Effective January 1, 2023, Minnesota’s minimum wages are as follows:

As we posted previously, in Minneapolis and St. Paul Minimum Wages Set to Increase July 1, 2022, new rates for Minneapolis and St. Paul went into effect on July 1, 2022. While many of these rates will stay the same until July 1, 2023, there are a couple of changes beginning January 1, 2023 that employers should be aware of:

Minneapolis:

St. Paul:

Bottom Line

As always, employers should make sure that all required posters are up to date and kept in a location that is easily visible to employees. State law requires employers to display certain mandated posters with information, including minimum-wage rates. Minneapolis and St. Paul have similar requirements.

All employers should check to ensure that nonexempt employees are earning the correct hourly wages, and Minneapolis and St. Paul employers should continue to follow their respective city’s minimum-wage rates. If you have any questions about these new changes, please reach out to your trusted Felhaber attorney.

The post New Year, New Minimum-Wage Rates for Minnesota appeared first on Felhaber Larson.

Effective July 1, 2022, both Minneapolis and St. Paul are increasing minimum wages as follows:

For individuals employed in Minnesota outside the borders of Minneapolis and St. Paul, the Minnesota minimum wage recently increased on January 1, 2022, to $10.33 an hour for large employers and $8.42 an hour for small employers.  Please feel free to contact us if you have any questions regarding these minimum wage increases.

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Ms. Babbit was employed as Executive Team Leader (“ETL”) for Food & Beverage Sales in Target’s South Rochester, Minnesota store in 2019. Target classified her as an exempt employee under the FLSA. In her position, she oversaw 75 employees and allegedly worked 60-70 hours a week. Ms. Babbit brought an FLSA lawsuit against Target seeking overtime wages in which she claimed that her main duty was not management, but hourly work.

Target argued Ms. Babbit was exempt under the FLSA’s executive exemption. The Department of Labor’s regulations set forth a four-prong definition of the work of an executive employee who is exempt from overtime. The rule states – among other things – that an executive is one whose “primary duty” is management of the enterprise or a customarily recognized department thereof.” The term “primary duty” means the “principal, main, major, or most important duty that the employee performs.” 29 C.F.R. § 541.700(a).

In Babbitt, the court reviewed whether the employee’s primary duty was the performance of exempt management work or hourly, non-exempt work. Target argued Ms. Babbitt’s primary duty was the management of the Food Department, and her managerial activities included directing the work of Team Leads and ensuring that Team Leads were accountable for their subareas, executing weekly sales plans and staffing plans, leading the completion of hourly tasks delegated by the Store Team Leader, helping prepare for executive and regulatory visits, overseeing compliance with wage-and-hour requirements, and opening the store.

Ms. Babbitt countered that her most important duty was the performance of non-managerial (in other words, non-exempt) work, including stocking shelves, working the cash register, placing newly received merchandise, setting up displays, cleaning the store, folding clothes, unloading trucks, assisting customers, and filling internet orders. Ms. Babbitt contended she spent 80-90% of her workday performing these tasks.

The Court denied Target’s motion for summary judgment concluding that there was a factual dispute regarding whether Ms. Babbitt’s primary duty was exempt managerial work. Stated differently, Ms. Babbitt created a genuine issue of material fact by introducing evidence that she performed hourly work the majority of the time.

Bottom Line

This case provides an example of how important it is for employers to constantly guard against allowing exempt employees to perform too much non-exempt work. Can exempt employees perform some non-exempt work? Certainly. However, an exempt employee’s primary duty (whether measured on a daily, weekly, monthly, or yearly basis) must be the performance of  exempt work or they may be able to make a claim for overtime wages because the employee will not be considered to be exempt.

The post An Exempt Employee Who Performs Primarily Non-Exempt Work During a Time of Short-Staffing Risks Losing their Exempt Status appeared first on Felhaber Larson.

Apparently, Walker had a change of heart because hours after learning about Flaten’s complaint, Walker decided to pay Flaten’s final paycheck of $915 in pennies.  According to the complaint, Walker said, “How can you make this guy realize what a disgusting example of a human being he is …. [Y]ou know what? I’ve got plenty of pennies; I’ll use them.”  On March 12, 2021, he did just that and the company delivered 91,500 oil-drenched pennies to Flaten’s home, dumping them on his driveway, along with an expletive written on the pay stub.  Not only was Flaten required to clean the oil stain off his driveway, but to cash in the pennies, he had to spend several hours cleaning away the oil.  Walker also took to its website to post defamatory comments about Flaten.

Walker’s actions prompted the department’s Wage and Hour Division to conduct a broader audit of the shop’s wage and hour practices.  It determined that the shop failed to pay overtime wages to its nonexempt employees and did not keep proper records of employee’s hours worked and pay rates.  The department has filed a lawsuit against the shop alleging violations of the retaliation, overtime, and recordkeeping provisions of the FLSA.  The suit seeks $36,971 in back wages and liquidated damages. For reference, that’s 3,697,100 pennies.

Bottom Line

Employers should be aware that an employee’s complaint to a federal or state agency can put the spotlight on the company’s other employment practices.  And though paying a paycheck in pennies is not per se illegal (pennies are legal tender after all) it can give rise to allegations of retaliation depending on the employer’s motive.  Better to save the antics and pay employees as is custom, and pursuant to the timelines set forth by state or federal law.

The post How 91,500 Pennies Got a Passive Aggressive Employer in Hot Water for FLSA Violations appeared first on Felhaber Larson.

Background

Plaintiffs worked in the employer’s warehouse facility. Their duties included receiving, transporting, and processing merchandise for shipping. They clocked in and out at the start and end of shifts. After clocking out, the employer required Plaintiffs to undergo anti-theft screening, which included a bag search and passage through a metal detector. The employer did not pay Plaintiffs for this time.

In 2013, Plaintiffs filed a class action, alleging they were entitled to compensation for time spent undergoing the anti-theft screening. They first alleged the employer violated the FLSA by failing to pay workers for this time. In 2014, the U.S. Supreme Court held Plaintiffs were not entitled under the FLSA to be paid for this time.

While this decision resulted in Plaintiffs’ federal law claims being dismissed, Plaintiffs’ pressed on with claims under Pennsylvania law. Following years of appeals and decisions from courts across the country, the Pennsylvania Supreme Court granted Plaintiffs’ request to decide two questions under Pennsylvania’s Minimum Wage Act (PMWA):

1. Is time spent on an employer’s premises waiting to undergo and undergoing a mandatory security screening compensable as “hours worked” within the meaning of the PMWA?
2. Does the de minimis doctrine apply to bar Plaintiffs’ claims?

Under the PMWA, hours worked were defined as follows:

The term includes time during which an employee is required by the employer to be on the premises of the employer, to be on duty or to be at the prescribed work place, time spent in traveling as part of the duties of the employee during normal working hours and time during which an employee is employed or permitted to work; provided, however, that . . . time spent on the premises of the employer for the convenience of the employee shall be excluded.

Court Holds Security Screening Time Constituted “Hours Worked” Not Barred By De Minimis Doctrine

As to question one, the court applied a plain language interpretation of the above regulation and held that the time spent undergoing the employer’s security screening was compensable. The court specifically noted the employer required employees to remain in the warehouse until security screenings are complete and the screening was for the benefit or convenience of the employer—not the employees. The court also rejected the employer’s argument that the PMWA should be interpreted consistent with the FLSA’s definition of “hours worked.”

As to question two, the court again sided with the Plaintiffs, holding the de minimis doctrine did not bar their claims. This doctrine generally protects employers who do not pay employees for minimal time spent transitioning to or from work (usually less than ten minutes). However, given the broad language in the PMWA, the court held that the de minimis doctrine did not protect the employer. Rather, the court held that the doctrine applies only when doing so would be consistent with the PMWA’s stated purpose: “to maintain the economic well-being of our Commonwealth’s workforce by ensuring that each and every Pennsylvania worker is paid for all time he or she is required to expend by an employer for its own purposes.” Notably, the court also relied on a 2014 U.S. Supreme Court decision, Sandifer v. U.S. Steel Corp., which the Pennsylvania court believed “indicate[d] that the high Court’s view of the relevance of the de minimis doctrine . . . of the federal FLSA going forward is no longer certain.”

Minnesota’s Definition of Hours Worked

Minnesota’s Fair Labor Standards Act requires employers to pay employees for all hours worked and overtime for hours worked over 48 per workweek. Minnesota’s Administrative Rules, in turn, define “hours worked” as follows:

Hours worked include training time, call time, cleaning time, waiting time, or any other time when the employee must be either on the premises of the employer or involved in the performance of duties in connection with his or her employment or must remain on the premises until work is prepared or available. Rest periods of less than 20 minutes may not be deducted from total hours worked.

***

Periods when the employee is completely relieved of duty and free to leave the premises for a definite period of time, and the period is long enough for the employee to use for the employee’s own purposes, are not hours worked.

Minn. Admin. R. 5200.0120, subp. 1, 3.

Because Minnesota’s definition contains language which mirror’s Pennsylvania’s, it is possible Minnesota courts could soon follow Pennsylvania and limit application of the de minimis doctrine.

Bottom Line

Employers have for years relied on the de minimis doctrine when creating and implementing worker pay policies. This doctrine has been a valuable safeguard against wage-and-hour actions. However, the Pennsylvania Supreme Court’s holding provides a stark warning to employers who do not compensate employees for mandatory but insignificant “non-work” time. While the FLSA is not likely to change in the imminent future, the Pennsylvania case may lead to an increase in state law wage-and-hour actions in states which define “hours worked” similarly to Pennsylvania and Minnesota.

The post Pennsylvania Supreme Court Holds Employer Must Pay Workers for De Minimis Time appeared first on Felhaber Larson.

Commuting From Home is Generally Not Compensable Time

As a general principle, the Fair Labor Standards Act (FLSA) requires that covered employees be compensated for all hours worked, defined as the time that an employee’s actions are undertaken primarily for the benefit of their employer. Conversely, if an employee is off duty, even during the middle of the workday, and otherwise relieved from their duties with enough free time to pursue their own purposes, this time does not need to be compensated.

Similarly, an employee’s regular commute to the office in the morning and back home after their shift is not compensable work time, although travel during the workday, for example, between worksites or to off-site meetings, is generally compensable. This is known as the “continuous workday doctrine,” which holds that an employee must be compensated for the time between their first and last principal activities each day.

In Certain Circumstances, Mid-Day Commuting May Be Compensable “Working Time”

The specific question addressed by the DOL was whether an employee who performs work at home, then commutes to the office with time in between to do whatever they please, for example, attend a doctor’s appointment or run an errand, needed to be compensated for their travel time. The DOL opined that this time was not compensable because the employee was “either off duty or engaged in normal commuting” and was free to otherwise do as they pleased during their travel.

Unanswered Questions Remain – What if the Employee is Forced to Commute?

The question not answered by the DOL, however, is whether this commute time would be compensable if the employee were not otherwise allowed to use the time between working at home and working in the office for their own purposes. Under the continuous workday doctrine, it is possible that this would turn the commute between home and work during the middle of the day into compensable travel between job sites. This conclusion, however, is unclear, and the answer may lie in whether it was the employee or the company who elected to split the workday between home and the office.

For example, in Ahle v. Veracity Research Co., a 2010 decision out of the District of Minnesota, the Court held that the fact that an employee performed work at their home in the morning before traveling to the jobsite did not render the initial commute to be compensable time when there was nothing mandating that the employee perform the work in the morning immediately before their travel (in other words, the employee could elect to perform the required tasks at any point between the end of the previous work day to the beginning of the next work day).

However, if an employer requires an employee to start their day from their home office, for example, mandating the employee works from home from 9 to noon, and then to immediately head to the office for the remainder of the day, this may change the analysis and cause the mid-day commute to become compensable “travel from job site to job site during the workday,” assuming that the employee is not free to perform personal tasks while traveling.

Bottom Line

As employees continue to work from home on an increased basis, employers are well advised to make sure that employees are compensated for any time spent traveling during the workday, if required by the company and during which the employee is not otherwise free to pursue their own devices. However, if employees are given flexibility regarding their workday schedule and can split their time between home and office, travel time between locations may not be compensable time.

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The Final Rule reaffirms the use of the five-factor “economic realities” test, but notes that two factors are “core factors” and therefore most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:

(1)     The nature and degree of the worker’s control over the work, and

(2)     The worker’s opportunity for profit or loss based on initiative, investment, or both.

Three other factors, the DOL concludes, may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:

(3)     The amount of skill required for the work.

(4)     The degree of permanence of the working relationship between the individual and the potential employer.

(5)     Whether the work is part of an integrated unit of production.

The DOL makes clear that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.  By way of example, the DOL explains that “a business’ contractual authority to supervise or discipline an individual may be of little relevance if in practice the business never exercises such authority.”

Finally, the DOL’s the Final rule provides six fact-specific examples applying the factors.

Bottom Line

The DOL’s new rule, which is designed to make the independent contractor analysis “clearer and more consistent” will go into effect 60 days after it is published in the federal register.  Time will tell whether the incoming administration will seek to invalidate or overturn the new rule.

We will continue to monitor this issue as it develops.

The post DOL Reaffirms (and “Clarifies”) Independent Contractor Rules appeared first on Felhaber Larson.

Legal Overview

Recall that the Fair Labor Standards Act (“FLSA”) requires that employees be paid for all time “suffered or permitted to work.” While workday travel from one job site to the next is considered as compensable working time, ordinary commuting time to and from work is not. In addition, preliminary and postliminary work is generally not compensable unless the activity is both “an intrinsic element” of the employee’s principal activities and one that the employee “cannot dispense [with] if he is to perform his principal activities.”

Court Ruling

Against this backdrop, consider the claim of a group of traffic control specialists who sued their employer, a temporary traffic control services provider, for unpaid overtime. The employees drove employer-owned vehicles to their worksites where they spent the day performing traffic control services such as single-lane flagging and road closure operations before returning home with the trucks. They alleged that the employer unlawfully failed to pay them for time spent completing pre- and post-trip inspections on the employer’s vehicles, fueling the vehicles, driving the vehicles from home to the worksite (and back home after work), or driving and picking up other employees along the way.

A federal court in Ohio disagreed, finding that the employees failed to allege any facts indicating that “their driving time by itself was inherently compensable or that [the] commuting time included more than de minimis work activity.” Rather, the facts indicated that they were performing routine vehicle safety activities and other minor tasks that are not considered compensable.

Notably, while the employees claimed that they transported important tools and equipment like arrow boards and flashlights which were crucial to their job performance, they did not claim that they themselves spent any time selecting these materials or loading them into the vehicles (which might have been compensable). Instead, they merely had to check to see that this important work had been done by others. The judge ruled that this was merely a minimal, routine part of the job that did not rise to the level of compensable working time.

Labor Department Opinion Letter

A November 3, 2020, DOL Opinion Letter offers additional guidance on compensable travel issues by analyzing three scenarios involving employees who travel to the employer’s principle place of business to retrieve a truck, drive it to the job site, use it to transport tools and materials around the job site and then return it to the principle place of business.

Scenario One: The nonexempt foreman drives to the principle place of business to retrieve a truck to drive to a jobsite located close to or within the same city.  At the end of the day, he returns the truck to the principle office, then commutes home. Meanwhile, some laborers drive directly from home to the jobsite while others meet the foreman at the principle place of business and then ride along in the truck to the jobsite.

In this scenario, the foreman’s time from home to the principle place of business is not compensable because it is just his regular commute.  However, the time travelling from there to the job site, and back again at the end of the day, is compensable because his work day started when he reported to the principle site and drove the truck to the job.

The laborers who drove from home to the job site of course were not paid until they arrived at the site since this was an ordinary commute.  As for those laborers who chose to ride along from the principle place of business to the job site, their travel time also was not compensable.  Riding in the truck during what would have been an ordinary commute was considered a personal choice that “does not transform their commute into compensable worktime.”

Scenario Two: The jobsite is up to four hours’ travel time from the principle place of business. The foreman retrieves a truck from the principle site at the beginning of the job and keeps it to the end of the job. All employees working at this remote jobsite receive hotel accommodations paid for by the employer and also receive a meal stipend. Laborers are supposed to use their vehicles to travel to the jobsite, but some still choose instead to travel in the truck with the foremen.

