As we discussed recently, this month marked the opening of the Supreme Court’s new term. For employment law practitioners, this session will be particularly busy with seven cases analyzing a range of employment questions, from the scope of the EEOC’s duty to conciliate discrimination claims to the applicability of whistleblower protection laws and the Pregnancy Discrimination Act. In Part 1 of this series, we discussed Integrity Staffing Solutions, Inc. v. Busk.

The other wage and hour case to watch this term is Perez v. Mortgage Bankers Association, which is set for oral argument on December 1. Although the case deals with a wage and hour interpretation, the decision could have far-reaching implications for federal agencies from the DOL to the NLRB and more. The question the Supreme Court will try to resolve is whether a federal agency (the Department of Labor in this case) must engage in a notice-and-comment rulemaking pursuant to the Administrative Procedure Act before it can significantly alter an interpretive rule that articulates an interpretation of an agency regulation.  Put simply, can federal agencies simply “flip flop” interpretations with each new administration, or do they have to go through the more laborious process of promulgating new regulations first?

Now-consolidated petitions in Perez v. Mortgage Bankers Association and its companion case, Nickols v. Mortgage Bankers Association, were brought, respectively, by the Secretary of Labor and an intervening mortgage loan officer. In 2006, the Bush administration DOL issued an opinion letter in which it announced an interpretation of the revamped 2004 FLSA rules as applied to mortgage loan officers. Under those rules, the DOL opined that mortgage loan officers would be exempt from overtime under the administrative exemption. Four years later, in 2010, DOL did an about-face and issued an a new Administrative Interpretation in which it withdrew its 2006 opinion letter and announced a contrasting interpretation, namely that the loan officers were not exempt from overtime after all. This pendulum swinging from administration to administration is probably all-too-familiar for any attorney or employer who follows the NLRB, but it has become part and parcel of the regulatory process.

The Mortgage Bankers Association sued to overturn the DOL’s 2010 interpretation, but the D.C. district court dismissed the challenge. The district court held that the plaintiff had not established that it had detrimentally and justifiably relied on the 2006 interpretation.  As a result, because the 2010 interpretation was “not inconsistent with the 2004 regulations and is not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” the agency had acted within its power to change its interpretation.  (The “arbitrary and capricious” standard the district court used reflects the very low bar that an agency must normally clear when taking actions.) The D.C. Circuit reversed, relying on a series of rulings and other dicta dating to 1997, disagreeing that a plaintiff challenging the new rule must show reliance on the previous version. The D.C. Circuit instead held that an agency may not change any interpretation of a rule without engaging in the notice and comment rulemaking process. The Fifth Circuit has also adopted the same doctrine, but the First, Second, Fourth, Sixth, Seventh, and Ninth Circuits have rejected it.  It is this split that the Supreme Court will hopefully rectify.

A decision upholding Mortgage Bankers Association would likely eliminate agencies’ practice of releasing “guidance” documents (like the EEOC has done frequently in the past few years) or pushing regulated parties into compliance with the threat of adverse guidance or litigation. The DOL has been particularly aggressive in using this approach, even staking out new interpretive positions in amicus briefs and then later requesting that courts give those statements deference. If agencies can no longer avoid (or evade) the arduous procedural requirements of the APA, employers would be less apt to be whipsawed by successive administrations. The downside of upholding Mortgage Bankers Association, though, could be that agencies retreat and become less transparent, less predictable, and more hesitant to provide any guidance at all for fear of having their informal positions invalidated anyway. As I said last week, Congress has frankly ceded too much authority to the agencies to legislate. The only way to resolve this issue permanently would be for Congress to take the reins when drafting laws, rather than leaving agencies to fill in the gaps.

Last week, I answered some of the questions that we have been receiving about the new FLSA regulations, but I saved one that I hear almost everywhere I go: what should the Department of Labor do with the FLSA? Last week, I said “start over.” Of course, that’s not going to happen. Scrapping the FLSA and starting over is not an option right now, realistically or politically. If I was Secretary of Labor, what would I do? Develop a safe harbor for employers.

As someone who has spent nearly 25 years as an entrepreneur in three different industries, I have seen the FLSA increasingly become a vehicle for plaintiffs’ attorneys to turn a profit, not to remedy violations of the FLSA. FLSA litigation continues to grow by leaps and bounds, as we have discussed in the past. Litigation is expensive. Employers don’t “win” by spending hundreds of thousands of dollars to prevail at summary judgment or trial. The FLSA isn’t a “loser pays” statute. As a result, FLSA litigation has become as much a shakedown of employers who operate their business in good faith as it has a remedy for punishing not-so-ethical ones.

