Does Paying Time and a Half For Certain Work Count Toward Overtime? [Wage & Hour FAQ]

Posted in Overtime, Wage and Hour FAQs

Q. Our organization has a policy of paying employees who perform certain kinds of work outside of regular business hours at 1-1/2 times their regular hourly rates. Do we have to pay additional overtime pay for these hours?

A. Maybe. The Fair Labor Standards Act requires employers to pay overtime at 1-1/2 times an employee’s “regular rate” of pay. The default method for calculating the regular rate is to divide the employee’s total non-overtime compensation for the workweek by the total number of hours worked.* Overtime pay is then calculated by multiplying one-half of the resulting regular rate by the number of overtime hours worked during the week. All compensation paid to an employee for their work in a given workweek must be included in the regular rate calculation unless the compensation falls within one of the exclusions specifically identified in the law.

One of the exclusions from the regular rate calculation is for bona fide overtime premiums. Compensation can count as a bona fide overtime premium if the rate of pay is at least 1.5 times the employees’ regular rate, and employees receive the premium for working in excess of an established number of hours per week or per day, for working on certain specified days of the week (e.g., Saturday or Sunday) or on special days (e.g., holidays), or for working outside certain established basic work hours. A premium rate that meets these requirements can be both excluded from the regular rate calculation for purposes of determining the overtime rate, and counted as a credit toward the amount of overtime pay due to the employee for the workweek.

Here, the premium rate described sounds as though it could qualify as a bona fide overtime premium, at least at first. It is 1-1/2 times the employee’s regular pay rate, and it is paid for working outside of regular business hours.

However, the question specifies that the premium rate is paid only for performing “certain kinds of work.” That qualification is important. A premium rate paid to encourage employees to perform certain job duties that might be viewed as less desirable, or to work less desirable shifts, is generally not a bona fide overtime premium and must be included in the regular rate calculation. As a result, an employee who receives the premium described may well be entitled to an additional overtime premium on top of the premium rate provided by the organization’s policy, even though the employee is already receiving “time and a half” for the work.

*As with most things under the FLSA, there are exceptions and provisos, but those are beyond the scope of this post.

Texas District Court Strikes Down Obama FLSA Exemption Rules

Posted in *New Exemption Rules
File:3D Judges Gavel.jpg

Via http://www.stockmonkeys.com/

On August 31, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued his final ruling in State of Nevada et al. v. United States Department of Labor, et al. Judge Mazzant granted the Plaintiffs’ motion for summary judgment, holding that the Department of Labor exceeded the authority delegated to it by Congress by increasing the minimum salary for the Executive, Administrative, and Professional exemptions under the FLSA to $913 per week.

At this point, some readers may be scratching their heads and asking, “didn’t this already happen last November?” Yes and no. In November 2016, Judge Mazzant granted a preliminary injunction, halting the DOL from implementing the new rules until the court could hear the case and issue a final decision. This is now the final decision, and is basically consistent with the court’s prior ruling.

The Court’s reasoning is basically as follows:

Congress created an exemption to the FLSA’s overtime regulations for “bona fide executive, administrative, and professional employees.” In doing so, it defined the exemption according to job duties, not a minimum salary. Congress delegated authority to the DOL to define the exemptions from there, but that authority was limited to defining an exemption based on job duties. By increasing the minimum salary for exempt status to $913 per week, the DOL excluded a large number of employees whose job duties otherwise met the duties requirements for the executive, administrative, or professional exemptions from exempt status. That, the court held, exceeded the DOL’s authority under the statute.

Of course, that reasoning does beg the question: if the DOL lacked authority to set $913 as the minimum salary for exempt status, does the current minimum of $455 per week also conflict with the statute? No, says the Court:

The Department sets the minimum salary level as a floor to “screen the obviously nonexempt employees, making an analysis of duties in such cases unnecessary.” … Further, the Department acknowledges that in using this method, “[a]ny new figure recommended should also be somewhere near the lower end of the range of prevailing salaries for these employees.” … The use of a minimum salary level in this manner is consistent with Congress’s intent because salary serves as a defining characteristic when determining who, in good faith, performs actual executive, administrative, or professional capacity duties.