Where the work site is so far away, the driving is considered “travel away from home” where the travel itself is considered to be equivalent to other work duties. Thus, the foreman’s time is compensable because he picks up the truck at the employer’s headquarters (at which point his work day begins) and then spends work time driving the vehicle to the jobsite where it is needed.

As for the laborers, the DOL’s general rule is that travel time is compensable if it “cuts across [the employee’s] normal work hours, even if they are travelling on what would otherwise be a nonwork day” (e.g. weekends).  Thus, the laborers who rode in the vehicle with the foreman will be paid for any travel time occurring during the hours they normally work.

The laborers who drove their own vehicle will be paid in the same manner as those riding in the truck.  The DOL maintains a separate policy whereby if the employer offers transportation but employees decline the offer in favor of driving themselves, the employer may pay the employees as if they accepted the employer’s offer and may exclude the remaining travel time.  For example, if the principal place of business is two hours from the job site but the employee lives three hours from the job site and drives there personally, that employee need only be paid for two hours.

Scenario Three: Here, the laborers choose to travel home at the end of each work day instead of staying at the hotel.  This travel time is not compensable since the laborers are relieved from duty and are choosing to spend this time travelling home.

Bottom Line

Compensability of travel time is not always easy to discern and is often very fact-dependent.  It is always good to check the rules on this before announcing how employees will be paid for travel time.

The post Labor Department Offers Guidance on Tricky Travel Time Issues appeared first on Felhaber Larson.

This new rule, which is being fast-tracked with a shorter comment and adoption period, appears to make it easier for employers to legally classify workers as independent contractors rather than employees covered by federal minimum wage and overtime law.  This expands the DOL’s efforts to loosen restrictions on independent workers, as we reported last year in our article entitled Labor Department Says Gig Workers Are Contractors, Not Employees.

The Proposal

Currently, the employee v. independent contractor analysis is based on the assessment of multiple factors, with none being deemed dispositive or entitled to greater weight.  The proposed rule focuses on the “economic realities” and culls down the test to five essential questions, with the following two being given the greatest weight:

• The nature and degree of the employer’s control over the work; and
• The worker’s opportunity for profit or loss based on personal initiative or investment.

The other three factors, deemed “guideposts” to aide in the analysis, will typically be applied when the two primary factors conflict.  These guideposts are:

• The amount of skill required in the work;
• The degree of permanence in the work relationship; and
• Whether the work is part of an integrated unit of production.

The Rationale

The DOL has stated that the new rule is intended to bring clarity and consistency to the determination of contractor status.  Secretary of Labor Eugene Scalia explained that the current regulations create a bias toward workers being classified as employees, and that he seeks a more balanced approach that recognizes the “powerful reasons why some workers prefer to be independent, rather than accountable to a company as its employee.”  He says this new rule will respect the decision that many people make “to pursue the freedom and entrepreneurialism associated with being an independent contractor.”

It is important to recall that regulations only represent how the administrative agencies interpret legislation, and that courts remain free to interpret those same laws consistent with their own analysis and prior precedential caselaw.  Nevertheless, these agency determinations are often accorded significant weight in the courts and therefore are very instructive in determining how the laws will apply to any particular case.

The proposal offers only a 30-day public comment period in the hope of moving this process quickly and installing the new regulation prior to the presidential election.

Bottom Line

This new regulation, if enacted, will certainly bring greater certainty to the determination of contractor status and should help reduce the number of lawsuits based on misclassification.

We will watch for further developments.

The post Labor Department Proposes New Employer-Friendly Rule on Independent Contractors appeared first on Felhaber Larson.

Businesses that were previously categorically disqualified for the exemption under the regulations are now able to prove that they have a “retail concept” under the FLSA and therefore can treat certain of their employees as exempt from overtime.

Retail Exemption  Defined

The FLSA exempts retail and service establishments from paying overtime to those employees who are paid primarily on commissions. But what exactly is a retail and service establishment? The FLSA uses the following ambiguous and somewhat circular standard: “an establishment 75% of whose annual dollar volume of sales of goods or services (or both) is not for resale as is recognized as retail sales or services in the particular industry.”

The DOLs regulations are a little more helpful, specifying that such establishments must have a “retail concept”, which means they usually “sell goods or services to the general public,” “serve[] the everyday needs of the community,” are “at the very end of the stream of distribution” and do “not take part in the manufacturing process.”

Old Categories Dropped

Until today, the DOL regulations contained a list of 89 types of businesses said to have “no retail concept.” The types of businesses on this list were therefore ineligible to claim the retail or service establishment exemption to the FLSA’s overtime requirement. This list – which included banks, insurance brokerages and offices, real estate companies, and tax services – was lengthy but non-exhaustive. From now on, these types of business – and all others – may assert that they do in fact have a retail concept and are therefore able to qualify as retail or service establishments under the FLSA.

Interestingly, the regulations also maintained a separate, non-exhaustive list of establishments that “may be recognized as retail.” The businesses on this list – such as piano tuning-establishments, fur repair and storage shops, and scalp-treatment establishments, among other curious business types – were potentially eligible for the retail and service exemption. Today’s final rule also retracts this list, which means that these enterprises will have to prove their retail concept if challenged.

Going forward, the DOL will evaluate the existence of retail concept for all businesses under the same standard.  This new rule is effective immediately.

Bottom Line

This rule presents a new opportunity for many employers to potentially take advantage of an overtime exemption previously unavailable to them, and to be judged under criteria applicable to everyone.

It also highlights the reality of today’s uncertain economy, where businesses may need to gain or lose retail attributes over time in order to remain viable.

The post Labor Department Eases Retail Sales Overtime Exemption appeared first on Felhaber Larson.

Our previous article on this topic suggested that various groups were poised to mount a legal challenge to this new rule but thus far, no such challenge has materialized yet.  Unless something changes quickly, we should plan on greeting the new year with a new overtime exemption rate.

With the effective date of the new rate less than two months away, we thought it would be helpful to revisit some of the critical questions that were being asked two years ago when a major change to the overtime exemption threshold was first posited.

What is the annualized overtime threshold?

The annual salary that an employee must earn to be exempt from overtime will be $35,568 (up from $23,660).

Can we make some people in a job classification exempt and others not?

Absolutely. If some of your employees are exempt because they meet the salary test and others remain below the threshold, there is no problem from the DOL’s standpoint. Exemption is based on the particular circumstances of each employee and there is no requirement that everyone be treated exactly the same.

Do we still have to pay $35,568 even if we only operate 9 months a year?

No – the test is whether the employee earns $684.00 a week for each week that they work (excluding first and last weeks if they start or end in the middle).  There is no obligation to account for times when the employer is not operating.

What is the salary requirement for part time salary workers?

The same as it is for full time employees – $684.00 per week. The exemption threshold is not prorated for people working less than full time.

If someone is going to earn less than $684.00 per week, does that mean that we must pay them hourly?

No. Non-exempt people can be paid on a salary basis as long as (a) they are paid more than the minimum wage for all hours worked and (b) they are paid overtime for all hours worked in excess of 40 in the week. In other words, the DOL doesn’t care how you pay the non-exempt people as long as they receive the amount of pay they are entitled to receive under the law.

If we pay salaries to non-exempt employees, do we still have to observe the rules about not docking an employee’s pay?

No. The no-docking rule for salaried employees relates only to maintaining the exemption from overtime.  If the employee is not exempt, those rules do not matter and employees can be docked for missed time.

Some of our people who will no longer be exempt resent having to now punch a time clock. What can we do about that?

While there is a record keeping requirement for non-exempt employees, there is no required method or form for keeping these records. For employees who work a strict schedule with very little variation, an employer could choose for example to simply retain the actual work schedule and just note any changes on that schedule if they occur.  For employees with more variable schedules, different methods are available.

In fact, the DOL says that actual start and stop times are not needed – employers need only maintain records of the total number of hours worked.  The employer should just be sure that whatever method they are using to record hours is accurate.

How does the non-discretionary bonus exception work?

Assuming that the employee performs bona fide exempt duties, exemption will apply if they receive at least 90 percent of the threshold ($615.60) as a salary and earn at least 10 percent of the standard salary level (approximately $68.40 per week) in non-discretionary bonuses or incentive payments (including commissions), provided that such payments are paid on an annual or more frequent basis.

Non-discretionary bonuses are those that are paid based on standard formulas or conditions, and are not based upon the whim or subjectivity of the employer.

Looking at these bonuses on an annual basis is a change from the 2016 proposal, which required them to be paid at least quarterly.  The change to annual bonuses provides greater flexibility to employers seeking to take advantage of this provision since many bonuses are only paid annually.

What won’t change on January 1?

Quite a bit. The duties tests for the white collar exemptions have not changed, nor have the exemptions for inside or outside sales.  The manner of determining which deductions are permissible under the salary method also has not changed.

In addition, while computer professionals are subject to the new salary standard, the alternative wage measurement ($27.63/hour) for exemption remains the same and is now closer to the salary test on an annualized basis.

Bottom Line

January 1 will be here before you know it. If you haven’t conducted the necessary evaluations of your work force and begun implementing changes, you probably will be working overtime to get this done in time.

The post Increased Overtime Salary Threshold is About to Take Effect – Are You Ready? appeared first on Felhaber Larson.

This raises eyebrows for several reasons, not the least of which is the DOL’s explanation that this enforcement action is part of a larger effort to target the hospitality industry throughout the Midwest.  Thus, Minnesota’s hotels, dining establishments and others in the industry appear to be directly in the DOL’s cross-hairs in the coming months.

One of the establishments that the DOL cited – Black Sheep Pizza – recounted that some of their employees work at two or more of their four locations.  They explained that they mistakenly believed that each such location was a separate employer that did not need to account for hours worked at the other Black Sheep sites.  This of course evokes the joint employer doctrine, a critical concern lurking in the shadows for any employer with related establishments or entities.

Joint Employment

The joint employment doctrine provides that if two entities are deemed to be joint employers of an individual, the hours worked between the two establishments must be aggregated and overtime must be paid if the total exceeds 40 hours in a workweek (or 80 in a two-week pay period for qualifying health care facilities). The test for joint employment under Wage & Hour regulations is as follows:

[I]f the facts establish that the employee is employed jointly by two or more employers, i.e., that employment by one employer is not completely disassociated from employment by the other employer(s), all of the employee’s work for all of the joint employers during the workweek is considered as one employment for purposes of the Act.

Unfortunately, the regulations do not specify when two entities are “not completely disassociated” from each other.  Other employment-related statutes are somewhat clearer in evaluating joint employment in terms of whether there is (1) common ownership; (2) common management; (3) centralized control of employee relations; and (4) intermingling of employees.  These factors would be a good place for an employer to start when evaluating whether they are jointly employing workers among their various locations.

New Test Coming?

Clarification may be on the way.  As we reported in DOL’s Recent Labors Produce Two Proposed Rule Changes and an Opinion Letter, the DOL has proposed a new test for evaluating when a second entity might be considered a joint employer of a particular worker. The factors are:

– Does the entity have the right to hire or fire the individual?

– Does the entity have the right to supervise and control the individual’s work schedules or conditions of employment?

– Does the entity have the right to determine the individual’s rate and method of payment?

– Does the entity maintain the individual’s employment records?

The new rule has not been formally adopted but is likely to be in the near future.

Bottom Line

The joint employer issue can rear up for any grouping of related entities.  Typical situations include medical clinics with multiple locations, a manufacturer with two or more divisions that are centrally managed, or a hospital and related long term care facility.

In fact, the two entities need not be related.  Joint employment has been found, for example, where an employer and temporary employment agency share control over the individual’s working conditions, and where a store and the mall in which the store is located both govern the working conditions of security personnel assigned to the location.  The critical factor is the mutual control over the individual.

Employers must understand when a joint employment relationship exists and must maintain systems designed to capture all of the hours and pay obligations that arise from such an arrangement. Employers seeking not to be labeled as a joint employer should take steps to insure that the relative rights, control and responsibilities for a particular worker are clearly spelled out and well documented between the two subject entities.

All of this is especially important at present in the hospitality industry since the DOL appears to have no reservations about singling out this particular segment of the business community.

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In addition, the Final Rule allows employers, for the first time, to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the newly raised salary level.

The Final Rule goes into effect on January 1, 2020.  The DOL estimates that the Final Rule will make an additional 1.3 million workers eligible for overtime pay.

Nuts and Bolts of the Final Rule

The Final Rule:

→  Increases the minimum salary for executive, administrative, and professional exemptions from the FLSA’s minimum wage and overtime pay requirements from $455 per week (equivalent to $23,660 for a full-year) to $684 per week (equivalent to $35,568 per year for a full-year worker).  The regulations make clear that an employer satisfies the $684 per week standard by paying a biweekly salary of not less than $1,368, a semimonthly salary of not less than $1,482, or a monthly salary of not less than $2,964.

→  Increases the total annual compensation level for “highly compensated employees” or “HCE’s” from $100,000 to $107,432 per year;

→  Allows, for the first time, employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the standard salary level; and

→  Revises the special salary levels for workers in U.S. territories and in the motion picture industry.

The Final Rule does not change any of the “duties tests” that must be met to claim the executive, administrative, or professional exemptions under the FLSA.  It also does not include automatic updates, which had been proposed under the Obama administration’s proposed changes in 2016.

Court Challenges Ahead? 

Employee advocacy groups have been promising a court fight ever since the Trump administration hinted that they would adopt salary thresholds lower than what President Obama’s DOL proposed ($913 weekly;  $47,476 annually).  Interestingly, the newly proposed threshold of $684 per week falls exactly in the middle of the current exemption rate ($455) and the Obama proposal ($913).

Bottom Line

The impending legal challenges may delay the Jan. 1 2020 implementation date, and of course 2020 is a presidential election year so uncertainty remains.  Still, employers should begin making plans to address the likelihood that employees soon will need to be paid a salary of at least $684 per week (or $35,568 annually) to be exempt under the FLSA.

The post DOL (Finally) Announces New Overtime Rule To Be Effective Jan. 1, 2020 appeared first on Felhaber Larson.

Some of you may be scratching your heads and saying “wait a second, I thought we had to pay overtime on all hours over 40?” You do – the federal Fair Labor Standards Act requires overtime after 40 hours in a work week.  But Minnesota has its own overtime statute which requires any employee working longer than 48 hours in a work week to receive “a rate of at least 1 ½ times the regular rate at which the employee is employed.”  Minnesota regulations state that the regular rate is determined “by dividing the employee’s remuneration in any workweek by the total hours worked.”

Typically, the Minnesota overtime law is interpreted the same as the federal law, so why is this new case (In re Minnesota Living Assistance, Inc.) such a big deal?

The Decision

From 2012 to 2014, Baywood Home Care paid its employees using a split-day plan; for the first 5.5 hours of each 16-hour workday, employees were paid at one rate of pay, and for the remaining 10.5 scheduled hours, they were paid at 1.5 times that rate.

These split-pay plans stem from the passage of the federal Fair Labor Standards Act (FLSA) and the desire of some employers to avoid the increased wage costs brought about by the new legal requirement to pay overtime.  The employer would arbitrarily divide the day into two parts for the purpose of calculating overtime—they would receive lower “regular” pay for the first portion of the day, and then an “overtime” rate for the balance of the day, resulting in an average hourly wage being no higher than it was before the passage of the FLSA.

Against this backdrop, the Minnesota Department of Labor and Industry (DOLI) began investigating Baywood, and ultimately the Commissioner issued an order for Baywood to pay approximately $550,000 in unpaid wages and another $550,000 in liquidated damages.  Baywood petitioned the Minnesota Court of Appeals, which reversed the Commissioner’s conclusion.  The case then went to the Minnesota Supreme Court.

The Supreme Court reversed again and, siding with DOLI, ruled that employers are required to pay at least time and a half wages for all hours worked after the first 48 hours of a workweek, regardless of whether the employee received time and a half compensation during the first 48 hours of the week. In so ruling, the Court agreed with DOLI that the Minnesota statute prohibits split-day plans because the law requires overtime for all hours in excess of 48.

