Tag: Fair Labor Standards Act

Time Is Money: A Quick Wage-Hour Tip on … the Tip Credit

Gratuities are often helpful for both employees and their employers: tips supplement a worker’s income, and federal law and the laws of most states allow employers to credit a portion of a worker’s tips toward the company’s minimum wage obligations. But what exactly is a tip and how do employers take this so-called “tip credit?”

What is a tip or gratuity?

The Fair Labor Standards Act (“FLSA”) defines a tip as “a sum presented by a customer as a gift or gratuity in recognition of service performed[.]” 29 C.F.R. § 531.52. Tips are separate from the payment due for the service, and whether to tip and in what amount is in the sole decision of the customer. If a customer provides a tip, it is generally the property of the tipped employee. Employers, including supervisors, may not take any portion of employee tips, except employers may offset reasonable processing fees from a tip provided by credit card so long the deduction does not reduce the employee’s hourly wage below the minimum wage. 29 U.S.C. § 203(m)(2)(B); 29 C.F.R. §§ 531.52, 531.53.  However, note that some states (e.g., California) prohibit employers from deducting credit card processing fees from employee tips.

Tips a should not be confused with mandatory service or administrative charges (“service charges”) that an establishment imposes on customers, and which are increasingly common in the restaurant industry. Service charges are not tips because they do not involve customer discretion. Further, service charges are the employer’s property and part of its taxable gross receipts.

If the employer distributes all or some portion of the charges to its employees, the amount distributed is treated as employee wages and not gratuities. Although service charges distributed to employees can help satisfy an employer’s minimum wage requirements under the FLSA, service charges cannot count as tips for the purposes of satisfying the tip credit. See 29 C.F.R. § 531.55.

What is a tip credit?

The FLSA allows employers to pay “tipped employees” a reduced hourly wage (currently $2.13 per hour) so long as the cash wage plus tips received by an employee satisfy the federal minimum wage (currently $7.25 per hour). The “tip credit” is the portion of an employee’s tips the employer can apply toward its minimum wage obligations. 29 U.S.C. § 203(m); 29 C.F.R. § 531.59(b).

What is a tipped employee?

Employers may take a tip credit for employees who work in an occupation in which they customarily and regularly receive more than $30 per month in tips. 29 U.S.C.A. § 203(t). These “tipped employees” can be full-time, part-time, permanent, or temporary employees. and usually include wait staff, bartenders, and hairdressers, but not dishwashers, cooks, or janitors. 29 C.F.R. §§ 531.56(a), 531.57.

The “customarily and regularly” standard provides some flexibility for employers to account for slow months. Tipped employees can sometimes receive less than $30 in tips in a particular month but still meet the standard, so long as they receive the required amount in tips more than occasionally. See 29 C.F.R. § 531.57.

What if the tipped employee performs multiple roles?

Tipped employees are considered to have “dual jobs” if they are employed in two occupations for the same employer (e.g., a janitor who is also a bartender). If an employee has dual jobs, the FLSA’s regulations permit employers to take a tip credit for only those hours the employee spends working in their tipped occupation (e.g., the time spent working as a bartender). 29 C.F.R. § 531.56(e).

However, work that is part of an employee’s tipped occupation is not strictly limited to tip-producing work such as making and serving a drink. In December 2021, the Department of Labor promulgated a rule clarifying that employers may take a tip credit for tip-producing work and directly supporting work (e.g., restocking the bar or rolling silverware), provided the employee does not perform the directly supporting work for a substantial amount of time. The rule defines “substantial” as either more than 20% of the employee’s workweek or a continuous period of more than 30 minutes. In other words, according to this regulation, employers cannot take a tip credit for any directly supporting work that exceeds the 20% threshold or exceeds 30 continuous minutes.  This regulation is currently facing a challenge in the courts, with restaurant associations contending that the rule is contrary to the FLSA.

What are the employer’s notice and recordkeeping obligations?

Before taking a tip credit, the FLSA’s regulations require employers to notify all tipped employees of the following:

  • the amount of cash wage the employer is paying the tipped employee;
  • the additional amount claimed by the employer as the tip credit;
  • the tip credit claimed by the employer cannot exceed the amount of tips actually received by the employee;
  • that all tips received by the tipped employee are to be retained by them except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and
  • that the tip credit will not apply unless the employee has been informed of these provisions.

29 C.F.R. § 531.59(b). Employers may provide the tip credit notice orally or in writing but should require employees to sign an acknowledgement that they received and understood the notice and maintain copies of the signed acknowledgment in employee personnel or payroll files to document compliance. Generally, employers should provide the tip credit notice to new employees upon hire and to existing employees whenever there are changes to the minimum wage, cash wage, tip credit, or mandatory tip pool requirements (if appliable). Employers who take a tip credit without providing the proper advanced notice may be required to pay tipped employees the difference between the cash wage and the minimum wage for all hours worked before the employer provided the notice.

