Key Takeaways: The DOL has proposed a new multi-factor standard addressing vertical and horizontal joint employer status under the FLSA, FMLA and MSAWPA. The proposal could redraw wage-and-hour liability boundaries by expanding when multiple entities share responsibility. The Department of Labor strikes again. To help address circuit splits and compliance challenges on April 22, 2026, the DOL proposed a new rule attempting to establish a more uniform standard to determine whether joint employment exists under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSAWPA). Horizonal versus Vertical Joint Employment Joint employment is when a worker is considered employed by two or more entities such that each may be liable for compliance with the FLSA. Prior administrations have taken markedly different approaches—ranging from broader, worker-friendly interpretations to narrower, control-based frameworks—when determining whether joint employment exists, leaving employers navigating conflicting guidance. The DOL’s current proposal aims to resolve that inconsistency by creating separate tests for “vertical” and “horizontal” joint employment. Vertical joint employment exists when a worker has a direct employment relationship with one employer but is controlled by another. Horizontal joint employment exists when an individual works for two or more related employers that jointly control the work. The DOL’s proposed rule clarifies that horizontal joint employment would exist when separate entities are sufficiently related when it comes to the employment of a specific employee. “Sufficiently related,” for purposes of determining whether horizontal joint employment exists, does not require a formal affiliation but instead turns on whether the entities operate as part of a common business. The DOL will consider factors such as common ownership, overlapping management, shared operations, and coordination over employees in making this determination. In practice, the more the entities function as an integrated enterprise—rather than truly independent businesses—the more likely they are to be deemed sufficiently related and joint employers. Importantly, ordinary business relationships—such as franchising or vendor sharing—without involvement in the employee’s terms and conditions of employment would not, standing alone, establish joint employment. The Proposed Standard The proposed test for determining whether vertical joint employment exists is whether the potential joint employer: (1) hires or fires the employee (2) substantially supervises and controls the employee's schedule or conditions of employment (3) determines the employee's rate and method of pay (4) maintains the worker's employment records If the four factors unanimously point towards one finding or another, there would be a "substantial likelihood" that there is or is not joint employment. If the factors yield different conclusions, they are weighed holistically, and additional relevant factors may be considered. In practice, this signals a return to a control-based—but still flexible—analysis. Notably, the proposal excludes certain factors relevant in the independent contractor analysis—such as opportunity for profit/loss, investment, and special skills—confirming they are not relevant in determining whether joint employment exists. Where the FLSA and FMLA Converge The proposed rule could have a meaningful impact on FMLA coverage, particularly for employers near the 50-employee threshold. An employer is subject to the FMLA if it employs 50 or more employees within a 75-mile radius for at least 20 workweeks in the current or preceding calendar year. If the proposed rule results in a broader or more functional interpretation of joint employment, it could increase the likelihood that: A business is deemed a joint employer alongside a staffing agency, franchisee/franchisor, or subcontractor, and The workers in those relationships are aggregated when determining FMLA coverage. For some employers, this may be the most immediate compliance risk—not liability for wages, but newly triggered leave obligations. What Employers Should Know For employers, one of the most significant implications of the proposal is its potential to redraw liability boundaries. Businesses that have structured operations to minimize direct employment relationships—by outsourcing functions or relying on third-party labor providers—may face renewed scrutiny if they retain meaningful control over working conditions. Even “hands off” influence, if functionally significant, may favor a joint employment finding. In anticipation of the new rule, employers may consider: Reviewing contracts with staffing agencies and subcontractors to clarify independence Auditing the degree of control exercised over non-direct employees Assessing whether existing practices could be construed as indicative of joint employment Tracking state laws on joint employment to determine how different jurisdictional factors may converge Evaluating potential FMLA liability by recalculating employee counts, reviewing contracts and operational control over non-direct employees, and coordinating with staffing agencies on leave responsibilities and compliance protocols. While the DOL’s proposed rule likely won’t take effect until July, the takeaway is clear: if your business touches the work, it may own the risk. As the DOL continues to edge toward uniformity, the most successful organizations will be the ones that treat compliance as part of their business model moving forward. For questions about the proposal and its effects on employers, contact your Polsinelli attorney.

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.

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. 

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.

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 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.

