the employer getting free labor or for the intern learning about his/her chosen field of study outside of the classroom. An internship must benefit the intern, it is not for the benefit of the employer.    Provide the intern with training that could be found in an academic setting that accommodates the intern’s academic work and schedule. Savvy employers may partner with the intern’s academic institution to mold a fixed-duration internship that is specifically tied to the intern’s area of study. Avoid providing tasks to the intern that are unrelated to academic training – such as making copies and sorting mail. Provide the intern with a mentor appropriate to the intern’s studies. This mentor will provide guidance, assign relevant projects, and allow the intern to shadow him/her. The intern’s work should not replace or be exactly the same as a paid employee. An unpaid intern’s work cannot displace the regular work of paid employees.  Do not promise a job at the conclusion of the fixed internship period. Instead, focus on providing practical and relevant experience to the intern during the internship.     Clearly articulate all of the expectations of the internship to the intern, including that it is unpaid. Leave no room to the imagination about all of the expectations of the unpaid internship. Unpaid internships can be rewarding to both the employer and the intern. With some careful planning, an employer can greatly reduce the legal risk associated with an unpaid intern.

In a unanimous decision on May 26, 2016, in Lewis v. Epic Systems Corporation, the United States Court of Appeals for the Seventh Circuit invalidated an individual arbitration agreement waiving class and/or collective actions and held that if such agreements are required by the employer as a condition of continued employment, then they necessarily interfere with employees’ exercise of their Section 7 rights under the National Labor Relations Act to engage in protected concerted activity, irrespective of whether the employees are represented by a union. The Seventh Circuit’s holding directly conflicts with the rulings of the Fifth, Eighth, and Eleventh Circuits on this issue, potentially setting up review by the United States Supreme Court. It is common today for employers to enter into individual arbitration agreements with their employees that require the company and the employee to arbitrate wage and hour (and other employment) claims rather than litigate those claims in court. The agreements also commonly prohibit employees from bringing those claims, even in arbitration, on a class or collective – rather than individual – basis. Although the Lewisdecision does not invalidate all individual arbitration agreements in the employment context, the decision applies to employers within the 7th Circuit’s jurisdiction and that have made entering into such agreements a condition of continued employment. Individual arbitration agreements can be valuable to an employer in that they discourage the filing of class and collective actions. In such actions, plaintiffs’ attorneys sometimes demand inflated and unsupportable damages on behalf of employees and former employees who have no intention of suing their employer. Those employers who have adopted individual arbitration agreements should understand that they may not be enforced in the 7th Circuit if they are conditioned on continued employment. For the past few years, the NLRB has invalidated individual arbitration agreements on the same rationale of the Seventh Circuit, although those rulings are not binding to other employers, and one such ruling was reversed by the Fifth Circuit. Given that other Circuits have disagreed with the Seventh Circuit and have affirmed individual arbitration agreements, the Supreme Court is likely to take up the issue in the 2016-2017 term. The ultimate resolution of the issue may hinge upon who fills the seat of the late Justice Scalia.

The United States Supreme Court may have finally offered employers some cover in their ongoing battle against Fair Credit Reporting Act (“FCRA”) class actions. On May 16, 2016, the Court handed down its decision in Spokeo, Inc. v. Robins, which vacated and reversed a Ninth Circuit ruling on the grounds that the lower court did not properly analyze both elements of the “injury-in-fact” required to confer Article III standing on a plaintiff. Spokeo operates a “people search engine” that aggregates information on individuals from a broad range of internet databases. Named Plaintiff Thomas Robins’ class action complaint alleged that Spokeo’s business model makes it a “consumer reporting agency” and thus subject to the FCRA’s detailed compliance procedures. The FCRA requires, among other things, that consumer reporting agencies “follow reasonable procedures to assure maximum possible accuracy of consumer reports” and also that “users” of consumer reports (e.g. employers who utilize background checks to determine eligibility for employment): (1) disclose that fact to individuals prior to obtaining such a report and (2) gain the individuals’ prior authorization to do so. Robins claimed that Spokeo willfully violated the FCRA when it disseminated inaccurate information regarding him – namely, that he held a graduate degree, was married with children, and was in his 50s. The Court’s opinion, authored by Justice Alito, noted that an injury-in-fact must be both “concrete” and “particularized,” and held that the Ninth Circuit’s decision properly considered the latter while neglecting to address whether plaintiffs adequately alleged “concreteness.” Though plaintiffs’ attorneys will rush to point out that the Court merely remanded back to the Ninth Circuit with instructions to analyze the concrete injury, employers can read the tea leaves and be heartened by the Court’s seeming disapproval of lawsuits based on “harmless” procedural violations: “Robins cannot satisfy the demands of Article III by alleging a bare procedural violation. A violation of one of the FCRA’s procedural requirements may result in no harm.” “In addition, not all inaccuracies cause harm or present any material risk of harm. An example that comes readily to mind is an incorrect zip code. It is difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.” In the past few years, employers have seen a rise in situations where plaintiffs point out an alleged technical deficiency in an employer’s FCRA compliance procedure and claim a class populated by every individual who applied for employment in a given timeframe, regardless of whether even a single individual actually suffered an adverse employment action as a result. Although it is too early to tell whether Spokeowill have broad implications for cases of this type, it is a safe bet that both employers and plaintiffs’ attorneys will be closely watching the Ninth Circuit’s response in wake of the remand.

As anticipated, the United States Department of Labor issued publicly this morning its final regulations amending the so-called “white collar exemptions.” The key features of the final regulations are: Increase in the minimum salary level to meet the white collar exemptions from $455 per week (approximately $23,660 annually) to $913 per week (approximately $47,476 annually). Increase in the total annual compensation level for highly compensated employees from $100,000 to $134,004. Installs an automatic update procedure, which will update the salary thresholds every three years (beginning January 1, 2020). The update will raise the minimum salaries required to meet the white collar and highly compensated exemptions to the 40th percentile of full-time salaried workers nationally. No changes to the current “duties” tests. The salary increases go into effect December 1, 2016. As we have previously discussed on this blog, Congressional Republicans have introduced legislation aimed at derailing the final regulations. Today’s DOL announcement, combined with the White House’s professed commitment to the new regulations, suggests that the legislative maneuvering will be useful for only perceived political gain, rather than a realistic chance of halting the regulations. For employers, the only good news today is that the DOL has given employers about six months to finalize their preparations for the salary increases (or re-classification, as the case may be). Stay tuned on this blog for more in-depth analysis of the final regulations and their impact on employers.