In addition to providing advanced notice, employers who take a tip credit must maintain and preserve payroll records that contain all the information required for non-exempt employees under 29 C.F.R. § 516.2(a), and:

  • a symbol, letter, or other notation in their pay records that identities each employee receiving a wage determined in part by tips;
  • the weekly or monthly amount of tips reported by each employee to the employer;
  • the amount of any tip credit taken, up to the maximum permitted by the FLSA (note: employers must notify employees in writing each time the tip credit amount changes);
  • the number of hours worked each workday in which the employee does not receive tips (i.e., worked in any non-tipped occupation) and the total daily or weekly straight-time pay for such hours; and
  • the hours worked each workday in any tipped occupation and the total daily or weekly straight-time earnings for such hours.

29 C.F.R. § 516.28(a).

States Laws on Tip Credit

State and local laws may have different rules when it comes to tip credits. For example, some states allow employers to take a tip credit, but require them to pay a higher cash minimum wage to employees. Other states may provide different definitions for a tipped employee or permit tip credits under different circumstances than the FLSA.

Currently, seven states prohibit employers from taking a tip credit: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. Further, in November 2022, District of Columbia voters approved Initiative 82, which will phase out the tipped minimum wage by July 2027. Although the D.C. Council recently postponed the initial increase to the minimum regular cash wage (and decrease to the maximum tip credit) from January 1, 2023, until May 1, 2023, the rest of the schedule remains unchanged.

©2023 Epstein Becker & Green, P.C. All rights reserved.
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DOL Issues Guidance on Handling Telework Under FLSA, FMLA

The U.S. Department of Labor (DOL) has issued guidance on the application of the Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA) to employees who telework from home or from another location away from the employer’s facility.

The Field Assistance Bulletin (FAB) 2023-1, released on February 9, 2023, is directed to agency officials responsible for enforcement and provides employers a glimpse into how the DOL applies existing law and regulations to common remote-work scenarios. FAB 2023-1 addresses FLSA regulations governing “hours worked,” rules related to break time and privacy for nursing employees, and FMLA eligibility factors.

Hours Worked

In the FAB, the DOL reviews the rules governing compensability of work time, explaining that, regardless of work location, short breaks (typically, 20 minutes or less) generally are counted as compensable hours worked, whereas, longer breaks “during which an employee is completely relieved from duty, and which are long enough to enable [the employee] to use the time effectively for [their] own purposes[,] are not hours worked.” Examples of short breaks, whether at home or in the office, include when an employee takes a bathroom or coffee break or gets up to stretch their legs.

Longer rest breaks and periods of time, when employees are completely relieved from duty and able to use the time for their own purposes, are not considered work time. Just as would be the case when an employee is working in the office, if during remote work an employee’s 30-minute lunch break is interrupted by several work-related phone calls, that 30-minute period would be counted as hours worked. Conversely, if an employee working from home takes a three-hour break to pick up their child or to perform household chores, that time does not count as work time under the FLSA. In short, the FAB reiterates the telework guidance set forth by the DOL in a Q&A series published during the height of the COVID-19 pandemic.

The FAB emphasizes that, regardless of whether an employee performs duties at home, at the worksite, or at some other location, if the employer knows or has reason to believe that work is being performed, the time must be counted as hours worked. Importantly, the FAB notes that an employer may satisfy its obligation to exercise reasonable diligence to acquire knowledge regarding employees’ unscheduled hours of work by providing a reasonable reporting procedure for employees to use when they work non-scheduled time and paying employees for all hours worked. This guidance was addressed in greater detail in FAB 2020-5.

Guidelines for Nursing Employees

The FAB further clarifies that, under the FLSA, an employer’s obligation to provide employees “reasonable break time,” as well as an appropriate place to express breast milk, extends to employees who are teleworking or working at an off-site location. Just as an employer has an obligation to provide an “appropriate place” for an employee to express milk while working at a client site, the employer should ensure a teleworking employee has privacy from a “computer camera, security camera, or web conferencing platform” to express milk.

Employers are not required to pay employees for otherwise unpaid breaks simply because the employee is expressing breast milk during the break, but if an employee is working while pumping (or if the pumping occurs during an otherwise paid break), they must be paid for that time. For example, in most cases, if a remote employee attends a call or videoconference off camera while pumping, that employee would be considered on duty and must be paid for that time.

The recently enacted PUMP Act expanded existing employer obligations under the FLSA to cover exempt employees, as well as non-exempt employees. The DOL has published more guidance on breast milk pumping during work.

Eligibility Under FMLA

The DOL also addresses FMLA eligibility requirements for remote employees both in terms of hours worked (employee must work 1,250 hours in the previously 12 months) and the small worksite exception (employee must work at a worksite with at least 50 employees in a 75-mile radius).

As with the FLSA, it is important for employers to have a system to track their remote workers’ hours. With respect to hours worked, the FAB reiterates that the 1,250 hours determination for remote worker is based on compensable hours of work under FLSA principles.

With respect to the worksite size determination, the FMLA regulations explain that an employee’s personal residence is not a worksite. Instead, whether a remote employee is FMLA-eligible is based on the size of the worksite from which “they report to” or “their assignments are made.” If a remote employee reports into or receives assignments from a site with 50 or more employees working at that site (or reporting to or receiving assignments from that site) or within 75 miles, then that employee would meet that eligibility factor.

The DOL provided two examples of this rule:

  • When both a store employee and their supervisor are working from their homes temporarily due to a weather emergency, for FMLA eligibility purposes, the store remains their worksite.