On December 22, 2023, New York Governor Kathy Hochul declined to sign legislation (S3100) that would have outlawed noncompete clauses in virtually all employment contracts. If it had gone into effect, New York would have been the fifth state to ban non-competes outright, joining California, North Dakota, Oklahoma, and, most recently, Minnesota. In vetoing the bill, however, Governor Hochul did not forgo the possibility of a future ban. Rather, she expressed concern with the current bill’s “one-size-fits-all” approach – particularly considering the varying industries that call New York home, and their interests and needs to retain high-paid workers. These comments and discussions between the Governor and the New York State Senate appear to signal that it is possible that a noncompete ban may still be possible in the near future – if a salary threshold can be met. Prior to the veto, the Governor and the Senate had discussed exempting workers earning more than $300,000 per year. New York business leaders gave feedback that even a lower threshold of $250,000 could be a workable number. Another issue not addressed by the most recent proposed legislation is the exemption of noncompete provisions between buyers and sellers in the sales of businesses. Many other states with such bans or restrictions on noncompete agreements have such a carve-out. While the recent veto is a victory for New York employers, the reality is that noncompete provisions are still heavily under attack. Employers should carefully evaluate their policies and practices that protect their confidential information, trade secrets, and other valuable business interests to ensure that even if noncompete agreements are one day banned, they are adequately protected. Contact your Polsinelli attorney if you have any questions or need assistance regarding this or other restrictive covenant issues.

On July 9, 2021, President Biden made good on a campaign promise to address non-compete agreements by issuing a sweeping executive order that specifically targets barriers to competition. Specifically, the executive order encourages the Federal Trade Commission and other federal agencies to ban or limit non-compete agreements. However, no specifics are offered as to the breadth of any restrictions the Biden Administration would ultimately like to see. And even assuming those agencies respond to this encouragement, we expect the rulemaking process will not yield actionable results for a considerable period of time and is unlikely to result in a complete ban on the use of non-competes. In a press conference, the President stated that the executive order is in response to the growing number of employers utilizing non-competes in recent years – estimating that between 35 million and 60 million private-sector individuals are subject to non-competition agreements. The Biden Administration believes limiting or banning the use of non-competition agreements will increase economic growth and increase wages to allow workers mobility to switch to better-paying jobs. The executive order could prove to be an accelerant for states to initiate their own legislation limiting the use of non-competes – a recent state-law trend that has been gaining traction across the country, in which we have been closely monitoring over the last few years. Regardless of how broadly the executive order is written or when federal agencies ultimately issue new rules, the writing on the wall for years has indicated that the broad use of traditional non-compete agreements will continue to be limited. Employers would be wise to revisit the protections they have in place to protect trade secret and confidential information and their investments in employee training to ensure such protections are narrowly tailored to obtain court enforcement if challenged. One solution has been to move away from traditional non-compete agreements toward customer-based restrictions for the majority of employees. Polsinelli attorneys continue to monitor actions taken by federal agencies to enforce President Biden’s executive order and are prepared to assist employers with navigating the evolving non-compete landscape.

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.

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.

Employers have been waiting for the U.S. Department of Labor (“DOL”) to respond to the injunction halting the implementation of its 2016 proposal increasing the minimum salary threshold for the white collar exemptions. On March 7, 2019, the DOL issued its replacement proposal to the minimum salary requirement, raising the current $23,660 annual salary requirement to $35,308 annually (i.e., $679 weekly). This increase is in line with feedback presented at the DOL listening sessions and consistent with predictions of where the DOL would land on the salary increase. As a reminder, in 2016, the DOL proposed an increase that would have more than doubled the Fair Labor Standards Act’s (“FLSA”) minimum 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. Appeals followed; however, the DOL eventually indicated that it intended to revisit the increase. In the fall of 2018, the DOL held numerous listening sessions to receive public feedback regarding the minimum salary requirements, in which Polsinelli attorneys participated. In addition to this proposed increase, the DOL is seeking public comment regarding its proposed language concerning automatic increases to the salary threshold. Under the newly proposed rule, periodic increases would only be implemented after notice-and-comment periods. The automatic increases (without notice-and-comment) included in the 2016 proposed rule were a factor that led to injunctive relief being granted It is estimated that this new increase will result in over a million workers being reclassified as non-exempt and, thus, entitled to overtime.  While the salary increase certainly impacts fewer workers than the 2016 proposed increase, employers should work with experienced counsel to evaluate modifications (including pay adjustments or reclassification) to blunt the impact of the new rule on labor budgets and operational capabilities. As always, we will continue to monitor developments regarding these new rules and will keep you updated.

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.

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.

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.