The Minnesota Supreme Court concluded that “the effect of Baywood’s interpretation would be that employees would not receive time and a half compensation for the first 5.5 hours of every shift worked after they worked 48 hours.”  In other words, the payments for hours 5.5-16 in a day are not compensation for work that occurs after the first 48 hours; they are payments for work that occurs before reaching 48 hours and are thus part of their regular compensation.  Baywood’s failure to pay the additional overtime after hour 48 violated the statute

What About Overtime Payments Properly Excluded under Federal Law?

While “split-day” plans are fairly unique, many employers pay nonexempt employees a daily overtime right after working a certain number of hours.  Employers then use these daily overtime payments as an offset against weekly overtime that is due to the employee after working 40 hours.

Under the federal FLSA, employers are permitted to exclude from the employee’s regular rate “extra compensation provided by a premium rate paid for certain hours worked by the employee in any day or workweek because such hours are hours worked in excess of eight in a day or in excess of the maximum workweek.”   The key is that the payments must be for hours worked “in excess of 8 in a day or in excess of the maximum workweek.”

In a footnote, the Court did note the unique circumstances of this case (the employer paid overtime for 5.5 – 8 hours worked each day) and acknowledged that overtime premiums properly excluded under the federal FLSA are likely excludable under the state MFLSA:

It may be possible (indeed, the Department concedes) that “overtime work” also includes “[b]ona fide overtime premiums paid to employees in accordance with the FLSA.”

This is a hopeful sign that the import of this case is limited to premium payments not otherwise allowed as credits under the federal FLSA.  However, there is nothing in the Minnesota regulation defining “regular rate of pay” that explicitly allows this exclusion and reliance is upon it is based on the DOLI’s current interpretation.  Nothing would prevent DOLI from later changing its position or a private plaintiff bringing a lawsuit to challenge it.

Bottom Line

While the direct effect of the case is to invalidate split-day payment plans under Minnesota state law, the effect of the court’s decision may be much broader.  Employers paying “overtime” before 48 hours should ensure that their payments comply with federal law so that they can argue, under the footnote in this latest decision, that they are permitted to properly offset the payments under Minnesota state law.

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While the opinion letter applies only to this particular company, legal experts believe it will likely impact a much larger portion of the industry.

What is a gig worker?

So what exactly is a gig worker?  The term is borrowed from the music industry, where musicians are hired to play a show (commonly referred to as a “gig”) at a particular venue and then move on to their next gig.  The “gig economy” is now estimated to encompass almost 60 million workers and has been described by the Congressional Research Service (“CRS”), as follows:

The gig economy is the collection of markets that match providers to consumers on a gig (or job) basis in support of on-demand commerce.  In  the  basic  model, gig workers  enter into formal agreements with on-demand companies (e.g., Uber, TaskRabbit) to provide services to the company’s clients. Prospective clients request services through an Internet-based technological platform or smartphone application that allows them to search for providers or to specify jobs. Providers (i.e., gig workers) engaged by the on-demand company provide the requested service and are compensated for the jobs

Under the Obama administration, the DOL issued guidance suggesting that gig workers were likely to be employees, with an official guidance advising that Uber and Lyft drivers would likely be classified as employees if the department was asked to make a determination about their status as employees.  Shortly after taking office, the Trump administration removed that guidance from the Department of Labor’s website, prompting the unnamed company to seek a specific ruling.

What did the opinion letter say?

The opinion letter applied the DOL’s traditional six-factor analysis to conclude that the company’s workers were independent contractors, not employees.  Those factors (and the DOL’s interpretation of them in this instance) are:

1. The nature and degree of the potential employer’s control.

   The DOL found it significant that the business does not mandate shifts or hours for their workers and that the workers often work for other businesses (even competitors) as well. The business does not monitor, control or inspect the work, relying instead upon customer evaluations.

2. The permanency of the worker’s relationship with the potential employer.

   The workers come and go as they please. Permanency is determined solely by whether the worker wants to keep doing the work.

3. The amount of the worker’s investment in facilities, equipment, or helpers.

   The workers purchase and maintain everything they need for the work, just like more traditional independent contractors.

4. The amount of skill, initiative, judgment, or foresight required for the worker’s services.

   The DOL observed that the workers exercise managerial discretion in determining which opportunities to pursue and which platform to service (e.g. choosing between Uber and Lyft), all in the interest of maximizing their own personal profits.

5. The worker’s opportunities for profit or loss.

   In this instance, the company allowed their workers to set their own price for their service, thereby giving them significant control over profit or loss.  This factor might be evaluated differently for large service providers like Uber where service prices are more firmly established.

6. The extent of integration of the worker’s services into the potential employer’s business.

   The DOL was quite emphatic on this factor, noting that the workers have no role in maintaining or operating the internet platform that typically controls their work opportunities, and the company’s involvement with the worker typically ends once they match the workers with the job. In essence, the workers are themselves more like consumers in the sense that they purchase the referral service from the company for the purpose of then providing service (e.g. driving, dog-walking, food delivery) to the end user.

Bottom Line

While the letter is just an “opinion letter” applying only to that particular company, we expect other businesses with gig employees to rely on it substantially.  Still, despite their many similarities, participants in the gig economy should proceed cautiously in designating their workers as independent contractors since the critical factors may not shake out the same way for everyone.

In addition, gig workers all over the country are initiating litigation seeking judicial recognition that they are employees entitled to protection under Wage & Hour regulations, anti-discrimination laws and other employment-related legislation.  We expect to see more activity on these issues relatively soon.

The post Labor Department Says Gig Workers Are Contractors, Not Employees appeared first on Felhaber Larson.

In their spare time, the DOL also threw in an Opinion Letter on whether time spent on charitable work constitutes working hours that are counted toward overtime.

Regular Rate of Pay

The DOL issued a Notice of Proposed Rulemaking to revise and clarify what constitutes the regular rate of pay for the purpose of calculating overtime pay.  This issue has not been addressed for 50 years so some updating is probably overdue.

The regular rate of pay for a week in which overtime is worked generally includes commissions, non-discretionary bonuses and other fixed payments.  Employers often struggle, however, with whether they also need to include other forms of pay received during the week.  The proposed rule clarifies much of this by announcing that the following items need not be included in calculating the regular rate of pay for an overtime week:

– The cost of providing wellness programs and fitness initiatives;

– Employee discounts on retail goods and services;

– Payments for unused paid leave;

– Reimbursed expenses, even if not incurred solely for the employer’s benefit;

– Reimbursed travel expenses;

– Discretionary bonuses, including examples to provide clarity;

– Benefit plans, including accident, unemployment, and legal services;

– Tuition programs, such as reimbursement programs or repayment of educational debt;

– Pay for time that would not otherwise qualify as hours worked, including bona fide meal periods.

The proposed rule also calls for changes in certain calculations, including how “call back” pay is treated and how “basic rate” payments are handled.

This is just the beginning.  Nothing will happen for at least 60 days during which the public may comment on the proposed changes.  The DOL then has to review and consider the comments, then publish a final Notice of Rule Making.  We will keep you up to date.

Joint Employment

The DOL also announced a proposed rule to clarify their stand on joint employer arrangements.   Joint employers are mutually responsible for a worker’s wages and overtime payments.

To determine whether a second entity is a joint employer of a particular worker, the proposal lists a four-factor test to ascertain the entity’s control over the worker.  The factors are:

– Does the entity have the right to hire or fire the individual?

– Does the entity have the right to supervise and control the individual’s work schedules or conditions of employment?

– Does the entity have the right to determine the individual’s rate and method of payment?

– Does the entity maintain the individual’s employment records?

The proposal then sets out scenarios on how this proposal might work and asks for public comment.  The scenarios include a cook working for two different restaurants of the same national franchise, an office park giving work direction to the employees of the janitorial service that cleans the park, and a packaging company setting pay and working hours for workers brought in from a staffing agency.

Public comment will be taken for 60 days following official announcement of the proposed rule (which has not yet occurred).

Opinion Letter on Charitable Activities

An employer asked the DOL whether they must count as working time the hours that employees spend working for community service projects selected by the employees themselves. The employer pays the employees for this time as a way to encourage charitable work in the community.

The DOL’s Opinion Letter responded that this time is not considered compensable working time if it is truly voluntary, not directed by the employer and not subject to a guaranteed bonus for participation. Even though the employer benefits by the creation of good will and a positive public image, these activities are sufficiently charitable to take them outside the realm of compensable work.

In this particular instance, the DOL noted that the employer:

– did not require participation in the program;

– did not control or direct the volunteer work;

– did not create any adverse consequences for failing to participate in the program; and

– did not guarantee bonuses to participating employees (bonuses were instead issued to the most successful community service team).

Thus, since the employer did not “unduly pressure its employees to participate” (thereby demonstrating employer control), the hours spent on community service was not compensable.

Bottom Line

After a couple of years of relative dormancy following the 2016 election, it appears that the DOL is becoming more active.  Stay tuned for further developments.

The post DOL’s Recent Labors Produce Two Proposed Rule Changes and an Opinion Letter appeared first on Felhaber Larson.

We wrote two years ago in Minor League Players Seek Major Pay Increase about minor league baseball players pursuing a class action lawsuit seeking coverage under the minimum wage requirements of the Fair Labor Standards Act.  Minor leaguers earn as little as $5000 – $6,000 for an entire season for 50-60 hour workweeks that include games, practices and team meetings.  The baseball players’ union cannot help because they only represent players at the Major League level.

Congress Pitches a Shutout

Major League Baseball (MLB) opposed the move, claiming that baseball players are seasonal workers similar to employees of carnivals, camps and other recreational entities whose workers who are statutorily exempt from coverage.  They also asserted that the players should be considered exempt as creative professionals.  Nevertheless, the class was certified and the litigation was set to proceed.

Thereafter, Congress responded to the issue but not in the way that the players hoped.  The 2018 “Save America’s Pastime Act” amended the FLSA to provide that baseball players under contract were exempt from the minimum wage and overtime provisions of the law as long as their salary equals the federal minimum wage (currently $7.25 per hour) for a 40-hour workweek.  That comes out to $290.00 per week for approximately 18 weeks ($5,200 for the season) for weeks that often extend well beyond 40 hours.  Final score for the players:  continued salary below minimum wage when calculated on an hourly basis and no overtime for extra hours.

State Laws On Deck

Interestingly, the amended FLSA only applies to the actual season and not to spring training or off-season activities.  There, state law (often higher than the federal standard) applies and many states have begun to introduce legislation to mirror the federal amendment.  Here in Minnesota, companion bills exempting minor league baseball players from all state minimum wage and overtime requirements are currently working their way through the two houses of the legislature. The St. Paul Minimum Wage Ordinance requiring $15.00 an hour from employers within the City, has already addressed this issue by exempting minor league baseball activities (e.g. the St. Paul Saints) from coverage.

While states grapple with the exemption issue, some MLB teams have begun to view this as a more of a player development issue than a compensation question.  The Toronto Blue Jays, for example, are in the process of raising salaries for minor leaguers by about 50% across the board in recognition that more nutritious food and more comfortable accommodations may help the players perform better.  Other teams are contemplating providing team meals in the clubhouse and/or increasing per diem payments to offset one of the biggest cost factors for players during the season.  It will be interesting to see how many teams follow this course.

Bottom Line

Some people view the low minor league salaries as a small sacrifice for the chance to play the game and chase the dream.  Others counter by noting that a great many people follow their dreams in a variety of other settings but are able to do so for at least the legally-mandated minimum wage.

The outcome of this contest is still uncertain but we will continue keeping score.

The post Minor League Baseball Players Swing and Miss in Quest For Higher Pay appeared first on Felhaber Larson.

Interestingly, the DOL proposed no changes to the duties portion of the exemption test.

As you may remember, a 2016 rule would have increased the weekly salary requirement to $913 per week (or $47,476 per year).  However, this rule was invalidated in 2017 by a federal judge in Texas on the grounds that the DOL exceeded their authority in raising the threshold so high.

The new rule has only been proposed – it is not final.  A final rule will be issued only after the DOL has received and reviewed comments from various stakeholders, and the DOL may make some changes to the rule before it is finalized.

Nondiscretionary Bonuses and Commissions are Included

The new proposal also allows nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis to be used to satisfy up to 10% of the standard salary level. This is a holdover from the 2016 proposed rules but the new proposal permits annual bonuses to be included – the 2016 rules only applied to nondiscretionary bonuses and commissions paid on a quarterly (or more frequent)basis.

The rule also allows for a “catch up payment” at the end of the year.  Thus, an employer may pay an exempt employee 90% of the standard salary level and then, if at year’s end the salary, nondiscretionary bonuses and incentive payments (including commissions) do not equal the minimum salary level for exemption ($35,308), the employer would have one pay period to make up for the shortfall by paying up to 10% of the annual amount.  This might prove valuable for employees whose commission payments fall short of the anticipated amount such that their exempt status is jeopardized without this one-time payment

Importantly, any such catch-up payment would count only toward the prior year’s salary amount and not toward the salary amount in the year in which it was actually paid.

Highly-Compensated Employee Exemption Increased

Under the current Highly-Compensated Employee Exemption, employees are exempt if they earn at least $100,000 and customarily and regularly perform one or more of the exempt duties of an executive, administrative, or professional employee.

Under the proposed rule, such employees must earn at least $147,414 per year, of which $679 must be paid weekly on a salary or fee basis.  The proposed rule would not permit employers to use nondiscretionary bonuses to meet the required $679 weekly salary for highly compensated workers.

Review Salary Threshold Every 4 Years

Finally, the DOL has indicated that it intends to propose updates to the salary and compensation levels every 4 years to ensure that these levels continue to provide useful tests for exemption.  This differs from the 2016 proposal that included an automatic annual increase.

Bottom Line

Remember, this rule is not yet final and as we explained in our article entitled Labor Department Ready to Roll Out New Salary Test For Overtime Exemption we anticipate a great deal of public comment and perhaps litigation from both sides of the spectrum.

Nevertheless, employers can expect the salary level to go up and should begin strategizing for an increase in the range of this new proposal.

The post Labor Department Officially Announces Proposal For Increased Minimum Salary for Exempt Workers appeared first on Felhaber Larson.

The proposal is said to establish $35,000 as the amount of annual salary an employee must earn in order to be considered exempt from overtime under the so-called “white collar” exemptions (executive, administrative and professional).  This rises significantly from the $23,660 level in place at present but falls short of the $47,000 threshold that the DOL proposed under the Obama administration.  That proposal was blocked in August, 2017, as we reported in Texas Judge Officially Strikes Down Increased Overtime Salary Threshold.

It appears that the new proposal will also address the issue of regular increases in the threshold based on inflation and other economic indicators but will not include the automatic increase that was included in the previous proposal.

Expect Opposition From Both Sides

Whatever the actual proposal, expect it to receive a hostile response from both sides of the political fence.  Employee advocates are expected to continue fighting for a higher threshold on the grounds that the Obama-era proposal was more reasonable, and that the real issue is that the “duties” test is so broad that it unfairly categorizes too many people as administrative or executive.

On the other hand, small employers contend that the increase will cause them to incur greater costs and that they will look to bring on more part time employees to avoid the increased overtime burden.  Larger employers are mobilizing behind the rationale of the Texas federal court – that the DOL focused too much the salary limit and not enough on the types of job duties that should make an employee exempt from overtime.

Bottom Line

Employers need not do anything right now as we await the actual rules, the mandatory public comment period and the inevitable litigation from one or both sides of the spectrum.  Then of course there is the possibility that this will not be resolved by the time of the presidential election in 2020, causing overtime reform to again be held hostage to political considerations.

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Service advisors typically greet customers as they bring their vehicles in for repair.  They hear the customer’s concerns, evaluate the vehicle’s service needs and then usually try to sell other additional services that can be accomplished at the same time that the technicians are addressing the primary maintenance or repair issue.

Service Advisors Are Now Exempt

For many years, the United States Department of Labor (DOL) considered service advisors to be exempt under specific language in the Fair Labor Standards Act (FLSA) exempting “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.”  In 2011, however, the DOL switched gears and steered the exemption to apply just to people who actually sold or worked on the cars.  Service advisors therefore were considered nonexempt and entitled to overtime.