In other words, a minimum salary is fine on the low end, but $913 was too much, as was the provision for automatically increasing the minimum in later years.

This is essentially the ruling that the Trump Administration recently asked the 5th Circuit Court of Appeals to make in the DOL’s appeal from Judge Mazzant’s earlier preliminary injunction order.

So what now?

Since the new ruling essentially gives the current Department of Labor what it wanted, the Department is unlikely to appeal the ruling again. Likewise, the states and employer groups that brought the lawsuit are likely to declare victory and head home. The wild card remains the AFL-CIO, which filed a motion for leave to intervene in the case to defend the rules. The District Court did not previously rule on that motion, then denied it as moot in light of its summary judgment ruling. Whether the AFL-CIO will attempt to appeal remains to be seen. At least for the time being, this seems to be another nail in the coffin of the $913 minimum salary for exempt employees. However, the DOL may propose a more modest increase to the current minimum over the coming months.

 

Fifth Circuit Limits Use of Fluctuating Workweek

Posted in Misclassification, Overtime

Employers who rely on the fluctuating workweek method to calculate overtime for employees should take a few minutes to review a new ruling from the Fifth Circuit Court of Appeals that draws some new lines around when the method may be used. Hills v. Entergy Operations, Inc. (5th Cir., Case No. 16-30924, Aug. 4, 2017).

Background

As far as the U.S. Department of Labor is concerned, the “fixed salary for fluctuating workweek,” or just “fluctuating workweek” method of calculating overtime pay has always been something of a disfavored stepchild. That likely has something to do with the fact that, used properly, this calculation can greatly reduce an employer’s overtime liability. For an explanation of how this works, please see our earlier post explaining the concept.

There are some important limitations on when an employer can use the fluctuating workweek method. Those include that the employees’ work hours must actually fluctuate, and there must be a clear, mutual understanding between the employer and employee that their salary is intended to compensate them for any and all hours worked in a given workweek.

Almost twenty years ago, the Fourth Circuit Court of Appeals held in Griffin v. Wake County, 142 F.3d 712 (4th Cir. 1998) that the fluctuating workweek method could be applied to a group of EMTs whose shift schedules alternated in a set pattern between twenty-four and seventy-two hours in a given workweek. The court rejected arguments that the EMTs’ schedules did not truly “fluctuate” because the pattern of alteration was fixed. It further held that the fact that this practice existed for a period of years was enough to establish the required “clear mutual agreement” between the EMTs and their employer.

Fast forward to 2016 and a lawsuit filed against Entergy Operations, Inc. by nineteen current and former “security shift supervisors” who worked at a nuclear power plant operated by Entergy. The plaintiffs were scheduled to work in 12-hour shifts, alternating between three shifts (36 hours) and four shifts (48 hours) per week. The plaintiffs alleged that Entergy misclassified them as exempt, and therefore failed to pay them overtime due under the FLSA when they worked more than 40 hours in a week. Entergy disputed that argument, and also argued that even if they were exempt, the plaintiffs’ overtime pay should be calculated using the fluctuating workweek method. The district court held that the exemption issue could only be resolved with a trial because the material facts were disputed by the parties. However, it granted partial summary judgment in favor of Entergy on the fluctuating workweek question. Following the Fourth Circuit’s approach in Griffin, the district court held that the alternating 36 and 48-hour schedules met the “fluctuating hours” requirement and established that the employees accepted a fluctuating workweek calculation as a matter of law. This ruling in turn led to dismissal of two of the plaintiffs, because use of the fluctuating workweek method reduced those plaintiffs’ potential recovery below zero due to some other offsets claimed by Entergy. Those two plaintiffs then appealed to the Fifth Circuit.

The Fifth Circuit Rejects Griffin and Sends the Case Back for Trial

The Fifth Circuit reversed the judgment, holding that the district court had adopted “too literal a conception of ‘fluctuating’.” While it did not rule out application of the fluctuating workweek method, the Fifth Circuit held that Entergy had to do more than establish that employees were paid a flat salary and that they knew their workweek would fluctuate between 36 and 48 hours each week. Those schedules, the court found, were actually “‘fixed’ in the sense that the parties agreed to it at the outset of their employment relationship,” at least according to the plaintiffs. The court found that such a “biweekly alternating, but fixed, schedule is not necessarily ‘fluctuating’ as that term of art is used in the fluctuating workweek method.”