  • When remote employees are working in various cities more than 75 miles away from the company headquarters but receiving assignments from a manager working at the headquarters, for FMLA-eligibility determination, the company’s headquarters would be considered the workplace for the remote employees.

Employers are reminded to review state and local wage and hour laws, paid and unpaid leave laws, and lactation accommodation laws.

Article By Jenifer M. Bologna, Justin R. Barnes, and Jeffrey W. Brecher of Jackson Lewis P.C.

For more labor and employment legal news, click here to visit the National Law Review.

Jackson Lewis P.C. © 2023

SCOTUS Takes a Pass on “Gap Time” Dispute

It’s two months into argument season at the Supreme Court, and we’re always keeping our fingers crossed that the justices will take up a wage and hour issue and clear up some ambiguities in the law or a circuit split.

Top billing this SCOTUS term goes to Helix Energy Solutions Group, Inc. v. Hewitt, in which the Court will address whether a supervisor who earned more than $200,000 a year but was paid on a daily basis is exempt from the overtime laws as a “highly compensated employee” under 29 C.F.R. § 541.601, notwithstanding the salary basis rules in 29 C.F.R. § 541.602 and 29 C.F.R. § 541.604.  The Court held arguments on October 12, and you can read the transcript here.  We’ll report on that decision as soon as it’s published.

This week’s news is a denial of a petition for a writ of certiorari in Cleveland County, North Carolina v. Conner, a case about gap time.  The plaintiff in the case—an EMT worker—was paid under a fairly complex set of ordinance-based and contractual terms, but the gist of her claim was that the county shorted her on straight-time pay she was owed under her contract, and by doing do violated the Fair Labor Standards Act.  The district court dismissed the claim, on the ground that the FLSA governs minimum wage and overtime pay, but not straight-time pay (assuming no minimum wage violation).  On appeal, however, the Fourth Circuit noted that “there are situations … that fall between [the minimum wage and overtime] provisions of the FLSA.  It explained:

In addition to seeking unpaid overtime compensation, employees may seek to recover wages for uncompensated hours worked that fall between the minimum wage and the overtime provisions of the FLSA, otherwise known as gap time ….  Gap time refers to time that is not directly covered by the FLSA’s overtime provisions because it does not exceed the overtime limit, and to time that is not covered by the FLSA’s minimum wage provisions because … the employees are still being paid a minimum wage when their salaries are averaged across their actual time worked.  (Internal citations and alterations omitted.)

The Court of Appeals differentiated between two types of gap time—“pure gap time” and “overtime gap time”—with the former referring to unpaid straight time in a week in which an employee works no overtime, and the latter referring to unpaid straight time in a week in which the employee works overtime.  The court noted, correctly, that no provision of the FLSA addresses gap time of either type, and that there is no cause of action under the FLSA for “pure gap time” absent a minimum wage or overtime violation by the employer.  Such claims would arise, if at all, under state law.

On the other hand, the circuit court noted that courts are divided on whether an employee can bring an “overtime gap time claim” under the FLSA.  While the statute itself is silent on the issue, the U.S. Department of Labor’s interpretation of the FLSA—set forth in 29 C.F.R. § 778.315—states that:

[C]ompensation for … overtime work under the Act cannot be said to have been paid to an employee unless all the straight time compensation due him for the nonovertime hours under his contract (express or implied) or under any applicable statute has been paid.

In its simplest sense, the argument for recognizing “overtime gap time” claims under the FLSA is this:  Say an employer promises an overtime-eligible employee base pay of $1,000 per week for up to 40 hours of work, and the employee works more than 40 hours in a given week.  In that scenario, the employee’s hourly overtime rate would by $37.50 ($1000 ÷ 40 yields a regular rate of $25, and time-and-a-half on $25 is $37.50).  But if the employer only pays the employee $800 in base pay for the week and not the promised $1,000, the regular rate becomes $20 ($1000 ÷ 40) and the hourly overtime rate becomes $30 (time-and-a-half on $20).  So the employee is short-changed $7.50 on each overtime hour, which the Fourth Circuit found violates 29 C.F.R. § 778.315 and the spirit, if not the letter, of the FLSA.

“Pure gap time” is different, in this important sense:  it only arises when the employee has not worked any overtime in the week.  So there is no possibility of short-changing the employee on overtime pay, and—assuming the employee has, on average, received the minimum wage for all hours worked that week—no other provision of the FLSA that provides any relief.  (The employee is ostensibly free to seek relief under an applicable state wage payment law or common law for failure to pay promised compensation.)

The Fourth Circuit concluded that 29 C.F.R. § 778.315 has the “power to persuade,” and therefore is entitled to “considerable deference” under Skidmore v. Swift & Co., 323 U.S. 134 (1944).  As such, the court held that “overtime gap time claims” are indeed cognizable under the FLSA, and that “courts must ensure employees are paid all of their straight time wages first under the relevant employment agreement, before overtime is counted.”  The court acknowledged a circuit split on the issue, with the Second Circuit declining to afford deference to 29 C.F.R. § 778.315 and rejecting “overtime gap time” claims as lacking a statutory basis (“So long as an employee is being paid the minimum wage or more, [the] FLSA does not provide recourse for unpaid hours below the 40–hour threshold, even if the employee also works overtime hours the same week.”).