Thereafter, a group of service advisors in Encino, CA sued their dealership seeking backpay for overtime hours that they had worked in the past.  After much litigation and multiple appeals (including a first trip up to the Supreme Court and a remand back to the 9th Circuit Court of Appeals), the Supreme Court issued a 5-4 decision in favor of the dealership by reinstating overtime exemption to service advisors.  The Court premised this decision on a basic reading of the statute to conclude that even though service advisors neither sell the cars nor perform the actual repairs, they nevertheless are primarily engaged in the servicing process because they determine and sell those services to the customer.  As such, they meet the exemption language cited above.

Why All Employers Should Pay Attention

Great news for car dealerships but also good news for employers of all sorts because the Supreme Court also rejected the long-held mandate that FLSA exemptions must be interpreted narrowly. The declared that they need not honor the remedial nature of the law “at all costs” and that the customary narrow interpretation must give way to a “fair reading” of the exemption language.

This new “fair reading” standard bodes well for future arguments in favor of exempt status since it removes what essentially had been a presumption in favor of finding that exemption does not apply.  Now, courts may employ more of a balancing test between the competing arguments and interests of the parties to the case.

Indeed, this decision could even slow down the rush of collective actions by employees claiming to have been misclassified since the court certification of groups to move forward collectively often is premised, at least in part, on the recognition of the remedial purpose of the law.

Bottom Line

It may take a while for the impact of this decision to be felt but it will be a welcome change when it happens.  Employers have always had an uphill battle in proving exempt status because of the admonishment to observe the remedial purpose of the law.  The new “fair reading” standard should provide a smoother road for employers going forward.

The post Supreme Court Tunes Up Exemption Analysis in Favor of Employers appeared first on Felhaber Larson.

How do you address these problems, how much should you pay and how do you avoid opening up a larger can of worms?  The Department of Labor (DOL) may just have answered these questions through a new pilot project known as the Payroll Audit Independent Determination (PAID) program.

What Is the PAID Program and Why Would Employers Use It?

The PAID program is intended to help employers sort out and resolve what the DOL describes as “inadvertent” overtime and minimum wage violations.  It will allow employers to proactively correct wage and hour violations without the fear of litigation from employees or the DOL.  It also will get back wages into the hands of the identified employees more quickly.

The full parameters of the program are unclear, but the basic idea is that the employer starts the process by conducting a self-audit. If problem areas are discovered, the employer can elect to “self-report” to the DOL and work out a resolution to the self-identified problem. The DOL then conducts its own review and if it agrees with the employer’s assessment, and if the employer pays the employee 100% of what it owed and agrees to future compliance, the DOL will waive the payment of liquidated damages and other penalties.

How Does This Help the Employer?

For one thing, the DOL would essentially be acknowledging that you are paying the full amount that is owed to the employee(s) which would create a disincentive for those employees to continue pursuing the matter.  In fact, the DOL would even help you craft a form for the affected employees to sign waiving future claims regarding the issue in question.  Employees would not be required to sign but many probably would.  Moreover, if an employee does go ahead with a lawsuit seeking additional payment and/or statutory penalties, the fact that the employer tried to “make it right” will help influence a judge not to award those penalties.

Not surprisingly, the PAID program excludes employers with past violations, those who are currently under investigation and those under threat of investigation.

What’s the Down Side?

While getting the DOL to supervise these small voluntary settlements can be helpful, the employer is essentially admitting to the DOL – and potentially other governmental agencies – that the law has not been followed. This could be an invitation for review of other pay practices or other personnel practices in general.  There is also talk that the audit forms completed by the employer could be discoverable by employees and their lawyers through a Freedom of Information Act request.

In addition, the PAID program would not result in the release of violations under state law, which often offer parallel protections.  Therefore, the Minnesota Department of Labor and Industry could initiate a claim, or the affected employees could decide to sue.  Still, if the employees have already received the back pay they are owed through a voluntary program like PAID, a judge in a state law claim may very well conclude that the employer acted in good faith and that no additional payments or penalties are owed.

Bottom Line

This is a new program and the details still have to be worked out.  Nevertheless, it offers an interesting option for employers to correct noncompliance in an efficient manner and to head off the possibility of penalties being assessed.  We will update this when the program’s details become clearer.

The post Labor Dept. Rolls Out Voluntary Payments To Avoid Overtime Suits appeared first on Felhaber Larson.

Interns are not considered to be employees under the FLSA and they therefore are not subject to the minimum wage and overtime requirements of that law. However, the FLSA does not actually define when an individual may be considered an intern rather than an employee.

The Prior Approach Was Considered Too Rigid

In 2010 the Obama-era DOL adopted a six-factor test to determine when a worker qualifies as an intern. In order to be considered an intern, employers were required to show that all of the six enumerated factors were met.

The rigidity of the 2010 approach drew criticism from the courts because whether or not a worker was an intern was a “highly individualized inquiry” that was difficult to break down into six set-in-stone factors. Indeed, on December 19, 2017, the Ninth Circuit issued a ruling that made them the fourth federal appeals court to expressly reject the 2010 approach.

New Interpretation Is More Flexible

The DOL’s new Guidance, issued on January 5, 2018, adopts the “primary beneficiary test.” Under this test, the “economic reality” of the intern-employer relationship is examined to determine which party, either the intern or the employer, is the “primary beneficiary” of the relationship. If the employer is the primary beneficiary of the internship, then the “intern” is an employee under the FLSA, and entitled to be paid as an employee; if the intern primarily benefits, then they do not have employee status.

The new rule specifically lists seven factors which have been traditionally identified as relevant to evaluating an individual’s intern status:

1. The extent to which the parties understand that there is no expectation of compensation;
2. The extent to which the internship provides training that would be similar to an educational environment;
3. The extent to which the internship is tied to the intern’s formal education program (i.e. if they are receiving academic credit);
4. The extent to which the internship corresponds and accommodates the academic calendar;
5. The extent to which the internship’s duration is limited to the period in which it provides the intern with beneficial learning;
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees; and
7. The extent to which the intern and the employer understand that the internship does not carry the promise of a paid job at its conclusion.

Unlike the 2010 approach, the new Guidance provides that intern status can be determined by looking at any of the relevant factors. This offers a much more flexible test, and allows the employee determination to be made on a more tailored case-by-case basis.

Bottom Line

Employers historically have had greater success establishing intern status when applying the primary beneficiary test rather than the rigid six-factor test from 2010. It would seem that the current DOL is announcing that employers can now confidently provide valuable internship opportunities for students and other individuals without having those opportunities impeded by an overly rigid test that makes them employees.

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However, Santa did not look at all jolly as he handed EL an official looking document from the United States Department of Labor (DOL).  It was a Notice of Claim informing Santa that he was to be investigated for a variety of wage & hour violations.

EL immediately assured Santa that there had to be some mistake since his workshop was located in the North Pole, obviously outside the DOL’s jurisdiction.  Santa sighed, explaining that while he had moved his operations there many years ago, he was incorporated in the State of Delaware and maintained an off season headquarters in Santa’s Village, NH.

EL offered that this might indeed be sufficient to justify the DOL’s jurisdiction and suggested that they review the specifics of the claim.

Not So Merry

Santa asked if there might be some mistake because the elves are independent contractors, not employees.  EL reminded Santa that the test for employment status generally revolves around who controls the manner and means of performance.  “Who assigns the elves their work and tells them how to do it?” EL asked.  “Who supplies the tools and equipment”?  Who provides the uniforms and those funny, curled up work shoes?”  Santa responded that he was in charge of all that.

As EL explained that the elves probably would be considered employees, Santa interjected “Would it help to know that I make the elves buy their own uniforms and shoes?”  EL suggested that he should probably keep that to himself during the investigation.

EL then offered that the elves always look pretty happy so he must pay them well.  Santa agreed, explaining that he always makes sure that they get their agreed-upon allotment of candy canes and sugar plums every pay day.  EL sighed, asked Santa how many elves he employed and began making calculations on possible minimum wage liability.

“How many hours do the elves work each week?” EL inquired.  Santa replied that there are approximately 2 billion children in the world and that even if you subtract those who are on the naughty list, it still requires many weeks of around-the-clock work. “Don’t worry”, Santa assured him.  “I give them extra candy canes and sugar plums during those long sessions.”  EL tapped out more numbers on the calculator.

“Where do you recruit your elves – where do they come from?” EL asked.  Santa replied that he never asks those sorts of questions and just assumes that Christmas magic brings them to the North Pole.  When Santa looked puzzled in response to a question about I-9’s, EL reached again for the calculator.

“How old are these elves – some of them look pretty young? Santa replied that he was not certain because elves age differently than people.  They could be anywhere between 12 and 120.  More calculations.

A Little Christmas Cheer?

EL said “At least there is no problem in regard to you Santa.  You manage the enterprise and supervise two or more employees so you are an exempt executive as long as you receive a salary of at least $455.00 per week.”  Santa just roared “Ho ho ho” and replied, “I don’t need money when there is so much Christmas spirit to keep me happy.”  Calculations.

EL leaned over and began to explain Santa’s potential minimum wage and overtime liability when all of a sudden, laying his finger aside of his nose and giving a nod, up the chimney Santa arose.  As EL watched him fly off, he heard Santa exclaim, “This is all bureaucratic poppycock, I’m not settling this claim!”

EL returned to his chair and began to doze off, thinking dreamily “I never even talked to him about smoking that pipe and the Clean Indoor Air Act.”

The Minnesota Employment Law Report wishes all of our loyal readers a very joyous holiday season (with appreciation for Clement Moore’s classic poem).

The post The Labor Department’s View of Santa’s Workshop appeared first on Felhaber Larson.

Scott Axel was having trouble breaking into the auto sales profession, perhaps in part because of having been terminated by a rental car agency for missing work.  The fact that he spent eight months in a residential drug treatment program may also have played a role.

Let’s Made a Deal

Scott’s father Michael, an automobile wholesaler for Fields Motorcars in Lakeland Florida, suggested to Fields that he would hire Scott as his own employee and teach him how to become an automobile wholesaler. Fields agreed but made it clear that they would not compensate Scott for any work he performed. Still, their General Manager did tell Scott “[a]s long as you try to learn everything you can that your dad knows, you know, we’ll try to ease you in here.”

Scott began shadowing his father on the job, including reviewing inventory, attending daily meetings, and spending several hours each day posting used cars for sale on an on-line auction site. Scott would enter a password provided to him by the sales manager and also review cars that needed to be posted on eBay or Craigslist.

Scott also performed a few tasks on the retail side, including posting cars for sale on eBay and Craigslist, and routine chores on the car lot.

Scott testified that he put in about 60 hours a week, almost all of which were at times when his father was present. Scott received no compensation from Michael or Fields, although Michael did allow Scott and his family to live in his house during this time.

That Wasn’t Part of the Bargain

Fields fired Michael approximately 15 months later, at which time Scott stopped coming to work. He subsequently sued Fields for violations of the Fair Labor Standards Act (FLSA) and its State law counterpart in Florida. Scott asserted that he was owed at least minimum wage for every hour he put in, plus overtime for the weeks in which he worked more than forty hours.  The trial court dismissed the claim, leading to an appeal to the Eleventh Circuit Court of Appeals.

The question for the court was whether Scott was “employee” under the FLSA or merely an exempt trainee. This is typically determined by evaluating the following factors:

1. Did the worker and the employer clearly understand that there is no expectation of compensation?
2. How similar was the training to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions?
3. How much is the internship or training program tied to the worker’s integrated coursework or the receipt of academic credit?
4. How closely does the internship or training track the academic calendar?
5. Is the internship duration limited to the period in which the employer provides beneficial learning?
6. How much does the worker’s output complement the work of paid employees or, in the alternative, how much does it displace such work by paid staff?
7. Did the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship?

Ultimately, the question to be resolved is who is the primary beneficiary of the arrangement – is it the worker because of the valuable career-oriented training that was provided or the employer because of the amount of productive work they received?

How it All Shakes Out

The first factor (expectation of compensation) clearly broke in favor of Scott being a trainee. He obviously did not expect to be paid and Fields made it clear that they would not provide any compensation.

The Court considered factors two through four irrelevant because the unusual nature of this training arrangement did lend itself to the analysis that is ordinarily applied to academic programs.

The fifth factor – duration – was ambiguous, although 15 months seemed rather long and the 60-hour weeks seemed excessive for a training program.  Thus, while the unique arrangement here made it difficult to say for sure, the Court seemed to conclude that this factor favored a finding that Scott was an employee.

The sixth factor – displacement of work- seemed to cut both ways. In many respects, Scott did not displace anyone because he often just did what his father was doing and went where his father went.  However, there were times when he took direction from people other than his father and performed services that others could, or did, perform.  Some of those tasks related to areas that were outside the scope of his father’s responsibilities.

The final factor – whether a job would be waiting for Scott – weighed heavily in favor of finding that he was not an employee since there was no proof in this regard other than the statement that Fields would “try to ease” Scott in.

On the whole, the factors went both ways and the Court believed that more facts were needed to make a proper conclusion. They therefore overturned the dismissal of the claim and determined that the matter should be subjected to a full (and probably expensive) trial on the merits. Indeed, they suggested that it might be possible to conclude that Scott was an employee at times and a trainee at times and that only a fuller development of the facts would allow for a proper decision.

Bottom Line

So, Dad wants to show Son “the ropes” and Employer makes it very clear that Son won’t get paid and is not promised a job, yet the Court thinks that Son might be an employee?  It is a pretty big stretch to conclude that Employer got more benefit from this training arrangement than Son did even though Employer received a little productive work during this time.

This case therefore is an excellent reminder never to assume that a training arrangement will necessarily be viewed in the way it was intended.  If you enter into an agreement of any sort to provide training through a school program, an internship, or even an informal agreement, be sure to document the nature of the relationship.  In that documentation, identify the training to be provided, that productive work is not intended, that there is no compensation (or perhaps only a stipend for expenses) and that there is no promise of future employment.

Then, be sure to monitor the arrangement to insure it is being followed and document through memos or checklists the training that is being provided.  At the end of the day, you have to be able to prove that the training was legitimate and not merely a means of obtaining free labor.

An interesting side note – Michael sued the company, claiming that he was a victim of disability discrimination for being let go after returning to work after surgery for kidney cancer.  After the jury ruled in his favor, a judge ordered that he receive almost $1.4 million in damages.

The post Does Son Get Paid For Shadowing Dad at Work? appeared first on Felhaber Larson.

Too Much Focus on Salary

The ruling came in a lawsuit filed by the Plano (Texas) Chamber of Commerce (and joined by dozens of other business groups) challenging the proposed increase to the minimum salary necessary to be considered exempt from overtime under the Executive, Administrative and Professional exemptions of the Fair Labor Standards (collectively known by the euphemism “white collar exemptions”).  The proposal required that workers could not be considered exempt from overtime pay unless they received a salary of at least $913.00 per week ($47,476 annually).

The Judge wrote:

“The department has exceeded its authority and gone too far with the final rule…[t]he department creates a final rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties. Because the final rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress’s unambiguous intent.”

Bottom Line

This proposed increase has been on life support anyway since the Trump administration appeared to have no interest in enforcing it and almost certainly will decline to appeal this ruling.  Instead, as we wrote earlier in our piece entitled “Here We Go Again! DOL Seeks Public Comment on Revising Overtime Rules“, the Department of Labor now seems less interested in the salary issue and more focused on the duties that an employee must perform in order to be deemed exempt.  Still, there may be some labor groups who will try to take this to the appellate courts.

This has been a true regulatory roller coaster and we are reluctant to declare it over for good.  Still, it is a very good bet that this huge increase in the salary requirement for overtime exemption is headed for the dust bin of history.

The post Texas Judge Officially Strikes Down Increased Overtime Salary Threshold appeared first on Felhaber Larson.

Important Questions

Titled “Request for Information; Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees”, the DOL’s request seeks public input on the following 11 questions relating to the overtime threshold:

–  Would updating the 2004 salary level for inflation be an appropriate basis for setting the standard salary level and, if so, what measure of inflation should be used?

–  Should the regulations contain multiple standard salary levels? If so, how should these levels be set (e.g. by size of employer, census region, etc.)?

–  Should the Department set different standard salary levels for the executive, administrative and professional exemptions and, if so, should there be a lower salary for executive and administrative employees?

–  Should the standard salary level be set within the historical range of the short test salary level, the long test salary level, or something totally different?