While the Fifth Circuit overturned the district court’s summary judgment ruling, it did not rule out the prospect that the method might apply. It found that Entergy could still prevail on that argument if the plaintiffs “did indeed agree to have their salaries compensate an unlimited amount of hours each week.” Because the facts on that issue were in dispute, the matter had to be resolved at trial rather than on summary judgment.

Lessons for Employers

Employers, if you want the fluctuating workweek method to apply to any of your employees you must have a clear agreement with those employees that the salary you are paying them is intended to compensate them for all hours worked each workweek, not some fixed or even regularly alternating number of hours.

The only reliable way to prove that you have a specific agreement with an employee is to put that agreement in writing. That might be as simple as inserting some language in your offer letter or your routine communication with employees about salary adjustments. Even a line in an employee handbook would be better than nothing. However you do it, make sure your employee receives the document and that you have some signed acknowledgment proving that they did.

Employers who wish to use the fluctuating workweek method should also avoid unqualified statements about regular schedules, particularly statements that draw a link between the schedule and the employee’s compensation. For example, saying “this salary is based on a 35-hour workweek” strongly suggests that the salary is to compensate the employee only for the first 35 hours of work, and that the employee should receive additional pay for working more than 35 hours.

Finally, keep in mind that these lessons apply not just to salaried non-exempt employees, but also to exempt employees who might pursue misclassification claims. If you are going to pay an employee a fixed salary as their sole compensation for whatever hours they may work, it’s best to tell them that, explicitly and in writing.

 

 

Be Careful When Using Biometric Information

Posted in Recordkeeping

User placing finger on fingerprint scanner

While not strictly speaking a wage and hour issue, here is a heads-up to any employers that use timekeeping systems featuring biometric security, like a thumbprint or fingerprint scanner:

You might want to read this recent Crain’s Chicago Business article about a class action lawsuit recently filed against the Mariano’s chain of grocery stores under the Illinois Biometric Information Privacy Act (BIPA). In this lawsuit, a former pharmacy employee claims that Mariano’s violated his rights under BIPA by requiring him and other employees to check in and out of work using a fingerprint scanner without providing the disclosures mandated by the law.

BIPA requires any “private entity” in possession of “biometric identifiers or biometric information” to, among other things:

  • Develop and make publicly available a written policy for retention and destruction of biometric identifiers and information;
  • Dispose of such information once the purpose for collecting it has been satisfied or within 3 years of the individual’s last interaction with the entity, whichever occurs first;
  • Provide a written notice to and obtain a written release from an individual before collecting or obtaining their biometric information or identifiers;
  • Treat any biometric data “in a manner that is the same as or more protective than” the manner in which it the entity “stores, transmits and protects other confidential and sensitive information.”

The law provides a private right of action against any private entity that violates it, and allows individuals to recover liquidated damages of $1,000 per violation for negligent violations, or $5,000 or for intentional or reckless violations, in addition to attorneys’ fees and court costs.

While it’s not at all clear that the law was written with employee timekeeping in mind, it’s provisions are certainly broad enough to cover those systems, and it applies to just about every organization other than state and local governments and certain financial institutions.

BIPA is an Illinois law, but other states have either considered or adopted similar legislation. For example, Texas Business and Commercial Code Sec. 503.001 imposes similar requirements. For a relatively recent overview of the law in this area, check out this article by Ted Claypoole and Cameron Stoll in Business Law Today.

If your organization uses biometric security for its timekeeping system, building access, information security, or any other purpose, either make sure that you’re complying with the law in your jurisdiction, or consider turning those features off and securely deleting any data that you may have collected.

 

 

DOL Brief in Overtime Rules Case Leaves New Uncertainty

Posted in *New Exemption Rules

On June 30, the U.S. Department of Labor filed its long-awaited brief announcing the new administration’s position on the ongoing litigation over the FLSA overtime exemption rules published last May. As readers may recall, the new rules would have increased the minimum salary for exempt employees from $455 per week to $913 per week. The rules were blocked by a preliminary injunction from a U.S. District Court just days before they were to take effect last November. The Department of Labor appealed that injunction ruling to the 5th Circuit Court of Appeals shortly before President Obama left office. That appeal has been on hold while the new administration reviewed its position on the regulations and the lawsuit.