The county filed a petition for a writ of certiorari with the Supreme Court, presenting not only the question of whether the FLSA permits “overtime gap time” but also seeking clarification on how federal courts should apply the Skidmore doctrine to agency interpretations such as 29 C.F.R. § 778.315.  The Supreme Court denied the petition on December 12, leaving both questions for another day.

© 2022 Proskauer Rose LLP.
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Supreme Court Questions Whether Highly Compensated Oil Rig Worker Is Overtime Exempt

On October 12, 2022, the Supreme Court of the United States heard oral arguments in a case regarding whether an oil rig worker who performed supervisory duties and was paid more than $200,000 per year on a day rate basis is exempt from the overtime requirements of the Fair Labor Standards Act (FLSA).

The case is especially significant for employers that pay exempt employees on a day rate. It could have a major impact on the oil and gas industry in the way that it recruits, staffs, and compensates employees who work on offshore oil rigs and at remote oil and gas work sites. In addition, depending on how the Supreme Court rules, its decision could have much broader implications.

During the arguments in Helix Energy Solutions Group, Inc. v. Hewitt, the justices questioned whether, despite the employee’s high earnings, he was eligible for overtime compensation because he was paid by the day and not on a weekly salary basis. There is no express statutory requirement that an employee be paid on a “salary basis” to be exempt from overtime requirements, but such a requirement has long been included in the regulations issued by the U.S. Department of Labor (DOL) applicable to the FLSA’s white-collar exemptions. Notably, Justice Brett Kavanaugh suggested during the arguments that the regulations may be in conflict with the text of FLSA, although Helix did not raise this issue in its petition for certiorari.

Background

The case involves an oil rig “toolpusher,” an oilfield term for a rig or worksite supervisor, who managed twelve to fourteen other employees, was paid a daily rate of $963, and earned more than $200,000 annually. Between December 2014 and August 2017, when Michael Hewitt was discharged for performance reasons, he worked twenty-eight-day “hitches” on an offshore oil rig where he would work twelve-hour shifts each day, sometimes working eighty-four hours in a week. After his discharge, Hewitt filed suit alleging that he was improperly classified as exempt and therefore was entitled to overtime pay. The district court ruled in favor of Helix.

In September 2021, a divided (12-6) en banc panel of the U.S. Court of Appeals for the Fifth Circuit held that Hewitt was not exempt from the FLSA because his payment on a day-rate basis did “not constitute payment on a salary basis” for purposes of the highly compensated employee (HCE) exemption that is found in the FLSA regulations.

The Fifth Circuit further concluded that the employer’s day-rate pay plan did not qualify as the equivalent of payment on a salary basis under another FLSA regulation because the guaranteed pay for any workweek did not have “a reasonable relationship” to the total income earned. In other words, the court found that the employee was not exempt because the $963 he earned per day was not reasonably related to the $3,846 the employee earned on average each week.

Oral Arguments

Oral arguments at the Supreme Court focused on the interplay between the DOL’s HCE regulation, 29 C.F.R. § 541.601, and another DOL regulation, 29 C.F.R. § 541.604(b), which states that an employer will not violate the salary basis requirement under certain limited circumstances even if the employee’s earnings are computed on an hourly, daily, or shift basis.

At the time of Hewitt’s employment, the HCE exemption required an employee to be paid at least $455 per week on a “salary or fee basis” and to earn at least $100,000 in total annual compensation. Those threshold amounts have since been increased to $684 per week and $107,432 per year.

The other regulation, 29 C.F.R. § 541.604(b), states that an employee whose earnings are “computed on an hourly, a daily or a shift basis” may still be classified as exempt if the “employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned. The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily, or shift rate for the employee’s normal scheduled workweek.”

Hewitt earned double the minimum total compensation level for the HCE exemption. Since the minimum salary level for the exemption was only $455 per week, and Hewitt was guaranteed that he would be paid at least $963 per week for each week he worked at least one day, Helix argued that he was exempt from the FLSA’s overtime requirements because the HCE exemption was completely self-contained and to be applied without regard to other regulations, including the “salary basis” test and the minimum guarantee regulation. Hewitt argued that the HCE exemption required compliance with either the “salary basis” test or the minimum guarantee regulation since he was admittedly paid on a day rate basis.

However, Justice Ketanji Brown Jackson suggested that it was not that simple. Justice Jackson said the question of salary basis is more about the “predictability and regularity of the payment” for each workweek. “What he has to know is how much is coming in at a regular clip so that he can get a babysitter, so that he can hire a nanny, so that he can pay his mortgage,” Justice Jackson stated. Justice Jackson echoed the language of the salary basis test requiring that an exempt employee be paid a predetermined amount for any week in which she performed any work.

Similarly, Justice Sonia Sotomayor asked Helix, “so what you’re asking us to do is take an hourly wage earner and take them out of 604, which is the only provision that deals with someone who’s not paid on a salary basis.” Justice Sotomayor additionally raised the FLSA’s goal of “preventing overwork and the dangers of overwork.”

In contrast, Justice Clarence Thomas suggested that Hewitt’s high annual compensation relative to the average worker is a strong indication that he was paid on a salary basis and should be exempt. “The difficulty is just, for the average person looking at it, when someone makes over $200,000 a year, they normally think of that as an indication that it’s a salary,” Justice Thomas stated.