It's that time of year for parents. School is out, the kids are home, and you still have to go to work. For many households, this means it is time to consider hiring summer childcare, e.g., nannies, babysitters, or au pairs to watch the kids during the workday. Because the era of paying the teenager across the street or down the block $10 an hour for eight hours a day is gone, we offer the following reminders to parents who go the route of hiring summer help directly. Determine whether you have a household employee. The general rule is that if you directly hire someone to work in your home and you control when, where, and how his or her work is done, you are most likely an employer (at least part-time). For example, if you hire a nanny to come to your house, be there from 9am-5pm, and feed breakfast at 10am and lunch at 1pm, the government will likely consider you a household employer. If you are a household employer, you may need to pay employment taxes, including social security, Medicare, and federal/state unemployment taxes. For 2016, if you pay cash wages of $2,000 or more to a household employee, you must withhold and pay social security and Medicare taxes. If you pay total cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 to household employees, you must pay federal unemployment tax (depending on where you live, you may also be required to pay state unemployment tax). To pay your household employee and the applicable taxes, you will need to obtain an Employer Identification Number (EIN). This number is issued by the IRS and will be the number you put on forms to show you paid employee taxes. It is easy to apply for and can be done at www.irs.gov. If you make an international hire, verify the applicable immigration documents and confirm that the individual is eligible to work in the United States (and for how long). Alternatively, consider hiring through an agency with responsibility for confirming immigration status, paying the employee, and paying applicable employment taxes. For more information and guidance on hiring household employees, consult your Polsinelli employment lawyers. The 2016 IRS Household Employer’s Tax Guide is also excellent resource for information on this issue. Have a great Summer!

Compliance with the Family and Medical Leave Act (“FMLA”) continues to cause employers frequent confusion and consternation. Even human resources professionals well-versed in the FMLA’s ins and outs throw their hands in the air in exasperation over how to handle a unique leave situation. For those of you who can relate, the Department of Labor (“DOL”) has issued its new Employer’s Guide to the Family and Medical Leave Act (“Guide”) to, according to the DOL, “provide essential information about the FMLA, including information about employers’ obligations under the law and the options available to employers in administering leave under the FMLA” and “increase public awareness of the FMLA.” The 76-page Guide should be a useful tool for employers. It is organized in chronological order and tracks the regulations, from analyzing coverage and eligibility issues through an employee’s return to work. One of the early pages of the Guide sets forth “The Employer’s Road Map to the FMLA,” providing a quick-reference flowchart of the FMLA cycle and referencing required forms and notices. Each section discusses the steps in the FMLA process and includes helpful “Did you Know?” sections that touch on issues employers may overlook or not be aware of, along with practical examples. For example, the Guide discusses the certification process and suggests what an employer may and may not do in connection with the certification paperwork it receives (e.g., authentication, clarification, etc.). The Guide also provides an in-depth analysis of military caregiver leave—often a less familiar area for employers. In addition, the Guide references the specific FMLA regulations applicable to each section and includes illustrations of the forms and notices required for each step of the FMLA process. Employers should keep an electronic version of the Guide handy, as the Guide links to the applicable FMLA regulations, notices, and forms. Overall, for those new to handling the process and seasoned human professionals alike, the Guide may help to navigate the FMLA process. The Guide, however, does not provide any guidance beyond the letter of existing regulations. And, stay tuned—the DOL has indicated that it will be issuing a new FMLA notice poster soon.

As we have noted in prior blog posts, the Department of Labor (DOL) anticipates soon publishing and making effective its final amendments to the so-called “white collar exemption” regulations, which define the FLSA exemptions for certain executive, administrative, and professional employees. The primary anticipated change relates to the minimum salary amount to meet the white collar exemptions. Currently, to qualify for the white collar exemptions, an employee must receive a minimum of $455 per week on a salary basis (the equivalent of $23,660 annually). The proposed regulations dramatically increase that amount to about $970 per week ($50,440 annually). The DOL has also proposed mechanisms to adjust the minimum salary level annually—tied to either the 40th percentile of weekly earnings for full-time salaried workers or the Consumer Price Index. As with other pending significant executive and legislative action in this presidential election year, executive (agency) actors and Congress are maneuvering to either implement or thwart the proposed regulations. On March 14, somewhat ahead of schedule, DOL sent the final regulation to the Office of Management and Budget (OMB) for OMB’s review. The length of time for OMB’s review varies, but usually ranges from 30 to 60 days. Most likely, then, the final regulations will be revealed before mid-May. Commentators have speculated about the motivation for this accelerated action by DOL (as well as other executive agencies): the Congressional Review Act. Under the Act, Congress has 60 legislative days to veto (via a resolution of disapproval) the proposed regulation. Of course, the disapproval may be overridden by Presidential veto. Note that legislative days are limited, and could cause a resolution of disapproval to be addressed by President Obama’s successor. If that successor is one of the Republican contenders, it appears likely that a Congressional resolution of disapproval would stand, nullifying the final proposed regulation and the accompanying increase in the salary levels. If, however, a resolution of disapproval reaches President Obama (or a Democratic successor), it would face likely veto. Congress isn’t waiting around for OMB to complete its review of the regulations. On March 18, House and Senate Republicans introduced the “Protecting Workplace Advancement and Opportunity Act,” which would nullify the proposed changes to the white collar regulations, require DOL to conduct an economic analysis of its impact, prohibit automatic increases in the salary level, and require that future changes to the duties test be subject to notice and comment. The proposed legislation is broader than a mere resolution of disapproval would be—it provides for prospective limitations on DOL’s efforts to modify the white collar duties test and otherwise limits DOL’s ability to implement automatic changes to the regulations. These remaining disputes over the final regulations provide employers additional time to review currently exempt white collar employees, and consider and prepare to implement changes to classification or operational practices to accommodate the anticipated increase in salary requirements under the proposed regulations.