In its new filing, the DOL tries to walk a fine line. On the one hand, the agency argues that the District Court’s ruling went too far by suggesting that the DOL could not include any minimum salary requirement in its test for exempt status. The DOL further argues that the state plaintiffs’ claims that the DOL regulations violated the 10th Amendment should be rejected. However, the DOL ask that the Court of Appeals not address the “validity of the specific salary level set by the 2016 final rule,” stating that it has “decided not to advocate” for that level, and that it instead “intends to undertake further rulemaking to determine what the salary level should be.”

While the DOL under Secretary Acosta seems to be taking a more business-friendly approach to the salary level issue than that of the prior administration, this latest move still leaves employers nationwide in an uncertain situation. If the Court of Appeals agrees with the DOL and reverses the District Court’s order imposing the preliminary injunction, the result might be that the 2016 final rules will take effect immediately. Further, the courts may hold that if the injunction is lifted, the rules take effect retroactive to their original effective date of December 1, 2016.  Clearly this outcome would be a serious concern for the thousands of employers nationwide who held off making changes in response to the new rules in light of the injunction. To be sure, this is a worst-case scenario that might be avoided depending on how the courts rule. For example, if the Fifth Circuit agrees with the DOL’s position, the District Court might issue a new injunction focusing on the specific $913 per week salary level used in the 2016 rules, rather than the broader reasoning used in its initial ruling. The likely protests of employers nationwide may also be enough to prompt Congressional intervention.

In the meantime however, employers remain where they have been since November – in limbo, waiting for a resolution.

 

Opinion Letters Are Back!

Posted in DOL News

DOL image included with announcement regarding reinstatement of opinion letters.The U.S. Department of Labor’s Wage & Hour Division announced today that it is bringing back the WHD Opinion Letter.

Opinion letters have long been one of the most useful resources for lawyers and HR professionals trying to figure out how to comply with the laws enforced by the WHD, including the Fair Labor Standards Act and Family and Medical Leave Act. Through the opinion letter process, a requester could submit a letter to the WHD asking for an opinion on how the law applies to a given set of facts. The WHD would respond to those questions and publish the responses so that they could be used by others as guidance.

In 2010, the DOL dropped this practice in favor of issuing broad “Administrator Interpretations” announcing the Department’s views on various issues. This was seen by many – both fans and critics – as an effort by the DOL to exert greater influence over development of the law without recourse to time-consuming rulemaking or the legislative process. Unfortunately, it also meant that employers seeking to comply with the FLSA and FMLA lost a useful source of guidance. While prior opinion letters remained generally available (unless they were expressly withdrawn), no new letters were issued after the change in policy.

The DOL website has been updated with information on where and hour to submit opinion letters. Anyone who wishes to request an opinion letter can find this information at https://www.dol.gov/whd/opinion/opinion-request-1.htm (as of 6/27/2017). While employers can certainly seek guidance on their own, they can also submit a request through their legal counsel in order to preserve their anonymity.

The opinion letter process was never perfect – responses often took many months and were sometimes less than helpful for employers seeking clear, definitive guidance. However, they were and are a useful tool. While the content of any new opinion letters remains to be seen, at least in principle their return is likely a good thing both for employers that want to comply with the law and the workers who will benefit.

Here is the DOL’s announcement, for those of you who aren’t on the Department’s e-mail list:

The U.S. Department of Labor will reinstate the issuance of opinion letters, U.S. Secretary of Labor Alexander Acosta announced today. The action allows the department’s Wage and Hour Division to use opinion letters as one of its methods for providing guidance to covered employers and employees.

An opinion letter is an official, written opinion by the Wage and Hour Division of how a particular law applies in specific circumstances presented by an employer, employee or other entity requesting the opinion. The letters were a division practice for more than 70 years until being stopped and replaced by general guidance in 2010.