Justice Kavanaugh asked if the issue of whether the DOL regulations conflict with the FLSA is being litigated in the courts. He said, “it seems a pretty easy argument to say, oh, by the way, or maybe, oh, let’s start with the fact that the regs [sic] are inconsistent with the statute and the regs [sic] are, therefore, just invalid across the board to the extent they refer to salary.” He further stated, “if the statutory argument is not here, I’m sure someone’s going to raise it because it’s strong.”

Key Takeaways

It is difficult to predict how the Supreme Court will rule in this case. A decision that requires strict adherence to the regulation’s reasonable relationship test, even when the minimum daily pay far exceeds the minimum weekly salary threshold, would have a significant negative impact on the manner in which certain industries compensate their workers. It also could lead to even more litigation by highly compensated employees, many of whom make more money without receiving overtime pay than what many people who currently are paid overtime compensation make.

Depending upon its breadth, a decision that the regulations are in conflict with the statutory text of the FLSA could provide a roadmap for additional challenges to other parts of the regulations. This could have a wide-ranging impact, as the DOL currently is in the process of preparing a proposal to revise its FLSA regulations. Then again, if a future litigant takes up Justice Kavanaugh’s invitation to challenge whether the salary regulations are overbroad compared to the language of the FLSA, the current effort to revise the regulations regarding exemptions for executive, administrative, and professional employees may be moot.

Article By Andrew P. Burnside, Steven F. Pockrass, and Zachary V. Zagger of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

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© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

Supreme Court Takes Up FLSA High Earners Exemption

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.

For more Labor and Employment legal news, click here to visit the National Law Review.

© Polsinelli PC, Polsinelli LLP in California

Federal District Court Says Pre-Shift COVID Screening Time Not Compensable

In the first reported decision we’ve seen addressing the issue head on, a federal district court in California dismissed a putative collective action claim under the Fair Labor Standards Act (FLSA) seeking payment for time spent in pre-shift COVID screening.

Prior to clocking in each day, the plaintiff—a non-exempt truck driver whose job duties included loading and transporting automobile parts from a central distribution center to stores throughout southern California—was required to submit to COVID-related health screening conducted on his employer’s premises.  During the screening process, a company employee asked the plaintiff a series of questions and took the plaintiff’s temperature.  The total time spent in the screening process often exceeded five minutes, which included waiting time.

The plaintiff filed a collective action claim, contending that the time spent by him and other employees participating in the daily screening was compensable under the FLSA.

Starting with the premise that time spent in pre-shift activities is only compensable under the FLSA if it is “integral and indispensable” to the employee’s “principal activities or activities which [the] employee is employed to perform,” the district court granted the employer’s motion to dismiss the FLSA claims, noting:

A pre-shift COVID screening is not the “principal activity or activities which [the] employee is employed to perform.”  29 U.S.C. § 254(a)(1).  O’Reilly did not hire the employees to undergo health screenings, but instead to load and transport products to stores….  [T]he pre-shift COVID screenings were not “integral and indispensable” to the employees’ duties because the screening was not an intrinsic element of the loading and transporting of products to the stores.  The screenings were not indispensable to the employees’ duties because O’Reilly could eliminate them completely without hindering the employees’ ability to perform their duties….  A pre-shift COVID temperature check and short questions regarding exposure do not share the required nexus with Plaintiff’s duties of retrieving automotive parts and delivering them to auto part stores to make the screening a compensable activity that is integral and indispensable to those activities.

Notably, the court referenced—and then distinguished—the U.S. Department of Labor’s COVID-19 and the Fair Labor Standards Act Questions and Answers, which were issued during the height of the pandemic and which many employers felt were ambiguous on the issue of which COVID-related activities were and weren’t considered “hours worked” under the FLSA:

Unlike the nurse in the DOL example whose principal job duty is to keep patients healthy and has direct patient contact, Plaintiff’s principal activities consisted of manual labor and transportation of auto parts to stores.

We examined those agency Q&As—and the broader issues around compensability of time spent in vaccination, testing, and screening activities—in an earlier blog.

The decision is Pipich v. O’Reilly Auto Enterprises, LLC (S.D. Cal. Mar. 15, 2022).

Article By Allan S Bloom of Proskauer Rose LLP

For more coronavirus legal news, click here to visit the National Law Review.

© 2022 Proskauer Rose LLP.

Supreme Court Declines to Resolve Circuit Split on Exercise of Personal Jurisdiction in FLSA Collective Actions

On June 6, 2022, the Supreme Court of the United States declined to hear petitions seeking review of whether federal courts may exercise personal jurisdiction over claims of nonresident plaintiffs who join Fair Labor Standards Act (FLSA) collective actions when their claims are not connected to the defendant’s activities in the forum state. The petitions sought review of rulings on the issue by the First and Sixth Circuit Courts of Appeals in Waters v. Day & Zimmermann NPS, Inc. and Canaday v. The Anthem Companies, Inc., respectively. As a result of the Supreme Court’s decision declining to hear the petitions, there remains a circuit split as to whether the Court’s 2017 ruling in Bristol-Myers Squibb Co. v. Superior Court applies to FLSA collective actions, and employers with nationwide footprints remain subject to uncertainty depending on jurisdiction.