–  Does the standard salary level set in the 2016 Final Rule work effectively with the standard duties test?

–  To what extent did employers, in anticipation of the 2016 Final Rule’s effective date, increase or decrease employee salaries or make other changes to address the new threshold?

–  Would a test for exemption that relies solely on the duties performed by the employee without regard to the amount of salary be preferable and if so, what elements would be necessary in a duties-only test?

–  Does the salary level set in the 2016 Final Rule exclude from exemption particular occupations that have traditionally been covered by the exemption?

–  Should the inclusion of nondiscretionary bonuses be retained and if so, at what percentage or level?

–  Should there be multiple total annual compensation levels for the highly compensated employee exemption?

–  Should the standard salary level and the highly compensated employee total annual compensation level be automatically updated on a periodic basis?

The public will have 60 days to submit answers, comments or other helpful data.

Bottom Line

It is unknown where the current administration would like to end up but we assume it will be somewhere between the current $23,660 per year and the Obama administration threshold of just over $47,000 per year.

In addition, given the questions that the DOL is asking, it seems quite possible that they will also look to implement more changes than merely the dollar threshold for exemption.

It will be interesting to see just what sorts of comments the public offers and what the DOL plans to do next.

The post Here We Go Again! DOL Seeks Public Comment on Revising Overtime Rules appeared first on Felhaber Larson.

Minneapolis joins Seattle, San Francisco and Washington D.C. as cities that have passed similar measures.

New Wage To Be Phased In

Minneapolis’ $15 minimum wage will be phased in over 5 years for businesses with more than 100 workers, and over 7 years for businesses with fewer than 100 workers.

Here is how the phase-in will work:

Employees will be entitled to the $15 minimum wage “for all time worked within the geographic boundaries of the city.” Non-Minneapolis-based employees are entitled to the $15 wage only if they perform at least 2 hours of work for the employer in any particular week.

The Minneapolis ordinance does not include an exception for tipped workers in the hospitality industry. Therefore, all workers in Minneapolis will be subject to the $15 minimum wage.

The City’s Department of Civil Rights will oversee enforcement of this new requirement. The ordinance also includes a private cause of action in state district court for violations of the ordinance, and attorneys’ fees are available for successful claimants.

Legal Challenges Still Pending

While there were no immediate challenges to the minimum wage ordinance, the question of whether the City has the authority to issue employment-type ordinances will be resolved by the State Court of Appeals as part of the Minnesota Chamber of Commerce’s lawsuit against the City. Oral arguments are scheduled for next week.

As part of the same case, the court will resolve whether the City can enforce its ordinance against employers who do not have physical operations in Minneapolis but who nevertheless employ people who work within the city limits.

Bottom Line

This measure has been pending for quite some time and the City has been resolute in insisting that nobody, not even tipped workers, should be left out.  Therefore, unless the court challenge is successful, Minneapolis employers should begin gearing up for a very different employment environment within the city limits.

The post Minneapolis Passes Phased-In $15.00 Minimum Wage appeared first on Felhaber Larson.

As reported in our post You Could Be Liable for a Contractor’s Overtime, the DOL issued informal administrative interpretations in 2015 and 2016 stating that a company may be a “joint employer” of its independent contractors and temporary workers if they met certain thresholds of management or control over such individuals.

For example, if these thresholds were met between a contracting employer and a staffing company providing temporary workers, both companies would be jointly liable for any overtime premium owed to a worker who exceeded 40 hours in a given work week.

DOL Says Never Mind

But now, effective immediately, these administrative interpretations have been retracted. In announcing this change, the DOL emphasized their view that they were not “chang[ing] the legal responsibilities of employers under the [FLSA], as reflected in the Department’s long-standing regulations and case law.”  The implicit message is that the Obama administration changed the law and that the current DOL is simply bringing things back to where they were.

Withdrawal of the Obama-era guidance on joint employment will make it more difficult for temporary workers or independent contractors to claim that they are “employees” of their client company. Likewise, recent attempts to hold franchisors like McDonalds to be joint employers with their franchisees will also be more challenging.

Bottom Line

After just six months into the new administration, it appears that more Obama-era rules may be subject to the chopping block in the near future.

Bear in mind, however, that this is just a DOL matter.  It is still good practice to be wary of establishing joint employment relationships under the standards imposed by other government bodies such as the IRS and Minnesota’s workers compensation department.  Therefore, Employers utilizing independent contractors should still insure that they have effective written agreements disclaiming an employment relationship, spelling out the contractor’s duty to provide workers compensation coverage and any other applicable obligations, and outlining the areas in which the contractor has control over working conditions and administrative functions.

The post Labor Dep’t. Scraps Obama-Era Guidance on “Joint Employment” appeared first on Felhaber Larson.

On May 2, 2017, the House passed the “Working Families Flexibility Act” (H.R. 1180) amending the FLSA to permit non-exempt employees to bank up to 160 hours of comp time for hours worked in excess of 40 in a week. Comp time would be earned at the “overtime rate” of one and a half hours for each hour of overtime that is worked.

What’s in the Bill?

Bear in mind that this is only the beginning and that nothing becomes law until the Senate passes their own bill and differences are hammered out.  Still, this could be the start of something seismic.

Some key portions of this bill are:

– There must be a written agreement between the employer and employee (although a labor union can agree to this on behalf of members).

– Employees would be eligible only if they worked for their employer for at least 1000 hours in the preceding 12 months.

– Employees could accrue no more than 160 comp time hours in a year.

– Employees could change their minds and request cash payout of comp time, with 30 days’ notice.

– Employers could also compel cash-out of comp time in excess of 80 hours, again with 30 days’ notice (during which the employee could presumably use the comp time to reduce the actual payout).

– Pay for comp time would either be at the employee’s current rate or the rate when the comp time was earned, whichever is higher.

– Employees must be permitted to use their comp time “within a reasonable period” after it is requested as long as the intended use of comp time does not “unduly disrupt the operations of the employer.”

– Comp time would have to be cashed out at termination.

What’s in the Weeds?

Perhaps the biggest issue is how the comp time provision fits with state law.  In Minnesota, for example, overtime payments are required for each hour in excess of 48 in a week.   This would place Minnesota employers in the position of being able to grant comp time for the first 8 overtime hours but not for any additional hours after that.

Whereas most employers reserve the right to deny vacation requests at their discretion, use of comp time can only be denied if it does not “unduly” disrupt the employer’s operation.  If an employer denies a request on that basis and a judge or arbitrator later rules that the there was no undue disruption, the employee might be awarded payment for the requested time as well as liquidated damages.

Smaller employers face particular hardship.  For one thing, while use of comp time during a busy season might not “unduly” disrupt operations, it could make those operations more challenging.  Moreover, multiple employees seeking payout of comp time during the slow season could significantly impact cash flow.

What’s Next?

As noted above, the Senate needs to take up the bill, and their view of this idea is not at all clear.  Much work remains to be done.

Bottom Line

This is not the first time that a comp time bill has been proposed but it has gotten further than ever before.  It is interesting that after all the preparation done in 2016 to get ready for fewer exempt employees and more overtime payments, we are now seeing the glimmer of possibility that employers will experience greatly reduced overtime liability.

The post Comp Time Instead of Overtime Pay Could Be the New Normal appeared first on Felhaber Larson.

Of course, only a few will actually get their shot. Statistics tell us that only one-half of one percent of all high school baseball players will even be drafted by a major league team, and very few of those players will even get a glimpse of life in the Majors.

The rest will toil in relative anonymity in the minor leagues, where endless bus rides, sparse accommodations and meager pay are endured in the hope of one day making it to “The Show.”

Field of Dreams But No Revenue Streams

The average minor leaguer earns less than minimum wage, and minor league pay has grown only 75% in over 40 years. Meanwhile, inflation has jumped 400% in that time and the average major league salary has increased a whopping 2,000%.  The Major League Baseball Players’ Association (MLBPA) plays no role in any of this since they only bargain on behalf of players that have signed a Major League Baseball Uniform Player Contract with a major league team.

In 2014, a group of former minor league players filed a class action lawsuit in federal court seeking to raise the salaries for minor leaguers by including them under the Fair Labor Standards Act (FLSA). Although class certification was initially denied, U.S. Magistrate Judge Joseph Spero has now reversed that ruling and recertified the case as a class action on behalf of “any person who, while signed to a Minor League Uniform Player Contract, participated in the California League, or in spring training, instructional league, or extended spring training, on or after February 7, 2011, and who had not signed a Major League Uniform Player Contract before then.”

MLB Makes Its Pitch

MLB opposes this action, claiming that minor league players are seasonal workers and creative professionals, which renders them exempt from coverage under the FLSA. They deem them “short-term seasonal apprentice(s)” where they either make to the big leagues or move on to another occupation.

Further, MLB notes that baseball players are salaried employees similar to artists, musicians and other creative professionals who are exempt from the FLSA. They contend that it would be difficult to treat them as hourly employees whose pay would depend on how long the games last, how much practice they need and whether they make promotional or charitable appearances on behalf of the team.

While this case is only at the very initial steps, the class certification ruling is a big win for the players. It allows them to proceed in arguing that they are covered by the FLSA, which would then put MLB in the position of having to actually show that the players meet the exemption test or else pay them at least minimum wage and overtime.

The FLSA Scorecard

To fall under the “creative professional” exemption, an employee must meet three requirements: (1) the employee must be compensated on a salary basis; (2) the employee be paid not less than a specified minimum salary level (currently $455.00 per week); and (3) the employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. The Department of Labor states that this includes such fields as, for example, music, writing, acting and the graphic arts.

Let’s start with the salary test.  On average, minor league ball players earn far less than the $455.00 per week threshold for professional exemption. A typical minor leaguer earns about $1,200 per month and is only paid during the 4-5 months in which they are actually playing; they get nothing for offseason and spring training work. Therefore, while some highly prized prospects would meet the salary threshold because they signed big time contracts, the majority of players – the “career minor leaguers” – would not.

Moreover, can it really be said that ball players exercise the degree of artistic or creative endeavor that musicians or artists demonstrate? There is no question that they are very highly skilled because, as the old saying goes, the hardest thing to do in sports is to “take a round ball and a round bat and hit it square.” In reality though, success in baseball often rests on the absence of the need to be creative. A great hitter practices over and over again to make sure he applies the same batting fundamentals regardless of what the pitcher offers up. Fielders work tirelessly to make the difficult plays look routine. In essence, baseball players work very hard to minimize the number of times they have to be creative, and while their strength and agility are often idealized in artistic terms, they seem to present more as exceptionally skilled technicians than as creative artists.

The issue has never been considered in a court of law, but with college athletes seeking to unionize and pro football players receiving workers compensation benefits, the application of the FLSA to minor league baseball may not be all that far outside the strike zone.  Meanwhile, MLB and several individual teams have filed for an appeal.

Bottom Line

This case is in its early days and it will be a long time before we learn if this case will be a game changer for MLB. But for the moment, those languishing in the minors have another flicker of hope for a better future, even if they never make it to the big leagues.

We are grateful to Attorney Bryan D. Ludwig bludwig@felhaber.com who provided the inspiration for this article, as well as the majority of the ideas and preparation.

The post Baseball’s Minor Leaguers Seek Major Pay Increase appeared first on Felhaber Larson.

If you can’t prove when the clock got punched, you are the one that will take a hit.

Why Track a Salaried Employee’s Hours?

We saw this play out recently for Linda Wagner, an Administrative Specialist for Lee County, Florida. Wagner was paid a salary for performing routine secretarial and administrative work, and she was not paid for any overtime hours.

Among a number of other claims, Wagner sued the County under the Fair Labor Standards Act (FLSA) asserting that she was owed overtime for a large number of extra hours she worked beyond 40 in various workweeks. The employer disagreed, claiming that she never worked any extra hours. Wagner lost in the lower court and then appealed to the Eleventh Circuit Court of Appeals.

In order to establish entitlement to unpaid overtime, the employee carries the burden of showing that (1) they worked extra hours for which they were not compensated, and (2) that the employer knew, or should have known, about the overtime work.  If there are no time records kept, the employee need only come forward with “sufficient evidence to show the amount and extent of [the unpaid] work as a matter of just and reasonable inference.”

In other words, the employee’s burden is easier to carry because they only have to approximate the hours they actually worked and then bring in some sort of evidence that they actually worked those hours.

Oh, That’s Why

In this instance, Wagner proved that her supervisors and various other employees were all aware that she worked additional hours, often staying late to take notes at meetings or working at home to write up those notes for her supervisors.

Therefore, the burden shifted to the County to disprove the actual hours worked or otherwise negate the inference drawn from Wagner’s evidence. This was an impossible task since the County did not actually keep time records reflecting the hours that Wagner worked. With no documentation to rebut the recollections of Wagner and all of her witnesses, the Eleventh Circuit ruled against the County and found that Wagner had sufficiently established her legal entitlement to overtime pay.

The case therefore was remanded back to the lower court to determine if Wagner might qualify for an exemption (not likely since routine clerical tasks typically do not qualify for administrative exemption). If not, the County will be liable for unpaid overtime pay plus additional damages and potentially attorney’s fees.

Bottom Line

Employers should always document the hours worked by all employees, both salaried and hourly. Even if the employee is considered exempt, the employer should maintain time sheets or some other form of record reflecting the number of hours worked in a week.

Otherwise, there will be no way to offset an employee’s undoubtedly generous estimate of the number of additional hours they worked when they bring a claim for unpaid overtime because of misclassification, failure to observe the salary-basis rules or simply failure to pay what is owed.

The post Track Working Time Now or Pay Later appeared first on Felhaber Larson.

These overtime rules were expected to make more than 4 million workers newly eligible to receive the legally mandated premium of time-and-a-half for all overtime hours in a work week. The Department of Labor (DOL) has appealed the decision, and the appeal is presently pending before judges in the US Court of Appeals for the Fifth Circuit.

The Picture is Getting Clearer

The new Trump administration has yet to take any official action directly related to the overtime rules. However, their recent actions regarding pending regulations in general may very well indicate that the overtime changes may be headed to the afterlife.

On Inauguration Day, White House Chief of Staff Reince Priebus issued an order freezing all federal regulations that have not been formally published in the Federal Register.  The order also requires all regulations that have been published “but have not taken effect” to be postponed for at least 60 days, and then for an additional period “beyond that 60-day period.”  Only after both of these delays and in mandatory consultation with the Trump-appointed Director of Office of Management and Budget can “further appropriate action” be taken.

It cannot be said for sure that the overtime rules, which were set to go into effect on December 1, 2016, are subject to Priebus’ order. It seems reasonable to believe, however, that the federal judge’s order barred the DOL from “implementing and enforcing” the new overtime rules, those rules have not yet taken effect and therefore are frozen.  The DOL would have to counter by saying that the rules are already “in effect” and that the judge simply has stalled their enforcement.

More Signals

In addition, the Department of Justice (DOJ), who is representing the DOL in the appeal, has just requested a 30-day extension of the deadline for filing their brief.  According to the filing, “the extension is necessary to allow incoming leadership personnel adequate time to consider the issues.”  In other words, the DOJ want to put the appeal on hold while the Trump administration decides whether to defend the rule.

If the DOJ decides not to pursue the appeal, it seems likely that the injunction against enforcing the rules would remain in place since there would be nobody pushing to do anything else.

Bottom Line

While the crystal ball is still a bit hazy, signs continue to point to the likelihood that the new overtime regulations will soon be the “old regulations” without ever actually seeing the light of day.

The post The Outlook is Dim For The New Overtime Rules appeared first on Felhaber Larson.

Therefore, this is probably a good time to review the rules under the Fair Labor Standards Act (FLSA) for those times when the weather prevents an employee from getting to work or causes the employer to close the business for the day.

Non-Exempt Employees

This is the easy part since the FLSA generally does not require that non-exempt employees be paid if they do not actually perform any work.  As such, if the company is open but an employee is unable to come in, that employee need not be paid.  Moreover, if the company is closed and tells employees to stay home, non-exempt employees need not be paid, even if they miss or disregard the notice about the closure and brave the elements to come in.  There is no federal or Minnesota law that mandates “reporting pay” or “show-up pay.”