Employers with nonexempt employees are familiar with the concept of regular rate of pay when calculating overtime for these employees. The regular rate of pay is more than just an employee’s hourly rate. Rather, the regular rate of pay includes the employee’s total pay for the pay period plus any additional compensation the employee earned over the total number of hours the employee works. The pitfall when conducting this analysis often occurs in determining what counts as “additional compensation.” Even if the employer has a policy to pay overtime, issues still arise when determining how to properly calculate and pay overtime. Here are four types of compensation that should be included when calculating the regular rate of pay: Nondiscretionary Bonuses.Nondiscretionary bonuses include all bonuses other than those that are truly at the discretion of the employer. The nondiscretionary bonus must be included in the regular rate of pay calculation over the entire period for which it is earned, whether weekly, monthly, quarterly, or annually. The “Gift Card” Bonus.Sometimes employers compensate employees with a gift card, or other goods, as a “good job” or “thank you.” However, if that gift card is provided based on the performance of the employee, it will be considered a bonus payment and must be included in the regular rate of pay calculation. Goods or Facilities.When non-cash payments are made to employees in the form of goods or facilities, the reasonable cost to the employer or fair value of such goods or facilities must be included in the regular rate. For example, if the employee’s wages include lodging provided by the company, the reasonable cost or the fair value of that lodging over the time period during which the lodging is provided must be added to the employee’s earnings before determining his/her regular rate. Non-overtime Premium Payments.Specific additional compensation, including premium pay for duties required by the job, such as night shift pay differentials and premiums paid for hazardous or dirty work, must be included when determining the regular rate. If you have questions about regular rate of pay compensation, please contact your Polsinelli attorney.

Human resources employees might assume they cannot be held individually liable for actions taken within the scope of their employment. A recent decision by the Second Circuit Court of Appeals, however, calls this assumption into question, at least with respect to the Family and Medical Leave Act (“FMLA”). In Graziadio v. Culinary Institute of America, decided on March 17, 2016, the court found that an HR director can be individually liable under the FMLA under certain circumstances. In June 2012, while working for Culinary Institute of America (“Culinary”), Cathleen Graziadio requested and took leave under the FMLA to care for her son who was suffering from diabetes. As required under the FMLA, she submitted a medical certification supporting her need for leave to care for him. Then, as she was preparing to return to work, her other son fractured his leg, which necessitated a second leave of absence for Graziadio.  During her second leave of absence, Graziadio requested that she be allowed to return to work on a reduced, three-day week schedule for a few months. It was at this point that Shaynan Garrioch, Culinary’s Director of HR, got involved. She sent Graziadio a letter stating that Graziadio’s FMLA paperwork did not justify her absences from the workplace and that she needed to provide updated paperwork or she would not be allowed to return to work. Although Graziadio made repeated attempts to determine how she could remedy the deficiency in her paperwork, Garrioch merely reiterated the deficiencies in her documentation. Attempts to coordinate a meeting between Garrioch and Graziadio to discuss Graziadio’s return to work also failed. Ultimately, Culinary terminated Graziadio for abandoning her position. Graziadio filed suit in district court, bringing claims against the company and against Garrioch individually for FMLA interference and retaliation. The court granted summary judgment in favor of Garrioch, finding that she was not an “employer” under the FMLA, and, therefore, could not be held individually liable. Not so fast, according to the Second Circuit, which found that Garrioch couldbe classified as an “employer” under the FMLA based on the economic-realities test if she possessed the power to control, in whole or in part, the worker’s rights under the FMLA. The Second Circuit concluded that “a rational trier of fact could find that Garrioch was an ‘employer’ in economic reality and under the FMLA.” Consequently, it vacated the district court’s dismissal of FMLA claims against Garrioch and remanded the case for further proceeding consistent with its opinion. HR directors should be vigilant when complying with the requirements of the FMLA so as to avoid exposure to individual liability. This warning also extends to supervisors, managers, and others who possess the power to control a worker’s FMLA rights.

On April 4, 2016, California Governor Jerry Brown signed into law a bill that will increase California’s minimum wage statewide to $15 per hour by 2022. The Governor and Legislature reached a compromise deal in recent weeks to thwart a scheduled ballot initiative that threatened a more aggressive increase to the state’s minimum wage.   The new law gives the Governor discretion to delay the scheduled minimum wage increases for one year if there is an economic downturn or budget shortfall. It also gives businesses with fewer than 26 workers an extra year to comply with the wage increase. The current $10 per hour minimum wage will increase according to the following schedule (if no increases are delayed by the Governor): $10.50 per hour on January 1, 2017, for large businesses (January 1, 2018, for smaller employers with 25 employees or less); $11 per hour on January 1, 2018, for large businesses (January 1, 2019, for smaller employers); $12 per hour on January 1, 2019, for large businesses (January 1, 2020, for smaller employers); $13 per hour on January 1, 2020, for large businesses (January 1, 2021, for smaller employers); $14 per hour on January 1, 2021, for large businesses (January 1, 2022, for smaller employers); $15 per hour on January 1, 2022, for large businesses (January 1, 2023, for smaller employers); Future wage increases will be tied to inflation as measured by the national Consumer Price Index, up to 3.5% per year and rounded to the nearest 10 cents. The law also provides for In-Home Supportive Services employees to receive up to three days of paid sick leave annually on a phased-in schedule beginning in July 2018: one sick day in July 2018, a second day when minimum wage hits $13 per hour, and a third day when minimum wage reaches $15 per hour. While several municipalities have passed legislation increasing the minimum wage in recent years to offset higher costs of living, the new law will take effect statewide. California is the first state in the nation to pass such a minimum wage, in response to a growing demand to improve working conditions for low-income workers. However, the law will affect not only those earning minimum wage, but also those employees who may currently be exempt from overtime under state law. Currently, to be exempt from overtime under California law, employees must not only perform exempt duties but also must earn at least two times the state minimum wage for full-time employment. With the current $10 minimum wage, that calculates to a salary of at least $41,600. With each increase in minimum wage, the minimum salary amount for exemptions will similarly increase—for example, with the increase in minimum wage to $10.50, the exempt level will increase to $43,680. Once the full $15 minimum wage is phased-in, the minimum salary for an exempt employee in California will need to be at least $62,400. If the salaries of exempt employees do not keep pace with the minimum wage increases, then more employees will fall below the salary threshold and need to be reclassified as non-exempt and eligible for overtime, meal and rest breaks, and other protections under California’s wage and hour laws. Similarly, minimum wage also affects commissioned sales employees who must earn 1.5 times the state minimum wage and more than half their income from commission. The increase in minimum wage will increase the amount of income these employees must earn to be classified as exempt. Because of these changes, it is recommended that well before the end of the year, employers with employees in California look closely at their compensation practices to make adjustments to pay as needed to comply with the new law, not only for low-income workers but also the exempt workforce. For further guidance on these issues, contact the author or your Polsinelli lawyer.