With the smells of turkey, stuffing, and cranberry sauce about to fill kitchens across the country next week, people are getting ready for the holiday season. And as Norman Rockwell has taught us, nothing says the holidays more than a blanket of snow on the ground. But what happens when that blanket of snow prevents employees from reporting to work? Or, even worse, causes an employer to shut down its business for the day? Do you, as an employer, still have to pay your employees? As with most compensation issues, the answer depends on whether the employee is exempt or non-exempt. If weather conditions cause an employer to shut down operations and close, exempt employees are still entitled to pay for the duration of the closing, assuming the business is closed less than a workweek. The rationale is that the exempt employee is available for work, but it is the employer who has made the work unavailable to the employee. On the other hand, when an employer closes shop due to inclement weather, non-exempt employees are not entitled to wages during the closing. Of course, the employer has the discretion to allow non-exempt employees to use PTO during the closing. But what happens when the employer remains open despite inclement weather, and the employee does not report to work? If the employee is classified as non-exempt, the same rules apply – the employee is not entitled to wages during the absence, but the employer has the discretion to allow the non-exempt employee to use PTO for the absence. As for exempt employees, the answer can be a little more complicated. An exempt employee who stays home even though the employer is open for business is not entitled to pay for that day because the employee chose to remove him or herself from the workplace for personal reasons. If the employer has a PTO policy and the employee has accrued time, the employee can use PTO to cover his or her absence. In the event the employee has no accrued PTO available, the employer can reduce the employee’s pay for the absence—in full-day increments only—without violating the salary-basis test of the FLSA. However, this assumes that the exempt employee performs no work during the day while away from the office. If the exempt employee performs any work from home (e.g., answering emails, taking calls, working on the computer, etc.), the exempt employee is working and, thus, is entitled to his or her full salary for that day. Now, if the employee only works from home during some of the work day and takes some work time off, the employer may make deductions from the exempt employee’s PTO bank for the time not worked. However, the employee must still be compensated for the entire day of work – even if the employee does not have enough PTO in his or her bank to cover the partial day. It is imperative to ensure employees are properly compensated during inclement weather – particularly exempt employees so there is no risk of losing the exemption. Of course, it is recommended to engage qualified wage and hour counsel to help you navigate this tricky compensation area.

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.

This past year has seen an increase in gender discrimination and sexual harassment claims. More recently, these claims have not only been brought by women, but also by individuals using Title VII’s “sex” protected class to bring claims for harassment and discrimination based on sexual orientation, being transgender, and other LGBTQ classifications. With these claims becoming more prevalent, employers should review their current policies and train their employees on these policies. Below are four steps employers can take to avoid these types of claims. 1.    Be Specific Many well-intentioned employers assume that their employees know the actions that constitute “harassing” behaviors. In an effort to capture all harassing behaviors, many policies speak to harassment in general terms while giving few specific examples. Speaking of “harassment” in general terms may not properly educate employees regarding the behaviors the employer specifically considers discriminatory and/or harassing. Accordingly, employers should take a pragmatic approach and spell out exactly the conduct that is prohibited and/or may result in disciplinary action. While a policy does not have to be exhaustive, it should provide real life examples of discriminating and harassing conduct the company will not tolerate. Some examples include: Forwarding emails with derogatory/harassing jokes, memes, website links, images, etc. Negative jokes or comments based on sex, gender or other protected classes (including LGBTQ) at any time. Repeatedly asking a co-worker for dates, etc. Using derogatory slang terms relating to a person’s sex or sexual orientation. 2.    Training While it is important to have a policy in place that prohibits discrimination and retaliation, the policy is only one part of the equation. Another important aspect to enforcement is proper training. The majority of employers review their discrimination and harassment policies with employees during orientation. However, this training alone is not enough. Employers should review these policies with all their employees with some reasonable frequency. This is particularly true when there are changes, revisions, or new interpretations of protected categories (e.g., the increased protection for LGBTQ employees) or prohibited practices. Also, managers should be regularly trained and reminded about the conduct that constitutes discriminating and harassing conduct, how to appropriately address complaints of harassment and/or discrimination, how to properly document complaints, how to properly investigate complaints (e.g., how to interview witnesses, take notes, etc.), and how to make a proper determination at the end of an investigation and implement any corrective action. This also includes instructing managers on how to properly discipline and evaluate all employees honestly and consistently. 3.    Encourage Reporting An employer should be very clear that it takes all complaints of harassment and discrimination seriously and does not retaliate or tolerate retaliation against employees who make a complaint and/or participate in an investigation. This includes making it very clear to all employees that there is no such thing as a “formal” or “informal” complaint. If an employee makes a complaint to management – whether it is in writing, in passing, etc. – that complaint will be investigated thoroughly and addressed appropriately. Employees cannot avoid an investigation by making a request that the employer ignores the complaint or by stating they “don’t want to get anyone in trouble.” The employer must be clear that it has a strict stance against harassment and discrimination, fully investigates all complaints, and does not tolerate retaliation. 4.    Consistency Employers must be consistent when disciplining and evaluating their employees, applying their policies to employees, and when addressing and investigating all complaints of harassment and discrimination. Indeed, consistent application of policy helps to insulate employers from claims brought by employees alleging the employer treated employees who fall under a protected class in a discriminatory manner. Demonstrating that an employer is consistent in its treatment of employees also assists the employer when defending discrimination and harassment actions brought by employees through the EEOC, state administrative agencies, and litigation. Harassment and discriminatory claims can cost a company not only dollars in defending but time and business disruption. An employer that creates a culture that prohibits harassment and discrimination clearly communicates such policies and practices to its employees, and provides proper training to its management, will have a workforce that feels appreciated and protected and has a better chance of avoiding litigation.