To date, only the First, Sixth, and Eighth Circuits have ruled on the issue. On August 17, 2021, the Sixth Circuit was the first to address the issue in Canaday. There, the Court held that federal courts may not exercise personal jurisdiction over claims of nonresident plaintiffs who join FLSA collective actions when their claims are not connected to the defendant’s activities in the forum state. Just one day later, on August 18, 2021, the Eighth Circuit came to the same conclusion in Vallone v. CJS Solutions Group, LLC.

On January 13, 2022, in Waters, the First Circuit held to the contrary, concluding that federal courts do have personal jurisdiction over claims asserted by nonresident opt-in plaintiffs.

The Significance of Bristol-Myers

The Supreme Court’s decision in Bristol-Myers provides the basis for the current circuit split. Bristol-Myers involved a mass tort action under state law for alleged defects in a blood-thinning drug, Plavix, which the company manufactured. Residents and nonresidents of California sued Bristol-Myers in California state court, alleging injuries related to the drug. The nonresident plaintiffs claimed no relationship with the forum state, nor did they purchase Plavix in California or suffer any harm from it in California. The Supreme Court reasoned that any similarity between the resident and nonresident plaintiffs’ claims was an “insufficient basis” to exercise specific jurisdiction. Unless nonresident plaintiffs could demonstrate that their claims arose out of the defendant’s contacts with the forum state, personal jurisdiction over the company did not exist, no matter “the extent of a defendant’s unconnected activities in the State.”

In ruling that the California state court lacked jurisdiction over the claims of the nonresident plaintiffs, the Supreme Court acknowledged that its holding might ultimately generate more litigation in the form of separate actions by nonresident plaintiffs in their respective states. But the Supreme Court also noted that all plaintiffs to the action could have brought a mass tort action against Bristol-Myers in New York (the company’s headquarters) or Delaware (its place of incorporation) because courts in those states would have had general personal jurisdiction over the company. Instead, the California state court could exercise only specific personal jurisdiction over the company based on its activities in the state. Notably, Bristol-Myers was limited to Rule 23 class actions, leaving lower courts to determine whether its holding applied to FLSA collective actions, which differ procedurally.

The Circuit Split

In Canaday, the Sixth Circuit reiterated the basic tenet that, pursuant to the Due Process Clause of the Fourteenth Amendment, the question of whether a court has personal jurisdiction over a defendant depends on the defendant’s contacts with the state in which the plaintiff filed the lawsuit. Because Anthem is both incorporated and headquartered in Indiana and not otherwise “at home” in the state of Tennessee, the district court in Tennessee lacked general jurisdiction over Anthem as a defendant. At issue was whether the district court in Tennessee had specific personal jurisdiction over Anthem, and thus, whether there was a claim-specific and Anthem-specific relationship between the nonresidents’ FLSA claims and the state of Tennessee.

Applying Bristol-Myers, the Sixth Circuit held that there was not. The court found that the nonresident plaintiffs did not bring claims arising out of or relating to Anthem’s conduct in Tennessee, because Anthem neither employed nor paid the nonresident plaintiffs within the state. The Sixth Circuit went on the explain that adherence to this approach should not change the way FLSA collective actions are filed, because plaintiffs traditionally file their actions where courts have general jurisdiction, or where the conduct occurred. Of note, Sixth Circuit Judge Bernice Donald dissented in Canaday, contending that Bristol-Myers does not apply to FLSA collective actions because the Supreme Court in that case addressed only the limitations of state courts, not federal courts, in their exercise of personal jurisdiction over nonresidents.

In Waters, the First Circuit largely followed the reasoning in Judge Donald’s dissent, concluding that the Supreme Court’s decision in Bristol-Myers Squibb “rest[ed] on Fourteenth Amendment constitutional limits on state courts exercising jurisdiction over state-law claims” and thus did not control whether a federal court could exercise jurisdiction over federal claims asserted by nonresident plaintiffs. The First Circuit also observed that the plain language of Rule 4(k) of the Federal Rules of Civil Procedure merely concerns the service of summonses and does not “constrain[] a federal court’s power to act once a summons has been properly served, and personal jurisdiction has been established.”

Key Takeaways

The Supreme Court’s decision to deny the petitions means that employers with nationwide footprints continue to live with potentially inconsistent rulings on the question of whether a federal district court has jurisdiction to hear claims of out-of-state workers when the defendant is neither headquartered nor incorporated in the state. Canaday and Vallone stand to significantly limit the size and geographic scope of FLSA collective actions in the Sixth and Eighth Circuits, absent a district court’s exercise of general jurisdiction over a corporate defendant, while Waters permits nationwide jurisdiction in the First Circuit. For now, at least, multistate employers face continued uncertainty on the issue until courts of appeals in the remaining circuits weigh in.

Article By Maggie (Hanrahan) Santen, Monica Lacks, and Samuel H. Ottinger of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

For more labor and employment legal news, click here to visit the National Law Review.

© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

Cryptocurrency As Compensation: Beware Of The Risks

A small but growing number of employees are asking for cryptocurrency as a form of compensation.  Whether a substitute for wages or as part of an incentive package, offering cryptocurrency as compensation has become a way for some companies to differentiate themselves from others.  In a competitive labor market, this desire to provide innovative forms of compensation is understandable.  But any company thinking about cryptocurrency needs to be aware of the risks involved, including regulatory uncertainties and market volatility.