“Reinstating opinion letters will benefit employees and employers as they provide a means by which both can develop a clearer understanding of the Fair Labor Standards Act and other statutes,” said Secretary Acosta. “The U.S. Department of Labor is committed to helping employers and employees clearly understand their labor responsibilities so employers can concentrate on doing what they do best: growing their businesses and creating jobs.”

The division has established a webpage where the public can see if existing agency guidance already addresses their questions or submit a request for an opinion letter. The webpage explains what to include in the request, where to submit the request, and where to review existing guidance. The division will exercise discretion in determining which requests for opinion letters will be responded to, and the appropriate form of guidance to be issued.

DOL Withdraws Obama Era Interpretations On Independent Contractors and Joint Employment

Posted in DOL News, Independent Contractors, Joint Employment
Former link to AIs on U.S. DOL website returns "Page Not Found"

Former link to AIs on U.S. DOL website returns “Page Not Found”

On June 7, Secretary of Labor Alexander Acosta announced the withdrawal of two Administrator Interpretations (“AIs”) issued under the Obama administration regarding joint employment and independent contractors. We previously discussed the AI on independent contractors here, and the AI on joint employment here and here. Critics of the AIs argued that they amounted to an attempt by the Department of Labor to expand employer liability under the Fair Labor Standards Act without Congressional action or notice-and-comment rule making. For its part, the Obama Labor Department took the position that it was merely providing guidance on existing legal standards.

The DOL gave little in the way of explanation for Secretary Acosta’s withdrawal of the AIs, offering only a three sentence press release:

WASHINGTON – U.S. Secretary of Labor Alexander Acosta today announced the withdrawal of the U.S. Department of Labor’s 2015 and 2016 informal guidance on joint employment and independent contractors.  Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law. The department will continue to fully and fairly enforce all laws within its jurisdiction, including the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.

So what does this mean for employers? For most, probably not much. Withdrawal of the AIs certainly indicates that the DOL under Secretary Acosta will be less aggressive in pushing the boundaries of existing law through its enforcement efforts and in court. Businesses that rely on franchise models, temporary employees and contractors can likely breath somewhat easier.

However, as the DOL’s press release notes, withdrawal of these AIs “does not change the legal responsibilities of employers under the Fair Labor Standards Act.” While the AIs represented a broad view of the employment relationship, they were still rooted in existing law and based their analysis on well-established tests for joint employment and independent contractor status. Those basic tests have not changed, and courts were never bound to follow the DOL’s preferred interpretations of the law. Private litigants can still pursue joint employment and independent contractor misclassification claims based upon the interpretations in the withdrawn AIs, and courts may accept some of their arguments. Further, the U.S. DOL’s actions have no direct effect on employer’s parallel obligations under state or local laws governing minimum wage or overtime.

 

 

 

Do I have to pay employees to run a 5K? [Wage & Hour FAQ]

Posted in Wage and Hour FAQs

Race shutterstock_271417229Q. Our company would like to enter a team in a local 5K charity race to do some good for the community and provide some positive PR for the company. Do we have to pay employees for time spent in this activity?

A. With the summer season upon us lots of employers are thinking about civic engagement, whether it is entering a 5K, joining a charity golf tournament, or getting a group together to perform volunteer work. Some employers conduct these activities during the workday and pay employees for their time as the employer’s contribution to the community. Others, however, may want to encourage employees to participate in additional activities outside of the workday, perhaps by paying entry fees, providing team T-shirts, or making charitable donations in support of the event. If we’re talking about employees who are properly classified as exempt executive, administrative or professional employees, then no, employers don’t have to pay extra for this time. For non-exempt employees, the answer depends on the facts.

29 C.F.R. 785.44 says the following with respect to employees engaged in civic and charitable work:

Time spent in work for public or charitable purposes at the employer’s request, or under his direction or control, or while the employee is required to be on the premises, is working time. However, time spent voluntarily in such activities outside of the employee’s normal working hours is not hours worked.

So, to break it down: if employees voluntarily form a team for a local race or get together to volunteer at the food depository outside of working hours, you don’t have to pay them for their time. The company can even provide some support and sponsorship without running afoul of the law, again as long as the activity is completely voluntary and outside of working hours.

However, if the activity occurs during an employee’s normal workday, or if the employer goes beyond offering support to actually request or direct an employee to participate, it may cross the line from voluntary charitable activity to work.