Employers with Kansas operations should be familiar with the 2013 amendments to the wage withholding and deduction provision of the Kansas Wage Payment Act (KWPA). The amendments added two new subsections to expand when employers may withhold or deduct wages. The amendments were intended to allow more discretion to withhold or deduct wages for more reasons. However, the imprecise drafting of the amendments, coupled with Kansas Department of Labor (KDOL) regulations that have not been updated, have left several open questions. Here are three practical tips to consider. 1.   Have a “signed written agreement” in your new-hire paperwork for certain withholdings and deductions. The amendment permits employers to deduct for the following purposes, “pursuant to a signed written agreement between the employer and employee.” To allow the employee to repay a loan or advance which the employer made to the employee during the course of and within the scope of employment; To allow for recovery of payroll overpayment; and To compensate the employer for the replacement cost or unpaid balance of the cost of the employer’s merchandise or uniforms purchased by the employee. Before the amendments, employers needed only to obtain a “signed authorization” for certain deductions, including those for erroneous wage overpayments. Similarly, employers did not need a written authorization from employees to deduct or withhold wages for an employee’s repayment of a loan or advance, if the employee had requested it in writing. Now, in both scenarios, employers need a “signed written agreement between the employer and the employee.” Kansas employers should consider including such an agreement in its new-hire paperwork to cover these deductions and those that the unchanged KDOL regulations permit with a “signed authorization.” Without such a prospective agreement, employers could be left with few desirable options if an employee refuses to sign such an agreement. Employers should also consider a signature line for a company representative to sign the form during onboarding to avoid a potential argument from the employee or KDOL that the form does not constitute a “signed written agreement between the employer and the employee.” The third permitted deduction, for the “replacement cost or unpaid balance of the cost of the employer’s merchandise or uniforms purchased by the employee,” raises many unanswered questions. For example, how do we calculate “replacement cost”? Until further guidance is provided, Kansas employers should consider deducting wages only of the unpaid balance to avoid possible disputes over replacement-cost computation. 2.  KDOL regulations that state which deductions are not permitted are still in effect. Both the earlier and current versions of the KWPA permit deductions “for a lawful purpose accruing to the benefit of the employee” so long as the employer has a “signed authorization by the employee.” The regulations interpreting that provision remain in effect. In general, permitted deductions include those for contributions to employee welfare and pension plans, those made pursuant to a collective bargaining agreement, and similar deductions. However, deductions that KDOL states do not accrue to the benefit of the employee, and are not allowed (regardless if the employer has a signed authorization), include those for breakage or losses resulting from alleged negligent acts (among others). Kansas employers should continue the practice ofnotdeducting or withholding wages from current employees for these reasons. The ban on deductions for “breakage” or “alleged negligent acts” likely precludes wage deductions for repair costs to mobile phones or other electronic equipment. 3.  Exercise caution when withholding final wages to “recover” employer property. The amended statute permits Kansas employers to withhold “any portion of an employee’s final wages” for certain purposes.  The employer must provide the employee with “written notice and explanation” for the withholding. Employers may withhold final wages to “recover” the employer’s property provided to the employee in the course of the employer’s business, including computers, electronic devices, and mobile phones (among others). Employers may also withhold to recover “proprietary information such as client or customer lists and intellectual property.” Before withholding final wages for this reason, employers considering a trade-secret or unfair competition claim should question whether to withhold final wages as a tactic. Perhaps the company has a corresponding breach of a non-compete agreement, and such withholding could pressure the employee to comply with the agreement, but how will the employer ensure the proprietary information is fully recovered? The employer should also consider whether it wants KDOL to decide (via a wage complaint) such important issues such as whether the departing employee possesses proprietary information, which often involves complicated electronic discovery issues, or whether the information is proprietary or confidential in the first place. Due to these and other unanswered questions, employers should consult with counsel before implementing policies to withhold or deduct current or final wages.

The Worker Adjustment and Retraining Notification Act (“WARN”) requires an employer with 100 or more full-time employees to provide 60 days’ notice to all employees who will be affected by a mass layoff or plant closing at a single site. If the WARN notice requirement is violated, each affected employee is entitled to damages equal to compensation and benefits as defined under the Act for a period of 60 days. Nothing under the WARN Act, however, requires employers to continue to employ affected employees during the 60 day notice period. Subsequently, employers may “pay in lieu” of providing WARN notice. Before “paying in lieu” of notice, employers should consider all of the necessary elements in valuing the requisite payments under WARN. Failure to properly compensate affected employees may result in litigation, attorneys’ fees, and civil penalties. For these reasons, it is important to heed the following five “Warnings” when paying in lieu of providing WARN notice: Properly count the 60-day period.Affected employees are entitled to 60 days of compensation and benefits. Some jurisdictions require that damage calculations be measured by 60 work days rather than 60 calendar days, which can significantly affect an employer’s calculation of back pay and benefits under WARN. Back pay may not be equivalent to current pay. Back pay is defined under the WARN act as the higher of “the average regular rate received by such employee during the last three years of the employee’s employment” or the “final regular rate by such employee.” If an employer simply uses an affected employee’s current rate of pay to compute back pay, the employer may inadvertently violate WARN.   Benefits may include non-ERISA benefit plans.Benefits are defined under WARN to include all benefit plans that are subject to ERISA. Benefits, however, may also include non-ERISA benefit plans. Some jurisdictions require that non-ERISA benefit plans such as vacation pay policies and/or equity incentive plans be included in computing payments in lieu of providing notice.   Benefits also include the cost of medical expenses.Benefits also include “the cost of medical expenses incurred during the employment loss, which would have been covered under an employee benefit plan if the employment loss had not occurred.” To avoid liability under WARN, employers might want to consider extending health insurance coverage. Health benefits may not be extended to terminated employees. The applicable health insurance plan may not allow an employer to extend coverage to terminated employees. Employers faced with this situation may want to consider paying for the employees’ COBRA premiums for 60 days. Employers are well-advised to take precaution and seek counsel when considering “paying in lieu” of providing WARN notice. There are a number of risks associated with valuing payments under WARN that can inadvertently lead to legal claims.