On those days where the business is open but employees are late due to traffic, blocked roads, etc., pay is owed only for the actual hours worked.  Similarly, if the business closes early because of worsening conditions, non-exempt employees need only be paid for time that they worked.  If some employees are unable to leave when the business closes early because their transportation is not yet available, they are not entitled to additional pay for remaining at the work site unless the employer requires or permits them to keep working.

However, even though not legally required, many employers who send employees home early for weather-related reasons elect to pay those employees for the remaining hours of the work day.

In some cases, employees make it to work and find that while the business is open, they can’t get started because, for example, a power failure makes their computers or assembly lines inoperable, or a sufficient number of co-workers have not yet arrived.  If these employees are required to wait around until repairs are made or enough employees show up, they must be paid for the waiting time.  Under the FLSA regulations, employees in these circumstances are considered ready to work and “waiting to be engaged” so they are entitled to be paid.

A great many employers have policies governing weather-related absences and those policies of course should be followed.  For example, some such policies guarantee a minimum amount of pay (e.g. four hours) for any employee who reports for work and is then sent home due to weather-related closure.  As noted below, a detailed policy addressing bad weather contingencies is advisable.

Exempt Employees – Business is Open

The rules regarding exempt employees are a bit more complex primarily because of the requirement for payment on a salary basis.

If the business is open but an exempt employee arrives two hours late, that employee must nevertheless be paid their entire salary for the day.  Payment on a salary basis requires that employees be paid their predetermined compensation regardless of the quality or quantity of work performed.  Docking an employee for two hours of tardiness would be inconsistent with this requirement.  The same is true if the employer decides to send all employees home early – the exempt employee must be paid for the entire day.

On the other hand, it is permissible in these circumstances to require that the two missed hours be paid for out of the employee’s vacation or paid time off (PTO) account.  The FLSA does not mandate or regulate vacation or other time off benefits, so as long as the employee receives the actual amount of money to which they are guaranteed under their salary agreement, the salary principle of the FLSA is satisfied.

Employees sometimes complain that they are being treated as if they are hourly (and therefore non-exempt) when vacation or PTO is deducted from their accounts in this fashion but this is not a valid protest – the FLSA is quite clear that as long as the right number of dollars end up in the employee’s pocket, it makes no difference where those dollars came from.

Where the business is open but the exempt employee misses the entire day, the employer may deduct a day’s pay (i.e. one-fifth of the weekly salary).  The FLSA sets out various exceptions to the requirement that salaried employees always receive their guaranteed pay, and one of those exceptions is “absences of a full day or more for personal reasons.”  Some might argue that missing work due to weather conditions is beyond the employee’s control and therefore not a “personal reason.”  However, the FLSA provides that “personal reasons” are those that are not caused by or attributable to the employer’s actions or operating requirements, and employers simply can not be blamed (or credited) for the weather.

Of course, an employer is not compelled to dock the exempt employee’s salary for a missed day.  Instead, they could give exempt employees the option of either taking the day unpaid or using a vacation or PTO day, or they could even compel employees to use of vacation/PTO if that is deemed desirable.  Again, since vacation and PTO are not regulated by the FLSA, the employer may apply those benefits as they wish, although they should make sure that they comply with their policy in this area if they have one.

Exempt Employees – Business is Closed

If the business is closed because of the weather, an exempt employee must be paid for the day because it is an absence attributable to the employer, not one for personal reasons.  Again, it could be argued that the employer is not responsible for the weather so they should not have to be accountable for it.  However, the FLSA plainly provides that if exempt employees are ready and able to work but are told by the employer not to do so, they must be paid in order to preserve their salaried status.

Under these circumstances, it again would be permissible for the employer to require that the day be taken as a vacation or PTO day and to debit the employees’ balances accordingly.  However, if an exempt employee has no remaining time off benefits in their account, they must nevertheless be paid their guaranteed salary for the day.  In that case, employers frequently permit the employee to maintain a “negative vacation balance”, which means that future vacation accruals will not be available until the employee’s balance moves back up to zero.

Bottom Line

The business is open, the business is closed.  The employee is exempt, the employee is non-exempt.  The employee has PTO available, the employee has no PTO.  There are many permutations to all of this, and the one constant is that no matter what the employer decides, some employees are going to complain.

The best advice in this area is to implement and publicize a carefully-crafted policy that addresses all of the different scenarios.  That way, employees will know in advance what will happen if a significant weather event arises and they can evaluate their options accordingly.  They probably will still complain but at least your responses to bad weather won’t be a surprise.

The post The Weather Outside it Frightful…Is Docking Pay From No-Shows Rightful? appeared first on Felhaber Larson.

This means that the uncertainty regarding the fate of the DOL rules will continue for a while as we await  action (or perhaps inaction) from our next president and/or the newly configured Congress.

“Expedited” May Not Be Fast Enough

Even with an expedited appeal, the timing requirements for legal briefs, responsive briefs and replies to responsive briefs means that all necessary papers would not be filed with the Appeals Court until early February. Then, the parties must have their opportunity for oral arguments, which the DOL has requested on “the first available date after close of briefing.”

Meanwhile, inauguration day is January 20.  Believing that a Republican president would seek to limit government’s reach into the private workplace, many experts predict that the Trump administration will decline to support the DOL rules.   However, our president-elect rode to victory on populist sentiment and support for working people, so he might not want to disappoint this portion of his constituency so early in his presidency.  As such, it is conceivable that the change in administration will not spell the end of the overtime rules.

Two other critical factors may also play into this.  First, Judge Amos Mazzant issued the injunction simply to maintain the status quo while he continues to evaluate the underlying lawsuit that seeks to invalidate the new rules permanently.  This may be a bit of a longshot but what if Judge Mazzant surprises us and actually decides the entire case in the coming weeks?  A decision that the DOL overstepped its authority obviously would invalidate the new rules, but a decision in favor of the DOL would effectuate the new rules immediately and perhaps even retroactively to December 1.

Second, Congress could still act, either in the current session or when they reconvene in January, to invalidate the rules through the Congressional Review Act, as we explained in our recent article entitled “What Happens to the New Overtime Rule Now?“.

What Are Our Options?

At this point, our advice remains the same since nothing has really changed since the injunction was issued.  If you have already made changes, you might consider keeping them in place until you see what happens next.

If you haven’t made changes, or have not yet implemented them, you have a delicate choice.  If you do nothing and the rules ultimately are upheld and enforced retroactively, you could be found liable for unpaid overtime as of December 1.  On the other hand, making changes now that later prove to have been unnecessary under invalidated rules would be very expensive.

Many employers are adopting a wait-and-see posture, holding off on making any changes until there is more certainty.  That seems like a well-reasoned approach, especially if it is accompanied by steps to minimize overtime hours by those who might be affected by the rule.  Still, every employer needs to evaluate for themselves what course of action works best for them..

Finally, there is talk that some states are gearing up to amend their own wage & hour laws to increase the exemption salary threshold to meet or even exceed what the DOL has proposed. Since most employers are subject to both state and federal regulation in this area, these states could take matters into their own hands and make the wrangling at the federal level irrelevant.  We know of no such efforts here in Minnesota (yet), and are also mindful of the fact that Minnesota law requires that overtime be paid only after 48 hours in a week so the impact of state action might be somewhat limited.

Bottom Line

Fasten your seatbelts – it’s going to be a bumpy ride for the next couple of months.

The post Labor Department Appeals Overtime Rule Injunction…What Now? appeared first on Felhaber Larson.

Although this is just a temporary order allowing the judge more time to study the merits of the underlying claims, the timing of the ruling may actually make it the death blow to the change in overtime rules that has been anticipated for more than a year.

The Rule

As we wrote in May of this year, the new rule would increase the amount of salary that an employee would have to be paid to be exempt from overtime (assuming that the employee also performs bona fide exempt duties).  The new rule would require a salary of $913.00 per week ($47,476 annually), just a little more than double the current $455.00 per week ($23,660 annually).   It is estimated that approximately 4 million workers would become newly eligible for overtime as a result of this change, and many more have received, or are slated to receive, significant pay increases in order to put them above the new salary threshold.

The Lawsuit

After the final version of the rule was issued, attorneys general from twenty one states banded together to file suit in federal court, claiming that the Department of Labor (DOL) exceeded its authority and seeking an order barring implementation of the new rule.  The states also requested an immediate injunction to block the December 1 effective date so that the status quo could be maintained while the judge examined the legal issues more fully.

Judge Amos Mazzant (an Obama appointee) agreed, ordering that the new rule should be enjoined on a nationwide basis until he could render an opinion on the actual lawsuit.  Judge Mazzant determined that it was best to delay implementing the rule in order to be certain whether it was or was not valid, rather than risk forcing employers to start paying millions of dollars of overtime that would eventually could be deemed unnecessary if the rule were to be invalidated.

What Happens Now

The DOL will likely appeal this decision to the United States Circuit Court of Appeals for the Fifth Circuit.  The Fifth Circuit could issue a stay of Judge Mazzant’s ruling pending the appeal, or perhaps even hear the appeal on an emergency basis.  Neither of those options seem likely, however, given Judge Mazzant’s opinion that a delay in implementation for a few months is not a significant hardship to anyone.  If the Fifth Circuit decides not to act immediately, it probably will be some time before a decision is issued in the appeal.

That’s where it gets interesting – if the appeal of Judge Mazzant’s order is not heard by inauguration day on January 20, 2017, there is a strong chance that a more pro-business president and his newly appointed (but  as yet unnamed) Secretary of Labor would decide to withdraw the appeal of the injunction and actually cease opposing the underlying lawsuit.  Both sides of the lawsuit could stipulate to ask the judge to permanently enjoin implementation of the new rules, allowing the new DOL to pursue administrative procedures designed to alter or rescind the new salary rule.

If the Fifth Circuit Court of Appeals were to stay the injunction or overrule it on an emergency basis, the rule would likely go into effect, at least until the underlying lawsuit from the states is decided.  Even then, there is a strong possibility that the new Congress could invalidate the rule under the Congressional Review Act, as we explained in our recent article entitled “What Happens to the New Overtime Rule Now?“.  This would require an early adjournment to the current Session of Congress, something that is being actively considered at this time.

Of course, it is even possible that this is a lower priority for the new administration and Congress, and that they will allow the lawsuit to proceed and live with the results.  In that case, the new salary rule could still take effect at some point in the future.

What Should You Do

Nothing is certain.  However, with a judge enjoining the rule’s implementation, a new administration almost certainly opposed to enforcing it and a new Congress that might be able to invalidate it, the chances that the new rule becomes effective are growing dim.  If you have not yet finalized and implemented new salaries to maintain exemptions under the new rule, or undertaken other personnel changes to adapt to it, you may feel reasonably safe in delaying those changes for a couple of months while we see how all of this shakes out.

If you have already made those changes, you might wish to keep them in place both to see how they work for your organization, and also to determine whether the new salary rule really will be off the table for good.  In deciding how to proceed, you will also want to consider the employee relations impact of rescinding salary increases, revised job descriptions and other significant changes that employees may feel good about.  On the other hand, if these changes have caused a significant hardship for your organization, rescinding them might be the way to go.

Bottom Line

This new ruling has upended an apple cart that has been in the works for a long time.  While it is very possible that the rule will never actually take effect, we have now learned never to say never.  As such, it might be best just to stay with where you are right now until we see how the next, and perhaps the last chapter of this story unfolds.

The post Federal Judge Stops New DOL Overtime Rule appeared first on Felhaber Larson.

Our best, most precise answer on this critically important issue to so many employers who have worked so hard getting ready for the this change is: “It depends.”

How Could Something Happen Now?

In 1996, the Congressional Review Act (CRA) was passed allowing Congress to disapprove and revoke a final rule promulgated by a federal agency. To do so, Congress has 60 days to enact a joint disapproval resolution invalidating the agency’s final rule. The disapproval resolution must be enacted by a majority vote in both houses and then presented to the president.  If the president then vetoes the resolution (which would likely happen since the agency passing the original rule is part of the executive branch), a two-thirds majority vote in both houses is needed to override the veto.

The 60 days refers to 60 “session days” in the Senate or “legislative days” in the House. These are not calendar days – these are days in which the Senate and House are actually in session. Therefore, since the DOL rules were published on May 23, 2016, the clock began to run on that date and Congress would have 60 session (or legislative) days to pass a resolution to invalidate them. If that were to happen, President Obama would almost certainly veto the resolution and, given the current make-up of Congress, a two-thirds override would be almost impossible to achieve.

Under this scenario then, it would seem that the new rule could not be invalidated in the present session of Congress, and the new administration would have to “restart” the rulemaking process by drafting and proposing new rules once they take office.  Under the Federal Administrative Procedures Act, the typical rulemaking process takes more than one year to arrive at new, final rules.  As such, the present rule requiring a salary of $913.00 per week for exemption would be with us for at least a while.

What Might Happen in the New Administration?

But wait – it is not altogether clear that there will be 60 session/legislative days from May 23 until Congress adjourns.  Between the long summer recess and our lawmakers’ penchant for light work schedules, 60 days have not yet elapsed since the DOL rule was published.  Therefore, if our Republican-controlled Congress decides to adjourn before the end of the 60-day period, the newly seated 2017-2018 Congress will be granted a brand new 60 session-day time frame to disapprove the DOL regulations.

Would this be a strategy that our current Congress employs?  If so, it might be the first time that Congress has ever adjourned early just for the purpose of invalidating an agency rule. Indeed, the CRA has been used successfully only once in the 20 years since it was enacted (to invalidate an OSHA ergonomics regulation in 2000).  Still, it is a tactic that could be considered and if the new Congress then successfully passes a resolution invalidating the rule, President-elect Trump would have an opportunity to sign it into law.

Even then, that isn’t the whole story. While President-elect Trump has stated that he will “[a]sk all Department heads to submit a list of every wasteful and unnecessary regulation which kills jobs, and which does not improve public safety, and eliminate them…” he has not ever actually expressed his interest in turning back the DOL overtime revision.  In fact, he has gone on record as favoring “a small-business exemption” from the DOL Overtime Rule.  He certainly could change his mind on this but at present, it does not seem to be very high on his list of priorities, and it is quite possible that the new administration would not wish to be responsible for encouraging employers to roll back the salary increases that so many employees have recently received in order to remain exempt.

As a practical matter, it is very important that even if the new rule is addressed in the next session of Congress, nothing can happen until the members are seated and the new president is inaugurated.  This means that at a bare minimum, we will have almost two months after December 1 in which the new rule will be in effect, and perhaps much longer if Congress chooses not to address this issue until later in the 60 session-day period.  During that time, employees will have the legal right to be paid overtime if they do not meet the new salary threshold. Therefore, even the most optimistic employer should anticipate the need to comply with the new rule starting December 1 and then wait to see if and when that obligation changes under the new administration.

By the way, there is yet another possible outcome to all of this. The attorneys general for 21 states have joined together in a lawsuit seeking to stop the new regulation from becoming effective, and a hearing is set for November 15 for a federal judge in Texas to consider a nationwide injunction against the effective date of the new rule.  While many observers doubt the chances that this lawsuit will prove successful, it warrants attention as another critical factor to watch in all of this.

Bottom Line

We need to know if the current session will hit the 60 day mark. If it does, then the new DOL rules likely will be with us for at least a year and possibly longer as the Trump administration and/or the new Congress decide whether to address them.  If the session adjourns before the 60-day mark, action could be swifter.  Even then, not swift enough to keep us from needing to observe the new rule starting December 1.

There, is that clear?

The post What Happens to the New Overtime Rule Now? appeared first on Felhaber Larson.

The EEOC Refused to Pay Indiscriminately

The EEOC’s problems began when their unionized personnel filed a grievance seeking unpaid overtime that the agency refused to pay.  EEOC claimed that the employees were instructed to avoid overtime if possible, and that any overtime they needed to work would be subject to compensatory time off (“comp time”) because they did not have the money to pay overtime.

The matter eventually was submitted to an arbitrator who ruled in 2009 that notwithstanding the availability of comp time, EEOC was liable for overtime payments.  The arbitrator determined that the collective bargaining agreement permitted employees to elect overtime (which is legally permissible for public sector employees) but did not permit the employer to impose comp time unilaterally.  Therefore since EEOC was aware of the overtime and allowed it to occur, they were liable to pay for it in all instances where comp time was not requested by employees.