For example, suppose that upon deciding that you want to enter your team in the 5K, you specifically ask one employee if she would head up the effort of recruiting and organizing a team. She agrees and does so. While the other employees running in the race may be volunteers, your team leader is arguably participating “at the employer’s request,” and should therefore be paid for her time.

Or suppose that after volunteers sign up for the race, you specifically ask one of the participating employees, who you know to be a photo enthusiast, to take photos of the event and an after party for the participants for use in on the company’s social media pages. The employee does as requested and spends additional time after the event editing the photos. Again, because the work is requested by the company, this may constitute work time for which the employee is to be paid.

So, how can employers avoid having charitable activities classified as work time?

  • Schedule charitable or civic activities outside of employees’ normal work hours.
  • Make it clear that participation is completely voluntary. Inviting participation is OK, but don’t single out individuals to ask them to participate, and don’t make participation a component in performance evaluations, compensation, or other employment decisions. Also make sure that your managers understand that what they see as a “request” might feel more like a directive to employees.
  • Avoid asking employees to perform tasks associated with a charitable event that are mainly for the benefit of the company, such as hosting an employee social event, engaging in promotional activities for the company, or taking photos or video. This doesn’t mean that you have to pay every employee who happens to share a selfie of the event on Facebook, but employees who put in more than de minimus work for the company’s benefit  should be paid for their time.
  • If the company does need someone to perform work related to an event, tap bona fide exempt employees for those tasks, or hire outside help.

 

 

Restaurants: Do your employees know that you take the tip credit?

Posted in Tip Credit

Tip-Hand11366723.jpgIf not, you might have a problem.

In 2011, the U.S. DOL published a regulation mandating that restaurants who count tips toward the minimum wage as permitted under the Fair Labor Standards Act have to notify employees that they are taking the credit. (See U.S. DOL Fact Sheet #15 for more information on the current requirement.) Last week, a federal district court in Pennsylvania ruled that a former bartender at Cadillac Ranch All American Bar & Grill could move forward with a hybrid state law / FLSA class/collective action, alleging that the restaurant chain violated the DOL’s notice regulation by failing to tell tipped workers that their wages would be calculated using the tip credit. According to the court’s opinion, the class includes approximately 220 current and former tipped employees. Koenig v. Granite City Food & Brewery, Ltd.

In and of itself, this decision is not particularly surprising or ground-breaking, but that is exactly why it should worry restaurants and other employers of tipped employees. There are certainly areas of business where an informal, “good enough” approach is in fact good enough. Wage and hour law is not one of those areas. The FLSA and state wage and hour law are all about technicalities, which is why they are perfect traps for unwary employers and great sources of business for lawyers.

So, restaurant owners and operators, take heed: If you are not presently notifying all of your employees that you will be taking a tip credit to comply with minimum wage requirements under the FLSA, you may owe all of your tipped employees the difference between the “tipped” minimum wage ($2.13 per hour) and the minimum wage for non-tipped employees ($7.25 per hour), or a total of $5.12 for every hour worked. Over a period of two to three years. Plus liquidated damages (doubling the amount owed) and attorneys’ fees. State law may further increase the liability. If this situation sounds familiar, reach out to your employment counsel today to find out how to protect your business.

 

Do School Employees Get Overtime For Occasional Extra Duty? [Wage & Hour FAQ]

Posted in Overtime, Public Employees

FAQs17489126.jpgQ. Our school district has hourly, non-exempt employees who occasionally perform extra work for the district – for example, chaperoning a school dance, or taking tickets at home games. Do we need to track the hours that employees perform on these tasks and pay them overtime if their total work hours go over 40 for a single week?

A. Usually, when an employee works more than one job for an employer, the rule under the FLSA is that the employer must aggregate all of the employee’s work hours for each workweek. If the employee’s total hours go over 40, they’re entitled to overtime pay, even if the extra work was in a separate job and completely voluntary on the part of the employee. (See our earlier post on this subject for a more detailed discussion.)

However, Section 7(p)(2) of the FLSA creates a limited exception to this rule for state and local government employees. Three conditions have to be met in order for this exception to apply: Continue Reading

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