The new salary minimum for the so-called white collar exemptions for certain executive, administrative, and professional employees may soon take effect, according to the Department of Labor (DOL). Solicitor of Labor, M. Patricia Smith, was on record at a recent American Bar Association Fair Labor Standards Legislation Committee meeting that the DOL anticipates publishing the final amendments to the white-collar regulations by late spring or summer of 2016. The DOL is apparently committed to making the amendments effective before the end of the year. Under the current regulations, a white collar employee must be paid only $455 per week (equivalent to $23,660 annually) to meet the salary amount test for an exempt executive, administrative, or professional employee. In addition to the salary amount test, the salary basis test and duties tests must be met to satisfy the white collar exemptions. The anticipated change to the salary amount test will more than double the minimum threshold, to the 40th percentile of weekly earnings for full-time salaried workers. This would raise the salary threshold from its current level of $455 a week (the equivalent of $23,660 a year) to about $970 a week ($50,440 a year), based upon 2016 data. The DOL is also considering an alternative proposal to link the salary increase to the Consumer Price Index (Urban index). Under either standard, the minimum salary threshold would vary from year to year, and likely increase over time. Needless to say, this is a big change. Businesses trying to budget for an upcoming fiscal year will need to take into account this ready-to-be enacted regulation. This anticipated regulatory change will likely impact payroll budgets and general operations planning for employees who will not be in line for a pay raise to keep their exempt status. This regulation could also impact salary budgeting if employers change pay scales to maintain exempt status.

With the recent death of Supreme Court Associate justice Antonin Scalia, the highest court has lost its most staunch conservative voice.  His absence will likely impact the outcome of pending cases, including several employment law cases. There are several labor and employment cases that remain ripe for a decision before this new Court. Any opinion that Justice Scalia voted on but had not formally released as of his death is void and must be reconsidered. The remaining members of the court will be tasked with reconsidering those cases, and entering a new era (at least at the outset) of potential deadlock on galvanizing issues.  These likely 4-4 decisions, could result in the lower court’s decision standing. Or, if it chooses to follow historical precedent, the Court could order the cases reargued when a new justice is confirmed.  Of course, if the vote was not a “tie,” then the decisions will be issued this Term. Here is a look at several cases the Court has in store in the employment and labor context: Tyson Foods v. Bouaphakeo. Oral argument was already heard in this case, which involves whether differences among individual class members may be ignored and a class certified under Federal Rule of Civil Procedure 23(b)(3) (or a collective action certified under the Fair Labor Standards Act)  when statistical modeling is used that presumes all members are alike, or where the class contains hundreds of members that were not injured or have no legal right to damages.  Tyson is attempting to overturn a verdict of nearly $6 million in damages awarded to workers in a pork processing plant in Iowa, filed by a group of six plaintiffs on behalf of a class of current and former hourly workers. With Justices Kennedy and Kagan leading the discussion during oral argument, the outcome may not turn on a missing Justice Scalia vote.   Friedrichs v. California Teachers Association. More recently the Court heard argument on whether public employees who do not join a union can be required to pay an “agency” or “fair share” fee to cover costs that the union incurs, for example, for collective bargaining. This has been the law since the Court last ruled on the issue in its 1977 decision in Abood v. Detroit Board of Education finding such fees permissible. After oral argument, public employee unions were feeling nervous – the Court’s more conservative justices had appeared ready to overrule the Court’s Abood decision. Green v. Brennan. The question in this case is straight forward: whether under federal employment discrimination law the filing period for a constructive discharge claim begins to run when an employee resigns – which has been held by five circuits – or at the time of an employer’s last alleged discriminatory act that gave rise to the resignation – which three circuits have held. Following oral argument some found the Court’s focus to have shifted to what qualifies as a resignation, which is an answer the Court is expected to provide in resolving the circuit split. Gobeille v. Liberty Mutual Insurance Company.  Following oral argument in this case the consensus was there would notbe a unanimous opinion from the Court. The case presents a question of preemption under the Employee Retirement Income Security Act of 1973 (ERISA), but the focus of oral argument was on the Affordable Care Act. The Second Circuit invalidated Vermont’s all-payer database as preempted by ERISA. Now the question before the Court is whether ERISA preempts state statutes that provide for “all payer” health care databases which are “designed to provide comprehensive state-level information about the distribution of health care services provided in the state and the costs of providing them.” Spokeo v. Robins. This case involves a Virginia man who alleges that the internet “people search engine” published inaccurate information about him. The question is whether Spokeo having violated the Fair Credit Reporting Act, without more, gives a legal right (standing) to sue. Here again the Court was expected to be closely divided. There are additional cases that have yet to be heard by the Court but are on the docket this spring.  CRST Van Expedited v. EEOC involves the EEOC’s conciliation obligations, and is a closely watched case because of the largest fee sanction award that has ever been issued against the Commission in favor of an employer, at approximately $4.7 million.  Zubik v. Burwell is expected to see a split decision, as it addresses whether the government places an undue burden on religious nonprofits by requiring contraceptive-coverage.  Finally, not yet set for argument, MHN Government Services v. Zaborowski involves California’s arbitration-only severability rule and whether it is preempted by the Federal Arbitration Act. To see the outcome of these matters, please refer to our updated post from April 2017,here.