Form of Payment – Cash or Negotiable Instrument

The federal Fair Labor Standards Act requires employers to pay minimum and overtime wages in “cash or negotiable instrument payable at par.”  This has long been interpreted to include only fiat currencies—monies backed by a governmental authority.  As non-fiat currencies, cryptocurrencies therefore fall outside the FLSA’s definition of “cash or negotiable instrument.”  As a result, an employer who chooses to pay minimum and/or overtime wages in cryptocurrency may violate the FLSA by failing to pay workers with an accepted form of compensation.

In addition, various state laws make the form of wage payment question even more difficult.  For example, Maryland requires payment in United States currency or by check that “on demand is convertible at face value into United States currency.”  Pennsylvania requires that wages shall be made in “lawful money of the United States or check.”  And California prohibits compensation that is made through “coupon, cards or other thing[s] redeemable…otherwise than in money.”  It is largely unclear whether payment in cryptocurrency runs afoul of these state requirements.

Of note, the U.S. Department of Labor (“DOL”) allows employers to satisfy FLSA minimum wage and overtime regulations with foreign currencies as long as the conversion to U.S. dollars meets the required wage thresholds.  But neither the DOL nor courts have weighed in on whether certain cryptocurrencies (e.g., Bitcoin) are the equivalent, for FLSA purposes, of a foreign currency.

Volatility Concerns

When compared to the rather stable value of the U.S. dollar, the value of cryptocurrencies is subject to large fluctuations.  Bitcoin, for example, lost nearly 83% of its value in May 2013, approximately 50% of its value in March 2020, and recently lost and then gained 16% of its value in the span of approximately 15 minutes one day in February 2021.

Such volatility can give payroll vendors a nightmare and can, in some instances, lead to the under-payment of wages or violation of minimum wage or overtime requirements under the FLSA.

Tax and Benefits Considerations

Aside from wage and hour issues, the payment of cryptocurrency implicates a host of tax and benefits-related issues.  The IRS considers virtual currencies to be “property,” subject to capital gains tax rates.  It has also confirmed in guidance materials that any payment to employees in a virtual currency must be reported on a W-2 based upon the value of the currency in U.S. dollars at the time it was delivered to the employee.  This means that cryptocurrency wage payments are subject to Federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax.

For 401k plan fiduciaries, the Department of Labor recently issued guidance that should serve as a stern warning to any fiduciary looking to invest 401k funds into cryptocurrencies.  Specifically, the DOL wrote: “[a]t this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.”  Given the risks inherent in cryptocurrency speculation, the DOL stated that any fiduciary allowing such investment options “should expect to be questioned [by the DOL] about how they can square their actions with their duties of prudence and loyalty in light of the risks.”

Considerations for Employers

Given the combination of uncertain and untested legal risks, employers should consider limiting cryptocurrency compensation models to payments that do not implicate the FLSA or applicable state wage and hour laws.  For example, an employer might provide an exempt employee’s base salary in U.S. dollars and any annual discretionary bonus in cryptocurrency.

Whether investing in cryptocurrencies themselves to pay employees or utilizing a third-party to convert US dollars into cryptocurrency, employers should also stay abreast of the evolving tax and benefits guidance in this area.

Ultimately, the only thing that is clear about cryptocurrency compensation is that any decision to provide such compensation to employees should be made with a careful eye towards the unique wage, tax, and benefits-related issues implicated by these transactions.

Article By Daniel J. Butler and Kevin J. White of Hunton Andrews Kurth

For more cryptocurrency and finance legal news, click here to visit the National Law Review.

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.

Happy New Year! – Prepare to Track Time of More Employees or Increase Salaries

The US Department of Labor finally released its highly anticipated changes to the overtime provisions of the Fair Labor Standards Act (FLSA). This rule, which goes into effect on January 1, 2020, will make more employees eligible for overtime because it updates the minimum salary thresholds necessary to exempt certain employees from the FLSA’s minimum wage and overtime pay requirements, as it will:

  • Raise the salary level from the current $455 per week to $684 per week (or $35,568 per year for a full-year worker)
  • Raise the total annual compensation level for highly compensated employees from the current $100,000 per year to $107,432 per year
  • Allow employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the salary level
  • Revise the special salary levels for workers in US territories and in the motion picture industry

This means all employees who are paid a salary falling below the new salary threshold will be non-exempt beginning on January 1, 2020. Said another way, these employees will be eligible for overtime for all hours worked over 40 in a workweek.

Remind Me About the Exemptions Affected

The FLSA generally requires employees to be paid at least minimum wage for every hour worked, and overtime (time and a half) for all hours worked over 40 in a workweek. Certain employees are “exempt” from the FLSA’s minimum wage, overtime, and record-keeping requirements. Key here are the “white collar” exemptions, namely the executive, administrative, and professional exemptions, which depend on three things:

  1. The employee must be paid on a “salaried basis,” meaning the employee receives a fixed, guaranteed minimum amount for any workweek in which the employee performs any work. This means there can be no change in salary regardless of the hours worked.
  2. The employee must be paid a minimum salary of, as of January 1, 2020, $684 per week ($35,658 annually).
  3. However, paying a sufficient salary is not enough — the employee must also perform exempt job duties under one of the exemptions to satisfy this test. (Notably, the new rule did not make any changes to the job duties test, despite ambiguity and years of employer confusion.)