The ruling urged the parties to try to negotiate the resolution but the settlement discussions took seven years until the sides finally agreed on a remedy of $1.53 million and other non-monetary relief.

The DOL’s Wages of Sin

In the DOL matter, the agency agreed after 10 years of litigation to pay employees $7 million for various off-the-clock violations.  It is estimated that between 2,000 or 3,000 will eventually receive some amount of back pay, including many who were misclassified as exempt from overtime by the very agency that enforces that particular legal issue.

Other payments will be made for those employees who worked over lunch or after hours with the knowledge and at least tacit approval from the DOL, yet were not paid overtime.

Not surprisingly, this settlement did not appear on the DOL’s web site where the agency’s victories are often trumpeted.

Bottom Line

These agencies are vested with authority to interpret these laws, and courts rely upon their expertise in deciding lawsuits.  If these experts can slip up like this, it is easy to imagine the rest of us making some mistakes as well.

As a result, it is always advisable for employers to audit and reevaluate their positions on various wage and hour issues, particularly those where the exempt versus non-exempt determination was in the gray area, as well as those matters where the DOL has been active recently.

The post EEOC and Labor Department Get Tastes of Their Own Medicine appeared first on Felhaber Larson.

Fortunately, the Department of Labor (DOL) continues to offer support, most recently in the form of a lengthy new Q & A based on questions received after their informational webinars on the topic.  We have distilled many of the major points and more helpful reminders below.

Can we make some people in a job classification exempt and others not?

Absolutely. If some of your employees are exempt because they meet the salary test and others remain below the threshold, there is no problem from the DOL’s standpoint. Exemption is based on the particular circumstances of each employee and there is no requirement that everyone be treated exactly the same.

Do we still have to pay $47,476 even if we only operate 9 months a year?

No – the test is whether the employee earns $913.00 a week for each week that they work (excluding first and last weeks if they start or end in the middle).  There is no obligation to account for times when the employer is not operating.

What is the salary requirement for part time salary workers?

$913 per week, the same as it is for full time employees. The exemption threshold is not prorated for people working less than full time.

If someone is going to earn less than $913.00 per week, does that mean that we must pay them hourly?

No. Non-exempt people can be paid on a salary basis as long as (a) they are paid more than the minimum wage for all hours worked and (b) they are paid overtime for all hours in excess of 40 in the week. In other words, the DOL doesn’t care how you pay the non-exempt people as long as they receive the amount of pay they are entitled to receive under the law.

If we pay salaries to non-exempt employees, do we still have to observe the rules about not docking an employee’s pay?

No. The no-docking rule for salaried employees relates only to maintaining the exemption from overtime.  If the employee is not exempt, those rules do not matter.

Some of our people who will no longer be exempt resent having to now punch a time clock. What can we do about that?

While there is a record keeping requirement for non-exempt employees, there is no required method or form for keeping these records. For employees who work a strict schedule with very little variation, an employer could choose for example to simply retain the actual work schedule and just note any changes on the schedule if they occur.  For employees with more variable schedules, different methods are available.

In fact, the DOL says that actual start and stop times are not needed – employers need only maintain records of the total number of hours worked.  The employer should just be sure that whatever method they are using to record hours is accurate.

How does that non-discretionary bonus exception work?

Assuming that the employee performs bona fide exempt duties, exemption will apply if they receive at least 90 percent of the threshold (approximately $822 per week) as a salary and earn at least 10 percent of the standard salary level (approximately $91 per week) in non-discretionary bonuses or incentive payments (including commissions), provided that such payments are paid on a quarterly or more frequent basis.

Non-discretionary bonuses are those that are paid based on standard formulas or conditions, and are not based upon the whim or subjectivity of the employer.

Does the quarterly basis have to be a calendar quarter? Does the quarter have to be the same for everyone?

No to both questions. The quarter can be any three-month period designated by the employer, and it can differ by employee, department or any other grouping.

What won’t change on December 1?

Quite a bit. The duties tests for the white collar exemptions have not changed, nor have the exemptions for inside or outside sales.  The manner of determining which deductions are permissible under the salary method also has not changed.  In addition, while computer professionals are subject to the new salary standard, the alternative wage measurement ($27.63/hour) for exemption remains the same and is now closer to the salary test on an annualized basis.

Bottom Line

December 1 will be here before you know it. If you haven’t conducted the necessary evaluations of your work force and begun implementing changes, do not delay even a single day longer.

The post Some Helpful Reminders About the Impending Overtime Changes appeared first on Felhaber Larson.

The DOL estimates that this change will entitle approximately 35% of all workers currently salaried to become eligible for overtime. They further speculate that the change will put an additional $12 billion in workers’ pockets over the next decade.

Some Surprises in the Final Rule

The final version of this rule tossed us a few last-second curve balls to keep us on our toes. For example:

–   We reported here on May 2, that the threshold was anticipated to be $47,000 a year, a drop of about $4,000 from the original proposal. The final amount of $47,476 was never indicated in any of the DOL’s information leading up to the final rule.

–  The salary will be “automatically” increased every three years, a change from the annual updating that has been under consideration.  The intent of the automatic increase is to insure that the threshold stays at the 40th percentile of full-time salaries in the lowest income region of the country.

–  The “highly compensated employee” threshold will increase from  $100,000 to $134,004 annually.  This exemption applies if an employee earns this amount and meets any one of the factors under the so-called “White Collar Exemptions” (executive, administrative or professional).

–  According to the DOL press release, the new rules “respond to employers’ concerns by making no changes to the “duties test.”  Only the salary threshold for exemption is changing.

–  Also as previously reported here, non-discretionary bonuses and commissions may be counted for up to 10% of the threshold.  Therefore, if an employee earns $850.00 in a week but also receives a commission of $65.00 (or perhaps a perfect attendance bonus, a sales quota bonus, or some other similar payment of that amount), the exemption remains intact.  In a Q&A issued yesterday, the DOL stated that such bonus or commission payments must be made on a quarterly basis or more frequently, but if at the time of the payments they still do not satisfy the threshold, the employer may make a “catch-up” payment to preserve the exemption.

Interestingly, the DOL also issued three technical guidance documents designed to help public employers, non-profit employers, and institutions of higher education address the changes that may be required as a result of the new overtime threshold.

Bottom Line

We have anticipated this change (more or less) for about a year so its arrival should be no surprise.  It is a surprise, however, that the DOL has given us so much more time to implement the necessary changes – more than five months instead of the 60 days that we had assumed.

With the amount of breathing room we still have, there is no excuse for not being ready for these changes by December 1.  Still, it is going to take some time to figure all of this out.  Should employees close to the minimum requirement be given raises so that they exceed the threshold?  Should newly non-exempt workers be paid hourly or remain on a salary?  How do we make all these changes but still keep close to our labor budget?

Start working those calculators, and be sure to refer to our previous article entitled How to Get Ready for Overtime Exemption Changes for some helpful ideas on re-working employee wage and salary rates to meet the new salary requirement.

The post Overtime Change is Final and Starts December 1 appeared first on Felhaber Larson.

The Department of Labor (DOL) has now indicated that employees might need to earn a salary of only $47,000 annually (just over $903.00 per week) to be exempt instead of $50,440 annually ($970.00 per week).  The new threshold would be just about twice the current salary level for exemption ($455.00 per week).

Non-Discretionary Bonuses Could Count Toward the Total

One often overlooked aspect of the DOL’s proposed regulations is the possibility that employers might be able to use non-discretionary bonuses and incentive payments “to satisfy 10 percent of the standard weekly salary level.” Thus, if the new minimum salary really is $47,000, the Proposed Rules would permit an employer to meet this test by paying an employee a salary of $42,300 and offering bonuses of $4,700.

Importantly, however, the Proposed Rules require that “in order for employers to be permitted to credit such [bonuses] toward the weekly salary requirement employees would need to receive the bonus payments monthly or more frequently.”  This means that an employer could not pay the bonus annually and then credit it back proportionally over the last 12 months in order to meet the exemption threshold.

It remains to be seen whether the Final Rules will in fact permit employers to use non-discretionary bonuses and incentive payments to satisfy the revised salary level requirement. If they do, many questions still remain as to how this can be accomplished.

Bottom Line

We know that the exemption threshold will change but how much and when is still a mystery, even at this late date.  Whatever salary level is ultimately selected, the change will be huge and employers should be working hard right now to get ready.

For guidance on how to address the new salary threshold, please see our post entitled How to Get Ready For Overtime Exemption Changes.

The post New Overtime Salary Threshold May Be Dropping appeared first on Felhaber Larson.

Joint-employer status is important because it can affect how work hours are counted for purposes of overtime pay, and whether more than one entity might be liable for not complying with the FLSA. For example, if a nurse works 25 hours in a week for each of two different nursing homes considered to be separate divisions of the same health care entity, those hours might have to be aggregated (for a total of 50 hours) for purposes of the FLSA.  Then, each nursing home would be jointly and severally liable for ensuring that the nurse is paid for the 10 hours of overtime.

The Administrative Interpretation explains that there are two types of joint employment relationships: (1) horizontal and (2) vertical.

Horizontal Relationships

A horizontal joint employment relationship exists when two or more employers “each separately employ an employee and are sufficiently associated with or related to each other with respect to the employee.” The focus of a horizontal joint employment analysis is the relationship and association between the two (or more) potential joint employers.  For example, two restaurants that share economic ties and management may be considered joint employers of a waitress working for both restaurants.

Horizontal joint-employment is typically found in situations where (1) there is a specific agreement to share the employee’s services; (2) one employer acts directly or indirectly in the interest of another employer regarding the employee; or (3) the employers are deemed to share control of the employee because one employer controls, is controlled by, or is under common control with the other employer.

The degree of control by one entity over the other is evaluated by examining such factors as:

• Does one entity own all or part of the other entity?
• Are there overlapping officers, directors, executives, or managers?
• Is there overlapping control of operations, such as staffing, payroll, advertising, overhead costs?
• Does one potential joint employer supervise the work of the other?
• Is supervision of the employee shared amongst the entities?
• Are the employees of the entities intermingled?
• Do the potential joint employers share clients or customers? and
• Are there any agreements between the potential joint employers.

Vertical Relationships

A vertical joint employment relationship exists where an employee of an “intermediary employer is also employed by another employer.” Unlike horizontal relationships, which look to the relationship between two entities, vertical joint employment analysis looks to the relationship between the employee and the entities who might be considered joint employers of the individual.   The Administrative Interpretation sets forth examples of vertical joint employment that include “nurses placed at a hospital by staffing agencies, or warehouse workers whose labor is arranged and overseen by layers of intermediaries between the workers and the owner or operator of the warehouse facility.”

The basic focus of vertical joint employment is the determination of whether the employee is economically dependent on the potential joint employer(s) who benefits from the employee’s work. Consider the security guard at the shopping mall whose work benefits the mall itself as well as the stores within it.  Similarly, as the Interpretation notes, the nurse placed at a hospital by a staffing agency certainly can be said to benefit both entities.

The key factors to examine in determining if such a relationship exists include:

• Directing, controlling or supervising the work performed;
• Setting the employment conditions, e.g. discipline/termination, rates of pay, employment policies;
• Permanency and duration of the relationship;
• How integral the employee’s services are to the business;
• Whether the work is performed on the premises of the potential joint employer;
• Whether the potential joint employer performs administrative functions for the employee, such as payroll or providing workers’ compensation insurance, or supplies tools, equipment or materials for the work.

Bottom Line

This could be a huge liability just waiting to happen for an unsuspecting employer, and the fact that this Administrative Interpretation was issued probably means more DOL emphasis in this area in the future.

Employers utilizing independent contractors should make sure that that they have written agreements stating that this is not an employment relationship.  Those agreements should spell out the contractor’s duty to provide workers compensation coverage and any other applicable obligations, as well as areas in which the contractor has control over working conditions and administrative functions.  In short, clarify the relationship before the DOL does it for you.

The post You Could Be Liable for a Contractor’s Overtime appeared first on Felhaber Larson.

It’s time to stop wringing our hands over this impending change and get busy figuring out how to deal with it.  There are plenty of options.

THE CHANGE

Under existing regulations, employees are exempt from minimum wage and overtime requirements under what are called the “White Collar Exemptions” if they meet both elements of a two-part test:

–  The employee must perform bona fide executive, administrative or professional duties; and

–  The employee must receive a weekly salary of at least $455.00 (not prorated for part time).

Other exemptions exist for such categories of workers as computer professionals, outside sales employees and highly compensated employees but they have other qualifying factors that are not relevant to the changing threshold.

The DOL’s proposed change more than doubles the exemption threshold, meaning that a large number of employees who are now considered exempt based on their current salary will not be exempt when the change is implemented because they are not paid at least $970.00 per week ($50,400 per year). In addition, the threshold will continue to increase under the DOL’s proposal because it will be indexed for inflation.

SOME EASY FIXES

In many instances, the solution is relatively simple, especially where employees do not regularly approach the 40-hour overtime threshold.  Two options leap to mind:

Leave things alone – For your current exempt employees who typically do not exceed forty hours in a week (perhaps because they are part time or their jobs just do not require extra hours), simply convert their salaries to an hourly rate by dividing their weekly salary by their average hours per week.  Then just have them start recording their time like your other nonexempt employees.

Give them a raise – For those whose current salary is close to the new threshold, consider just raising them up to meet the new standard.  This may not cost very much in comparison to the expense of paying overtime at a relatively high hourly rate.  For example, an employee currently paid an annual salary of $48,000 need only be given another $2,440 to reach the exemption threshold.

On the other hand, if you decline the option to provide a raise, you must convert that $48,000 annual salary to a wage rate of about $23.00 per hour. If this employee averages 2 hours of overtime per week at time-and-a-half ($34.50 per each hour of overtime), that’s $69.00 x 52 weeks = $3,588.00 of annual overtime, more than $1,000 higher than the simple raise needed to maintain the exemption.  Of course, the disparity becomes even greater as the employee’s average overtime increases.

WHEN “EASY” DOES NOT WORK

What do you do for employees who work long hours but are paid a salary that precludes just offering a raise to meet the new exemption threshold?

For example, consider a currently exempt employee earning $31,200 per year and regularly working 45 hours a week. Just offering them $19,240 to meet the exemption minimum is probably out of the question so you decide to convert their salary into an hourly wage which comes out to $15.00 per hour ($31,200/2080 hours).  Since the overtime rate is $22.50 per hour (1.5 x $15.00), you will end up paying an additional $112.50 for 5 overtime hours each week, or $5,630.00 per year.  That could strain a labor budget for a small organization, or even that of a bigger employer if there is a large number of employees who fit this scenario.

Option 1 – Why not consider a different conversion that takes into account both the straight time and the overtime rates?  Tell the employee “You are no longer exempt and are now eligible for overtime.  However, we set your salary at what we could afford to pay and we simply can’t absorb additional cost.  So, we are going to establish a lower hourly rate so that the total of all straight time over the year plus the required overtime pay will come out to about the same as what you have been paid as salary.”

Using the $31,200 salary in the above example, instead of dividing the salary by 2080 (the full time number of hours at 40 per week), just set that employee’s wage at $12.75 per hour ($26,520 annually). You still have to pay the 5 hours of overtime every week but now it would be at an overtime rate of $19.125 per hour (1.5 x $12.75) for a weekly total of  $96.63.  That works out to be $4,781.25 per year in overtime payments which, when added to the annual wage of $26,520, results in a yearly compensation of $31,301.25 – pretty close to the original $31,200 salary.  Those with excellent math skills can probably refine these calculations down to the last penny.

Option 2 – Another possibility would be to pay the employee as a salaried worker but agree at the outset that the salary covers 45 hours of straight time.  In the above example, an annual salary of $31,200 comes out to $600.00 per week.  When the employee was exempt, that salary covered their average 45-hour week so why not agree that the same is true now? You would still owe overtime for hours 41-45, but since you have already paid the straight time amount for those hours, you don’t owe time-and-a-half.  Instead, you only owe the additional 0.5 premium ($13.33 per hour x 0.5 = $6.67) for each of those hours.  Total overtime liability would be $33.35 per week, or $1,734 per year, a fairly minimal increase that essentially saves the employer about two thirds of anticipated overtime cost merely by defining the salary as covering 45 hours instead of 40.  If need be, the salary could be lowered ever so slightly so that the overall payments will not exceed the annual amount the employee receives currently.