A job description is a useful tool for employers from hiring through termination of employment.  Often times, though, job descriptions are not given the time and attention they deserve. This is unfortunate because job descriptions are the cornerstone of employee discipline and evaluation, and are often cited in litigation.  A job description does more than set forth an employee’s basic job duties. In today’s world of increased litigation brought under the Fair Labor Standards Act (“FLSA”) and the Americans with Disabilities Act (“ADA”), the job description continues to be a pivotal document. A job description that adequately and accurately describes the duties actually performed by employees will help protect an employer much more than a vague over-scoping job description. When it comes to claims brought pursuant to the FLSA, ADA, or other statutes, it does not matter how carefully worded or creative the job description is—the question will always be “does this description adequately reflect the duties actually performed by the employee?” Here are eight items to consider when drafting or revising job descriptions. The listed job duties should reflect the actual duties performed by the employee.  In wage and hour litigation, which is an increasing focus of the plaintiffs’ bar, job descriptions are not determinative of whether an employee is exempt or non-exempt. Rather, the fact finder looks at the duties actually performed by the employee. However, if a job description adequately reflects the duties actually performed by an employee, more credence is given to the employer’s paperwork and bolsters the employer’s credibility. Identify the essential functions of the job. Discrimination claims under the ADA have been at a steady rise. In all ADA litigation, the question is “can the employee perform the ‘essential functions of the job?’” It is not uncommon in litigation for the essential functions of the job to be at issue. Specifically identifying the essential functions of the job in a job description allows an employer to demonstrate that the employee was on notice of  the essential functions, and allows it to have a resource any time it is engaging in the interactive process to determine whether a reasonable accommodation is available.  Be precise. When describing the essential functions of a job and the job duties within a job description, it is important to be as precise as possible. This again ensures that expectations are clearly communicated to the employee, and that there are no surprises as to expectations. This includes ensuring that any physical requirements (e.g., lifting restrictions, standing requirements, etc.) adequately reflect the position’s physical requirements. Creating physical requirements that are in excess of the job’s actual requirements lead to disputes regarding proper accommodations, as well as arguments that the requirement has a discriminatory effect on individuals with disabilities. Administrative agencies have recently taken to scrutinizing physical requirements even more than past years during investigations to ensure that the requirements are narrowly tailored to the position in question. Audit positions and update regularly. Often times, as a company grows, some job positions’ duties and roles change (e.g., duties expand, a position is turned into two positions, etc.). Thus, it is important for employers to regularly audit job descriptions by comparing them to the duties actually performed by the employees. This ensures accuracy and helps demonstrate that the employer is aware of changes. If a job description no longer reflects the duties actually performed by an employee, they should be revised accordingly. The job description should be parallel to the standards on which the employee is being evaluated. Job descriptions should reflect the duties for which the employee is being evaluated. This gives the employee notice of the company’s expectations and helps mitigate any excuses by an employee that they “did not know” the expectations put upon them. This also assists with informal and formal discipline between evaluation periods. Use language to reflect duties that fall under an exempt status. The FLSA’s exemptions are a hot topic of litigation. Misclassification claims are rampant in federal courts. If, after performing an audit, it is determined that an employee is exempt under the FLSA, it is recommended to craft and use language directly from the FLSA’s regulations and statutory language to describe the duties actually performed by the employee. This helps tie the employee’s duties to the FLSA exemption relied upon. Have an attorney review. FLSA exemptions and identifying appropriate duties as “essential functions” is a tricky task – particularly with the rate the law has been changing. It is suggested to have job descriptions reviewed by legal counsel to ensure they are sufficient and that employees are properly classified. Periodic review and audit of job descriptions by legal counsel can also provide defenses against certain damage and liability claims brought in litigation. Obtain the employee’s signature. Having an employee acknowledge, in writing, that he or she has received and understands the contents of the job description – as well as the corresponding expectations – helps avoid later arguments that the employee did not know the expectations placed on him or her. Taking the time to craft a well thought out and accurate job description will always pay dividends. It not only communicates performance expectations to the employee, but it assists the company in disciplining, evaluating, terminating, and/or accommodating employees. Job descriptions are also essential in helping set the ground work for defenses in litigation, including claims brought under the FLSA and the ADA. If it has been a while since you reviewed your job descriptions and determined whether they need to be revised, it is highly recommended that you do so in the near future.

Employers routinely include arbitration provisions in employment agreements in an effort to manage risks associated with costly litigation.  Specifically, class arbitration waivers have become increasingly popular.  As every savvy employer knows, each state in which an employer operates may have very different state laws regarding arbitration and waiver provisions in employment contracts.  In years past, the United States Supreme Court has dealt with mandatory arbitration provisions and class and collective action waivers and affirmed their validity in various contexts.  The latest Supreme Court decision on topic, DirecTV, Inc. v. Imburgia, does not arise in the employment context, but its ruling is far reaching and beneficial for employers. In DirecTV, the Court, in a 6-3 decision, reversed a California appellate court and held that the Federal Arbitration Act (FAA) preempts state law even when the contract in question expressly provided that the enforceability of the class action waiver shall be determined under the “law of your state.”  Specifically, the contract at issue stated if the “law of your state” makes the waiver of class arbitration unenforceable, then the entire arbitration provision “is unenforceable.”  The contract also provided that the arbitration provision “shall be governed by the Federal Arbitration Act.” Under the law of the State of California, waiver provisions of class arbitrations were in fact unenforceable, in apparent conflict with the Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion that the Federal Arbitration Act preempts and invalidates that rule.   The California trial court and Court of Appeals hung their hats on the fact that, under California law—as applied pursuant to the contract—the wavier of class arbitration was unenforceable, and therefore, the arbitration provision was entirely unenforceable.  The state courts reasoned that the parties were free to choose what law would govern the arbitration provision, including California law, as if it had not been preempted. While parties to a contract, generally, are still free to determine which state’s law applies, that applicable state law must be valid law and not otherwise in conflict with relevant federal law, or here, the FAA.  The Supreme Court ultimately held the California courts’ interpretation of “law of your state” and ruling showed a hostility toward arbitration that was inconsistent with the FAA. Legally, employers should continue to review the language of their employment agreements, which commonly contain class arbitration waivers, and ensure that it is consistent with the FAA, and that it does not otherwise invoke state law which may be inconsistent with the FAA.  Employers can take some comfort in the policy favoring arbitration, including class action waivers, evidenced by the Supreme Court in the DirecTV opinion.