Let’s reiterate this important point again: to be exempt under one of these exemptions, all three prongs above must be satisfied.

I’m Busy — Can I Deal with This Later?

We wouldn’t recommend that. It’s time to start preparing because there are many moving parts when making classification decisions, and, as we all know, 2020 will be here sooner than we think. Also, we suspect these won’t be unilateral decisions made by the human resources department but that others will need to be involved; for most companies, that won’t happen overnight, as it may require significant analysis of the budgetary impact of potential salary increases before employee classifications can be finalized.

So what can you do now? We suggest you start by identifying employees who are currently classified as exempt but whose salaries fall below the new $684 weekly salary. Then, try to estimate the number of hours worked by the employee each workweek, which may be more difficult than it sounds, since exempt workers typically don’t track their time. Depending on the employee’s salary and the number of hours worked, you’ll want to consider whether you’re going to raise the employee’s pay to meet the new threshold or reclassify the employee as non-exempt and pay overtime; and, if you’re going to reclassify the employee, you’ll have to determine how and what the employee will be paid. You should go through the same analysis for those employees who are classified as exempt under the highly compensated employee exemption if their annual salary falls below the new $107,432 threshold.

Think you’re done? Wait, there’s more! Once you identify employees who will be reclassified, you’re going to need to craft your message to explain the changes and new expectations. You may need to develop new policies and/or train the newly non-exempt employees (and possibly their supervisors) on the company’s timekeeping policies as well as on the consequences for failing to follow them. Remember that the FLSA provides strict record-keeping requirements for employers to track the working hours of non-exempt employees. And you may be faced with the need to soothe the egos of employees who feel like being paid hourly is beneath them. (We know this sounds silly, but these morale concerns are real.)

Finally, if you have concerns about the classification of any of your other employees, or if it has simply been awhile since your employee classifications were reviewed, this is a prime time to conduct a general audit of your wage and hour practices. With many employees across the country, and likely within your own organization, being reclassified and becoming eligible for overtime come January 1, you’ll be able to make changes to the classification of other employees who may not meet any exemptions while drawing less attention.

© 2019 Jones Walker LLP

For more on the New DOL Overtime Rule, see the National Law Review Labor & Employment law page.

Finally, the Final Part 541 Rule: $35,568 Is the New Salary Threshold for Exempt Employees

In its final part 541 overtime rule, the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) set the salary level or amount test at $684 per week/$35,568 per year for exempt executive, administrative, and professional employees of section 13(a)(1) of the Fair Labor Standards Act (FLSA). The total annual compensation test for a highly compensated employee is $107,432. The standard salary level test of $684 is comparable to the amount proposed earlier this year since the WHD used the same methodology as it applied in the notice of proposed rulemaking (NPRM). The total annual compensation level for highly compensated employees of $107,432 is lower than that proposed earlier this year in its NPRM because it is based on the 80th percentile of weekly earnings of full-time salaried employees nationally.

According to the DOL, which released the final rule on September 24, 2019, this final part 541 overtime rule “has been submitted to the Office of the Federal Register (OFR) for publication, and is currently pending placement on public inspection at the OFR and publication in the Federal Register.” These new thresholds for exemption from both the overtime and minimum wage provisions of the FLSA go into effect on January 1, 2020.

This final rule is the culmination of a long-term effort to increase these salary and total annual compensation requirements—set forth in part 541 of title 29 of the Code of Federal Regulations—which were last increased in 2004. These regulations define and delimit the exemptions for bona fide executive, administrative, and professional employees. As we wrote previously, the DOL/WHD published a notice of proposed rulemaking in March 2019, with a 60-day comment period that expired on May 21, 2019. After its review of the comments, the DOL submitted its draft final rule to the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget on August 12, 2019. OIRA completed its review of the final overtime rule and returned it to the DOL on September 13, 2019.

In addition to finalizing the salary amount test for exempt employees and the total annual compensation requirement for highly compensated employees, the final rule also permits employers to apply non-discretionary bonus and other incentive payments to satisfy up to 10 percent of the standard salary level, provided such non-discretionary payments are paid at least annually or more frequently. Also in keeping with its proposed rule, the final overtime rule does not include a provision that automatically would increase the salary level test or total annual compensation amount on some regular or periodic basis. Most significantly, the final overtime (part 541) rule does not make any changes to any of the duties tests for these exemptions.

As you may recall in 2016, employer-aligned interests brought suit to challenge the final overtime rule issued during the final year of the Obama administration. The litigation was successful, and the 2016 final rule was enjoined by a federal district court in Texas and has never gone into effect. The 2019 final part 541 rule formally rescinds the 2016 final rule. At this juncture, it is difficult to predict whether employee advocates will mount a similar legal challenge to this rulemaking. While several have expressed interest in doing so, almost all of these advocates argue that the salary level test in the 2019 final rule is insufficient. Instead, they support a salary level requirement along the lines of that published in the 2016 rulemaking that set the salary level test at $913 per week/$47,476 per year for exempt executive, administrative, and professional employees..

© 2019, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more DOL regulation, see the National Law Review Labor & Employment Law page.