Option 3 – An even more intricate option exists called the “fixed salary for fluctuating workweek” plan.  This operates much like the salary concept described above except that the number of straight time hours covers all of the hours worked in a week regardless of the number. The more the employee works, the lower the 0.5 premium will be for the overtime because the fixed weekly salary is divided by a larger denominator.  This plan can only be used in specific situations where the number of hours in the employee’s work week varies and where there is a clear understanding with the employee that the salary covers all such hours.  The employer must also be sure that the salary does not fall below minimum wage when divided by a large number of hours in a week.

Option 4 – if the math seems too overwhelming, you still have the choice of restructuring jobs, reducing hours, creating job-shares or undertaking any other method of insuring that employees who will no longer be exempt are not likely to incur overtime.  This may involve fairly significant restructuring, and employers must be sure to comply with any and all labor contracts, policy manuals, individual agreements and other similar items that might limit the ability to implement such changes unilaterally.

BOTTOM LINE

There is no time to wait. Employers should start reviewing jobs right now to determine which jobs can be upgraded to meet the new threshold, which jobs require recalculated compensation and which jobs can be reduced, merged or changed. The new rule will be here before you know it.

The post How to Get Ready For Overtime Exemption Changes appeared first on Felhaber Larson.

Alla Rosenfield worked for GlobalTranz Enterprises, a provider of transportation management services, first as Manager of Human Resources and then Director of Human Resources and Corporate Training. Although she handled many of the traditional areas of Human Resources management, she had no authority over the company’s compliance with the Fair Labor Standards Act (FLSA) – that authority was vested in her boss.

FLSA VIOLATIONS NOTED

Nevertheless, Rosenfield complained frequently to her boss that the company was not complying with the FLSA, often noting that many employees were misclassified as exempt and should receive extra wages. In addition to these complaints, it was estimated that she made these same thoughts known in almost 30 different weekly and monthly reports to her superiors.

Although Rosenfield’s boss wasn’t happy with the complaints, he agreed to address them but told her that it was not her role to determine whether adequate changes were being implemented. When Rosenfield subsequently documented continuing noncompliance and complained to her boss, she was fired, leading her to sue the company for violating the anti-retaliation provision of the FLSA which makes it unlawful to  “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this chapter, or has testified or is about to testify in any such proceeding…”

The lower court dismissed the case, finding that Rosenfield was not protected because she had not actually “filed any complaint” when carrying out her duties as a human resources executive. Rosenfield then appealed to the Ninth Circuit Court of Appeals.

AREN’T MANAGERS SUPPOSED TO SPEAK UP?

The Ninth Circuit recognized that many other circuits use a “manager-specific legal standard” to limit protection. This standard protects against retaliation only if a manager “step[ped] outside his or her role of representing the company” and either filed a claim on their own, took some action to assist others in doing so or otherwise engaged in behavior that could reasonably be seen as asserting rights under the statute.

On the other hand, the court also noted previous US Supreme Court decisions calling for protections to be afforded only if the employer had “fair notice” that an employee was “making a complaint that could subject the employer to a later claim of retaliation.” This test requires a case-by-case analysis of both the content and context of the complaint to determine if it was sufficiently clear and detailed for the employer to interpret it as an assertion of rights as opposed to simply an expression of concern offered by a manager to assist the employer in doing the right thing.

To apply the Fair Notice rule, the appeals court explained the need to be mindful that an employee’s job title and responsibilities are a significant part of the context of the claim. No doubt, a manager is generally expected to speak up about workplace issues and the need for change and a reasonable employer therefore would not be expected to interpret such expressions as the filing of a claim or complaint. However, courts could distinguish between concerns expressed by first-line managers who oversee only daily operational matters and those offered by higher level managers who oversee legal compliance and larger policy issues.

In this instance, the Ninth Circuit ruled that the context of Rosenfield’s complaints should have led the employer to understand that she was seeking to assist others in obtaining FLSA rights. Since FLSA compliance was not within the scope of Rosenfield’s job, her advocacy on this issue could not reasonably be considered merely part of her role as a manager. As such, she was protected from retaliation for voicing her concerns about FLSA violations even though she served as a high level manager.

BOTTOM LINE

This is a troubling decision since it seems to offer special whistleblower-type status to mangers who basically are just doing their jobs. In fact, the dissenting judge pointed out that this decision seems to afford greater protections to managers over rank-and-file workers. The latter, to be protected, must truly take a bold and often intimidating step to file a complaint or stand up for co-workers, essentially becoming adversarial to their employers. Managers, on the other hand, merely need to mention their concerns in the course of doing their jobs.

As noted, other jurisdictions continue to adhere to the “manager-specific” rule so it remains to be seen whether the Ninth Circuit’s view of things gains traction elsewhere. Still, until the Eighth Circuit weighs in, Minnesota employers should exercise a bit of caution to consider the context of a manager’s complaints before determining that their status as a manager eliminates any possibility of a retaliation complaint.

The post Court OK’s HR Director’s Retaliation Claim appeared first on Felhaber Larson.

Fraud and Deceit

The case of People v. BMY Foods Inc., involved Adbul Jamil Khokhar, the owner of numerous Papa John’s pizzeria franchises located in the Bronx, New York. On July 15, 2015, New York Attorney General Eric Schneiderman announced that the State of New York would be bringing criminal charges against Khokhar and his company, BMY Foods. These charges followed a U.S. Department of Labor (“DOL”) investigation into whether Khokhar had violated federal and state laws by failing to pay his employees overtime and minimum wages.

This probably was not a case of simple oversight. Upon learning of the DOL’s investigation, Khokhar appears to have created fictitious identities to conceal the overtime worked by employees, and filed fraudulent tax returns with the State of New York in order to keep the authorities off his trail. In total, it is estimated that around 250 current and former Papa John’s employees were affected by Khokhar’s efforts to scrimp on wages.

Paying the Price

In July of 2015, Khokhar reached a civil settlement with the DOL that required him to pay $230,000 in liquidated damages in addition to $50,000 in civil monetary penalties. Khokhar and his companies will also be required to appoint an internal compliance officer, create controls and procedures to avoid further violations, and will be subject to independent auditing.

Khokhar pleaded guilty in the New York prosecution to a misdemeanor failure to pay wages, and his company pleaded guilty to falsifying business records, a felony. On November 16, 2015 a judge handed down a sentence ordering Khokhar to spend two months in jail. The State also imposed an additional $230,000 in restitution of unpaid wages in addition to the DOL fines. This appears to be the first instance of a franchisee of a large national chain serving jail time for wage violations.

The Bottom Line

Khokar’s case may be an extreme one, but it provides a useful reminder to employers that wage violations can be accompanied not only by hefty monetary penalties, but also jail time. A surprising number of statutes include provisions identifying certain breaches as misdemeanors and even felonies. That’s an extra topping to be avoided.

The post State Delivers Criminal Sentence to Papa John’s Franchise Owner appeared first on Felhaber Larson.

Why Can’t Both Sides Benefit?

A central part of the “old” test was whether the company offering the internship received an “immediate benefit” from the interns. If the answer was yes, this often meant the intern must be paid as an employee. The Eleventh Circuit determined that this test was outmoded since unpaid intern programs of the past tended to be used to train a pool of potential employees for future work opportunities. Now, internships typically offer the chance for students to “learn on the job” and it is only natural that companies will receive some sort of immediate benefit from the added labor. This coincidental benefit, the Court explained, should not be the deciding factor.

The interns in Schumann were all student registered nurse anesthetists (SRNAs) currently enrolled in school. In Florida, all students must complete several hundred clinical hours to become a certified registered nurse anesthetist (CRNA). These particular students all went to the same private college and all completed their clinical hours with Collier Anesthesia, (“Collier”), a privately owned practice group. The interns argued that they should have been paid because Collier received a financial benefit by being able to serve more patients when SRNAs were scheduled. Collier disagreed, explaining that their internship program was set up with either a 1:1 or 2:1 ratio of SRNAs to CRNAs. The CRNA would supervise the intern, evaluate their daily performance, and provide instruction throughout their shift. This level of supervision often took additional time for the CRNAs and several reported that the interns actually caused a decrease in the overall efficiency of their work.

What, if any, benefit Collier received from the use of interns will be sorted out in the district court, but the Eleventh Circuit left no doubt that under the new primary beneficiary test, the central focus should be on the benefit that the internship affords to the students. As long as Collier is not taking unfair advantage of the students by making them perform tasks or work hours well beyond the clinical hour requirement, the court concluded that “the mere fact that an anesthesiology practice obtains benefits from offering SRNAs internships cannot, standing alone, render the student interns “employees” for purposes of the FLSA.”

Bottom Line:

Again, Collier probably will win this one and employers will get some relief if they utilize hands-on, “on the job” internship programs. As long as the program provides the intern with tangible benefits such as educational credits, experience, and training, the fact that the company also benefits will no longer preclude the intern’s status as unpaid. Remember, however, that these rulings are limited to the Second Circuit Court of Appeals (covering New York, Connecticut and Vermont) and the 11^th Circuit (Florida, Alabama and Georgia). Minnesota employers can take heart from these developments but our Eighth Circuit still has yet to weigh in on this emerging trend.

The post Test for Unpaid Interns Getting More Relaxed appeared first on Felhaber Larson.

Background

The DOL contends that the use of independent contractors to perform work previously done by employees is on the rise.  They even suggest that some employers deliberately misclassify their workers this way to cut costs and avoid legal compliance.  The DOL recently has stepped-up scrutiny in this arena, recovering more than $79 million in back wages for more than 109,000 workers in various industries in 2014.

WHD Administrator’s Interpretation No. 2015-1

The Guidance notes that the FLSA is extremely broad and covers any entity that “suffers or permits” an individual to work.  Under the “economic realities test,” the following factors are generally used to determine whether a worker is an independent contractor or an employee:

1. the extent to which the work performed is an integral part of the employer’s business;
2. the worker’s opportunity for profit or loss depending on his or her managerial skill;
3. the extent of the relative investments of the employer and the worker;
4. whether the work performed requires special skills and initiative;
5. the permanency of the relationship; and
6. the degree of control exercised or retained by the employer.

The Guidance directs these factors to be considered in totality and according to the “overarching principle that the FLSA should be liberally construed to provide broad coverage for workers.”

The Guidance sets out contrasting examples of how each of these factors is to be evaluated in order to give effect to the broad coverage they claim is intended under the law.  A few highlights include:

Is the work an “integral” part of the business:

For a construction company that frames residential homes, carpenters are integral to the business – the company is in business of framing houses and that is what carpenters do.

In contrast, that company’s software developer might create programs that help track bids, schedule projects and maintain inventory.  Such work is beneficial but not integral to the company’s business.  Thus, this factor weighs in favor of independent contractor status.

The “managerial skill” factor:

A worker for an office cleaning service performs tasks outlined for him by the company.  He does not make the schedule, nor does he solicit additional clients, advertise his services, or seek out ways to reduce costs. His efforts to earn more depend solely upon being assigned more hours by the company.  There is no managerial skill involved, which indicates an employment relationship between the worker and the cleaning company.

If that same worker advertised his services, negotiated contracts with clients, set the cleaning schedule and brought in additional help when needed, this level of managerial skill would point toward an independent contractor status.

The “relative investment” factor:

The same cleaning company worker is issued all cleaning equipment and supplies for his jobs, and is assigned a vehicle for travelling to assignments.  Although the worker may occasionally bring his own preferred cleaning products to his jobs, the company’s investment into the work is clearly greater and therefore favors a determination of an employment relationship.

If the worker buys a van not suitable for personal use and uses it to travel to various worksites, rents space to store the vehicle, and purchases all the material, supplies and equipment he uses to clean his clients’ facilities, an independent contractor relationship is suggested.

The “control” factor:

A registered nurse is listed with a nurse registry to provide skilled nursing.  The registry interviewed the nurse and required her to undergo their multi-day training.  The registry then sends the nurse a list of potential clients each week and requires the nurse to fill out a form with them prior to contacting any clients. The registry sets the wage range, limits the available work days and must be contacted if the nurse will miss any work to which she was assigned.   This level of control points toward an employment relationship. ,

Another registered nurse might list with a different registry, which merely sends a list of potential clients.  This nurse then is free to work for as many or as few clients as she wishes, may negotiate her own wage rate and may determine her own schedule with the client. In this scenario, the degree of control exercised by the registry is not indicative of an employment relationship.

Bottom Line

This is just an administrative interpretation that does not have the force of law.  Nevertheless, it is a clear indication of how the DOL looks at the law and how they will decide claims of this type that are presented to them.  Moreover, we know that courts often look to the DOL’s interpretations for guidance in deciding cases in their jurisdictions.  Therefore, employers currently utilizing workers classified as independent contractors should revisit those arrangements to be very certain that they pass muster in an environment where employment status is so clearly the presumption in the eyes of the government regulators.

The post New DOL Guidance Says “Most” Workers (including Independent Contractors) Are Covered By FLSA appeared first on Felhaber Larson.

Old Standard

The DOL has had a longstanding requirement that the following six tests all had to be met before a true internship could be found:

1. The internship is similar to training that might be provided in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees;

4. The employer derives no immediate advantage from the intern’s activities, and on occasion its operations may actually be impeded;

5. The intern is not necessarily entitled to a job after the internship and

6. The parties mutually understand that wages are not expected.

While courts are not absolutely bound by DOL regulations, they often look to them for guidance on interpreting the law.

The Second Circuit viewed things through a different lens, setting out a new test focusing primarily on who is the “primary beneficiary” of the internship. If the intern is the star of the show, the relationship can be billed as an unpaid internship even if the employer gets some benefit from the intern’s efforts.

New Standard

This new approach looks to the practical, economic realities of the relationship and requires a balancing of all relevant factors, including those that the DOL previously identified, such as:

1. The extent to which the parties clearly understand that is, or is not, expected;

2. The extent to which the internship provides training similar to what might be given in an educational environment, including clinical and hands‐on training;.

3. How much the internship is tied to the formal educational program through integrated coursework or the receipt of academic credit for the experience;

4. Whether the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;

5. The extent to which the internship’s duration is limited to a specific period for beneficial learning (rather than continuing on with no prescribed agenda);.

6. The extent to which the intern’s work complements the work of paid employees instead of displacing them; and

7. The extent to which there is an understanding that there is no promise of a paid job when the internship ends.

The fate of the individual interns in the case remains up in the air since the matter was remanded to the lower court to evaluate the claims under the new Second Circuit test.

Bottom Line

This decision comes after another large entertainment company, Viacom, recently settled the wage and hour claims of several unpaid interns who argued they should have been classified as paid employees, as we reported on June 5.

Make no mistake – the DOL intends to apply their rigid six-factor test when claims are filed with them, and they will certainly advocate their test in the courts. However, employers defending those claims now have a new argument for the validity of internships even if they don’t meet all of the DOL factors. It remains to be seen how other courts (especially the Eighth Circuit which encompasses Minnesota) intend to handle this issue. Until we know, use caution in setting up unpaid internships to make sure there is a happy ending to the story.

The post Internships Part 2: The Return of Unpaid Status appeared first on Felhaber Larson.

Right now, minimum wage for employees working for large companies (defined as $500,000 in annual gross revenues) is $8.00 per hour, while workers for smaller companies are entitled to at least $6.50 per hour (although they must receive at least $7.25 per hour if they are covered by the federal minimum wage).

When the new regulation takes effect on August 1, 2015, the minimum wage at large employers must be $9.00 per hour while the standard for smaller employers will be $7.25.   Don’t get too used to those numbers, though – the rates increase again on August 1, 2016 to $9.50 and $7.75 respectively.  Thereafter, the minimum wage in Minnesota will be indexed for inflation, although state regulations limit any such increase to 2.5%.

Remember that Minnesota permits all employers to pay a training wage to any worker under 20 years of age for their first 90 days of employment, and to all workers under the age of 18.  Those rates also increase to $7.25 next month and to $7.75 on August 1, 2016.

For more information, contact Dennis Merley at 612-373-8434 or dmerley@felhaber.com.

The post Minnesota’s Minimum Wage is Going Up, and Up and . . . appeared first on Felhaber Larson.