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.

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.

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.

As discussed in our June 30, 2015 blog post, the Department of Labor (“DOL”) recently proposed changes to the salary requirements of the Fair Labor Standards Act’s (“FLSA”) white collar exemptions – putting many currently classified exempt employees in danger of losing their exempt status. While there are obvious issues related to revamping policies and record keeping practices for these affected employees, another issue lurks in the shadows – these once exempt employees regularly communicating and working outside of work hours via their smartphones. More and more communication in the workplace is being done via emails and text messages on smartphones – particularly by exempt employees because their work  hours are not tracked and they are not eligible for overtime. With the DOL’s newly proposed rules, what is a company to do with employees who were once exempt and regularly used their smartphone for work and are now no longer exempt? This question has not flown under the DOL’s radar. In its Spring 2015 regulatory agenda, the DOL’s Wage and Hour Division announced a request for information regarding “the use of technology, including portable electronic devices, by employees away from the workplace and outside of scheduled work hours.”  While the DOL did not propose any formal rule-making on the issue, it is likely the DOL will implement new rules relating to non-exempt employees’ use of smartphone and other electronic devices outside of normal work hours. Non-exempt employees may sue employers for unpaid wages and overtime for time spent responding to electronic communication on smartphones outside of work hours.  The FLSA also allows “similarly situated” employees to litigate collectively to recover alleged unpaid overtime, unpaid wages, liquidated damages, and attorneys’ fees and costs.  The number of lawsuits on this particular issue is relatively small thus far but is growing.  Ironically, Verizon and T-Mobile have both been the subject of FLSA collective action suits where the plaintiffs alleged the companies required them to carry smartphones and monitor and respond to work-related emails and text messages at all hours.  These cases ultimately settled before the filing of any dispositive motions. However, in Allen v. City of Chicago, No. 10-C-3183, 2013 WL146389 (N.D. Ill. January 14, 2013), a police officer sued the City of Chicago for unpaid overtime related to off-the-clock usage of his smartphone device.  The officer alleged that the police department issued police officers electronic devices and required them to respond to work-related emails, text messages, and voicemails around the clock while off duty.  The court conditionally certified a class of all police officers employed by the City that were required to carry smartphones, and in October 2014, denied the City’s motion to decertify the class.  The case is still pending. Regardless of the increased prevalence of these cases, the advantages of smartphone use by employees and an employer’s ability to easily communicate with those employees outside work hours ensures that smartphones are here to stay.  If employers still wish for their employees to be connected via smartphone – even if the employee no longer meets the white collar exemption under the DOL’s new proposed rules – certain precautions should be taken: 1.  Employers must ensure that employees are properly classified as exempt or non-exempt based on their duties actually performed and salary. 2.  If at all possible, the issuance of smartphones or the ability of employees to use their own smartphone to access employer emails should only be granted to exempt employees. 3.  If smartphones must be used by non-exempt employees, those employees should be required to keep detailed time records of each phone-related activity, including the date, time, and description of the communication, and how long the employee spent reviewing and responding to the communication.    4.  Employers must have and routinely educate employees on a policy against performing unauthorized work and off-the-clock work.  Similarly, employers must follow through with disciplinary action against employees who violate the policy, including, but not limited to, confiscating employer-owned phones, suspending the employee’s ability to access the employer’s email via their own smartphone, and termination. 5.  Employers should monitor employee’s access to and use of the employer’s network and email systems to ensure employees are following the employer’s policies. 6.  The employer can require supervisors to send emails with a “delayed delivery” so non-exempt employees do not receive emails until they are on-the-clock during normal work hours. Because of the rampant use of smartphones and electronic devices in the business world, coupled with the DOL’s Spring 2015 Request for Information, it is likely that litigation on this topic will become more prevalent.  Employers are encouraged to preemptively address off-the-clock smartphone usage by those employees that soon may be reclassified as non-exempt under the DOL’s proposed changes to the white collar exemptions.