On August 27, 2015, the National Labor Relations Board, according to its own press release, “refined its standard for determining joint employer status” in the Browning-Ferris Industries of California decision.  In reality, the NLRB did far more than “refine its standard.”  The NLRB has, in fact, completely overhauled its joint employer test to the detriment of businesses that contract with third parties for the provision of labor. Under the new standard, a provider of contract labor and its customer will be considered joint employers even if the customer does not actually exercise control over the terms and conditions of the contract laborers’ employment, but only reserves to itself the right to exercise such control.  Although avoiding such a determination under the National Labor Relations Act should be sufficient motivation for companies that utilize contract laborers to take steps to avoid a joint employer determination, it is likely that other government agencies and plaintiffs’ attorneys will attempt to generalize the Browning-Ferris test to other statutory schemes—including the Fair Labor Standards Act and its state equivalents. There are several practical steps that customers of providers of contract labor can take to reduce the likelihood of a finding of joint employer status: Review their written agreements to determine whether those agreements contain provisions that expressly reserve to the customer the right to exercise control over the terms and conditions of the contract laborers’ employment. If possible, renegotiate their agreements to include terms that expressly disavow any such reservation of rights.  Irrespective of the contents of their contract labor agreements, contract labor customers should review the policies under which contract laborers perform services in their facilities. Perhaps most importantly, conduct an audit on the implementation of those policies to ensure that their employees are not engaging in conduct with respect to the supervision of contract laborers that could contribute to the potential for a finding of joint employer status. In addition to these steps, businesses that utilize contract laborers should continuously reevaluate, based upon developments such as the Browning-Ferris holding, whether the benefits of utilizing contract laborers outweigh the potential risks.

Your company has been served with a putative employment discrimination class action. You know the named plaintiff signed an arbitration agreement, but it is silent as to whether class arbitration is permitted or prohibited. Does this mean that your company is still faced with the risks and higher costs inherent in class arbitration? Some initial good news – silence on the issue of whether class arbitration is permitted or prohibited does not automatically result in class arbitration. The Supreme Court held inStolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), that class arbitration is not proper unless there is a “contractual basis” in the relevant agreement showing that the parties agreed to class arbitration. However, the Supreme Court did not explain what it meant by “contractual basis.” In other words, the Supreme Court unfortunately did not hold in Stolt-Nielsen that class arbitration is permitted only where there is an express provision for such a procedure in the arbitration agreement. This ambiguity has resulted in a case-by-case review by courts and arbitrators to decide whether class arbitration is permitted, with unpredictable results. Indeed, in 2013 the Supreme Court upheld an arbitrator’s decision to allow class arbitration despite the subject arbitration agreement’s silence on the issue. Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013). The Court seemed skeptical of the merits of the arbitrator’s decision, but because of the incredibly narrow standard of judicial review of arbitrators’ decisions, class arbitration was upheld in that case. Does the Court or the arbitrator decide whether your silent arbitration agreement allows class arbitration?  The two circuit Courts of Appeal to address the issue both have held that the availability of class arbitration is a question for a court to decide, unless the parties have clearly agreed to submit the question to the arbitrator.Opalinski v. Robert Half Int’l Inc.,761 F.3d 326 (3d Cir. 2014); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594 (6th Cir. 2013). Also, though unpublished and devoid of in-depth analysis, the Ninth Circuit likewise upheld a district court’s decision to prohibit class claims from being arbitrated. Eshagh v. Terminix Int’l, Co., 588 F. App’x 703 (9th Cir. 2014). Nevertheless, the remaining Circuits have not addressed the issue, so in those Circuits, concern remains regarding not only whether class arbitration will be permitted, but also who makes that decision for you. Generally, an arbitration agreement should not empower the arbitrator to decide whether class arbitration is permissible.  This is not to denigrate arbitrators, or suggest that arbitrators always allow class arbitration. Rather, if an arbitrator is empowered to make this crucial decision, there is no real option for appealing a decision permitting class arbitration. Note that if your arbitration agreement states that the parties agree that any arbitration will be conducted pursuant AAA’s Commercial Rules, your company has agreed to submit the availability of class arbitration to the arbitrator, per Rule 3 of the AAA’s Supplementary Rules for Class Arbitration. Reed v. Florida Metro. Univ., Inc.,681 F.3d 630 (5th Cir. 2012). Of course, the uncertainty of class arbitration in the face of a silent arbitration agreement can be avoided by including an express class arbitration waiver in the Agreement. This decision involves a host of considerations. Stay tuned!

The next term for the California Supreme Court will be robust with employment decisions. We provide you with the hottest cases to watch that may affect your business over the course of the next year. The court is poised to address rest breaks, classification of employee versus independent contractor, seating requirements and personnel file issues. Meanwhile, civil rights attorneys have recently filed in the trial courts a flurry of cases against shared “on demand” economy entities claiming that workers are misclassified. We will keep you informed of relevant developments in the law that may affect the decisions of the court. Augustus v. ABM Security Services, Inc., S224853. (B243788; 233 Cal.App.4th 1065; Los Angeles County Superior Court; BC336416, BC345918, CG5444421.)Petition for review after the Court of Appeal reversed the judgment in a civil action.  This case presents the following issues: (1) Do Labor Code, § 226.7, and Industrial Welfare Commission wage order No. 4-2001 require that employees be relieved of all duties during rest breaks? (2) Are security guards who remain on call during rest breaks performing work during that time under the analysis of Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833? Dynamex Operations West, Inc. v. Superior Court, S222732. (B249546; 230 Cal.App.4th 718; Los Angeles County Superior Court; C332016.) Petition for review after the Court of Appeal granted in part and denied in part a petition for peremptory writ of mandate.  This case presents the following issue: In a wage and hour class action involving claims that the plaintiffs were misclassified as independent contractors, may a class be certified based on the Industrial Welfare Commission definition of employee as construed in Martinez v. Combs (2010) 49 Cal.4th 35, or should the common law test for distinguishing between employees and independent contractors discussed in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 control? Kilby v. CVS Pharmacy, Inc./Henderson v. JPMorgan Chase Bank NA, S215614. (9th Cir. Nos. 12-56130, 13-56095; 739 F.3d 1192, Southern District of California, 3:09-cv-02051–MMA-KSC; Central District of California, 2:11-cv-03428-PSG-PLA.) Request under California Rules of Court, rule 8.548, that this court decide questions of California law presented in consolidated appeals pending in the United States Court of Appeals for the Ninth Circuit. The questions presented are: For purposes of IWC Wage Order 4-2001 § 14(A) and IWC Wage Order 7-2001 § 14(A), “(1) Does the phrase ‘nature of the work’ refer to an individual task or duty that an employee performs during the course of his or her workday, or should courts construe ‘nature of the work’ holistically and evaluate the entire range of an employee’s duties? (a) If the courts should construe ‘nature of the work’ holistically, should the courts consider the entire range of an employee’s duties if more than half of an employee’s time is spent performing tasks that reasonably allow the use of a seat? (2) When determining whether the nature of the work ‘reasonably permits’ the use of a seat, should courts consider any or all of the following: the employer’s business judgment as to whether the employee should stand, the physical layout of the workplace, or the physical characteristics of the employee? (3) If an employer has not provided any seat, does a plaintiff need to prove what would constitute ‘suitable seats’ to show the employer has violated Section 14(A)?” McLean v. State of California, S221554. (C074515; 228 Cal.App.4th 1500; Sacramento County Superior Court; 34201200119161CUOEGDS.) Petition for review after the Court of Appeal affirmed in part and reversed in part the judgment in a civil action. This case presents the following issues: (1) When bringing a putative class action to recover penalties against an “employer” under Labor Code section 203, may a former state employee sue the “State of California” instead of the specific agency for which the employee previously worked? (2) Do Labor Code section 202 and 203, which provide a right of action for an employee who “quits” his or her employment, authorize a suit by an employee who retires? Mendoza v. Nordstrom, S224611. (9th Cir,. No. 12-57130; 778 F.3d 834, Central District of California; 8:10-cv-00109-CJC-MLG.)Request under California Rules of Court, rule 8.548, that this court decide questions of California law presented in a matter pending in the United States Court of Appeals for the Ninth Circuit. The questions presented are: “(A) California Labor Code section 551 provides that ‘[e]very person employed in any occupation of labor is entitled to one day’s rest in seven.’ Is the required day of rest calculated by the workweek, or is it calculated on a rolling basis for any consecutive seven-day period? (B) California Labor Code section 556 exempts employers from providing such a day of rest ‘when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof.’ (Emphasis added.) Does that exemption apply when an employee works less than six hours in any one day of the applicable week, or does it apply only when an employee works less than six hours in each day of the week? (C) California Labor Code section 552 provides that an employer may not ‘cause his employees to work more than six days in seven.’ What does it mean for an employer to ‘cause’ an employee to work more than six days in seven: force, coerce, pressure, schedule, encourage, reward, permit, or something else? Poole v. Orange County Fire Authority, S215300. (G047691, G047850; 221 Cal.App.4th 155; Orange County Superior Court; 30-2011-00463651.) Petition for review after the Court of Appeal reversed the judgment in an action for writ of administrative mandate. This case presents the following issue: Did a daily log about firefighters, which was maintained by a supervisor and used by the supervisor to prepare annual performance evaluations, qualify under the Firefighters Procedural Bill of Rights Act (Gov. Code, § 3250 et seq.) as a personnel file and/or as a file used for personnel purposes?

The Uber mobile app, which matches consumers requesting rides with nearby drivers, is available in over 200 cities worldwide.  Uber’s revolutionary business model has been a remarkable commercial success and has inspired sharing economy startups in a variety of fields—a phenomenon known as "Uberification."  This fundamental evolution in the delivery of goods and services has drawn the attention of the plaintiff’s bar like wolves into the flock.  Lawsuits challenging the staffing models underlying the sharing economy pose a substantial threat to its realized efficiencies.  Recent lawsuits  by Uber drivers argue that they are employees, rather than independent contractors, under California law, and thus entitled to overtime wages, unemployment, cost reimbursements, and other traditional employment benefits and protections.  Because these cases have broad implications for the emerging sharing economy, not to mention fair fares to and from your local airport, we will be tracking these cases in a recurring “Uber Watch” series. Riding the wave of litigation arguing for an expanded definition of employment in the franchise context, attorneys for Uber drivers seek to expand the definition of employment under California law to include Uber drivers classified as independent contractors.  If the drivers’ arguments are accepted, Uber would be subject to the wide range of legal obligations owed by an employer to its employees.  The costs associated with an expanded definition of employment could potentially upend the sharing economy business model of many ventures.   A handful of class actions have been filed against Uber in the Northern District of California and have been assigned to the same federal judge, the Hon. Edward Chen.  Despite asserting different employment-related claims under different California laws, many of these cases place at issue whether Uber’s drivers are employees or independent contractors.  Identifying a potential common issue, on May 14, 2015, Judge Chen directed counsel in several Uber employment cases to discuss how to prepare their cases for summary adjudication, or even a trial, on that question. While the Court’s suggestion of consolidated partial adjudication is not unprecedented, and may in theory serve judicial economy, any such adjudication must comply with the strict class certification requirements of Federal Rule of Civil Procedure 23.  The rigor of these requirements is amplified by the factual differences across cases, which compound factual variances within each case’s claims.  The Court’s desire for judicial economy must also cede to Uber’s Constitutional due process rights, which arguably extend beyond the procedural guarantees of Rule 23 when multiple cases are consolidated for class adjudication of a single issue.  Management remains perplexed as to why the court, in its neutrality and call for judicial efficiency, appears to lean towards the plaintiffs favor in these actions. Stay tuned for further developments in Uber litigation and other cases challenging staffing models outside the traditional employment relationship.