The FLSA’s Missing Correction Mechanism

Neither the FLSA nor its regulations has any safe harbor for good faith actors. Sure, the DOL has its elaws website and hotline, but that information is very generalized and can’t capture the nuance of applying 1938’s definitions to 2014’s realities. Furthermore, there are very real risks to any employer (ethical or otherwise) of admitting that it may have committed a violation of the FLSA. Admitting a mistake with one employee often means that another employee has also been misclassified or failed to receive proper compensation as well. Fixing a mistake with one employee can often lead to other employees making similar claims, leaving the employer  liable for its own litigation costs, the cost of plaintiffs’ attorneys, liquidated damages, and, many times, separate state law violations, too.

That risk is compounded by the rampant misuse of the phrase “wage theft,” which further unfairly demonizes employers. Because it is being used to push political agendas, not to express some criminal act, we often see the term “wage theft” attached to any situation where an employer does not pay required wages or overtime, whether intentionally or because of an honest mistake. “Wage theft” connotes bad intent, even though the vast majority of employers have acted with no bad intent and have no desire to steal anything from employees. As a result, when it comes to the FLSA, employers get no benefit for admitting FLSA violations, other than the very real public relations nightmare of being mislabeled “wage thieves.” Understandably, many employers then tend to take few, if any, steps toward discovering and correcting these types of mistakes.

The Wage and Hour Safe Harbor

I’m not saying we should let employers off the hook entirely for wage violations. Employers who fail to follow federal and state wage and hour laws, however confusing and arcane, must be held accountable (including for any actual, not politically invented, criminal theft from employees). However, if the regulations are going to include stricter, narrower exemptions and increased penalties for employers, then they must also include a real safe harbor for those employers who want to remedy a wage or hour violation committed under a good faith belief that they were complying with the law. Of course, the employer should still have to pay any wages lawfully owed within a reasonable amount of time. But if an employer self-reports a compliance error, it should be immune from suit for that error, as well as from liquidated damages and other penalties (such as the loss of federal contracts), as long as it complies with reasonable requirements and deadlines to repay the debt to any affected employees. Provisions like this would encourage employers to audit their pay practices and correct mistakes and it would properly reserve FLSA litigation for the truly bad actors.

As I told SHRM last week, failing to include any safe harbor provisions in the new FLSA regulations would be a mistake, and one I fear that the administration is poised to make. Now, if only I could wrangle an appointment to the DOL!

election 2014.jpgBefore the election, we talked about minimum wage and paid sick leave initiatives on the rise, including some important ballot issues. With most of the results tallied, it appears that the Republicans weren’t the only big winners in the 2014 midterm elections last night. While the GOP retaking the Senate majority and reaching historic majority margins in the House garnered most of the national headlines, if you look just below the fold, minimum wage and paid sick leave initiatives were the other big winners of the night. Voters approved all five ballot statewide ballot questions on the minimum wage last night. Massachusetts voters broadly approved a paid sick leave referendum in that state, joined by voters in three New Jersey and California cities.

Minimum Wage Initiatives Win Overwhelmingly

In fact, voters overwhelmingly approved the five big statewide minimum wage initiatives. In Arkansas, a measure to raise the state minimum to $8.50 an hour by 2017 won by 31 percentage points. Nebraska voters approved Initiative 425 to increase the minimum wage to $9.00 an hour by 2016 by nearly 20 points. South Dakota’s Initiated Measure 18, which raises the minimum wage in that state to $8.50 an hour by 2015, passed by almost 10 points. By over 2-to-1, Alaska voters approved a hike in that state’s minimum wage to $9.75 an hour by 2016. Illinois voters elected Republican Bruce Rauner, who did not support a minimum wage hike, over Democrat Pat Quinn, who did support one, but nonetheless overwhelmingly approved a non-binding advisory referendum to raise the minimum wage to $10.00 by a similar 2-to-1 margin.

At the municipal level, minimum wage initiatives had mixed results. In the Bay Area, both San Francisco ($15.00) and Oakland ($12.50) easily approved their increases. Further north, Eureka, California voted down an increase by a wide margin.

Massachusetts, Other Cities Approve Paid Sick Leave for Employees

On Tuesday, Massachusetts became the third state, joining California and Connecticut, to guarantee paid sick leave for workers. Voters decisively approved Question 4 by a 60% to 40% margin.

Massachusetts employers with more than 10 workers will have to provide their workers with one hour of paid sick time for every 30 hours they work, to be capped at 40 hours of leave for the year, starting on July 15, 2015. Massachusetts employers with 10 or fewer workers will still have to provide the accumulated sick leave though will be exempt from offering it on a paid basis. The new law permits workers to use paid sick leave when they’re sick or need to tend to a medical condition, or when doing the same for a spouse, child, or parent. The measure also contains anti-retaliation provisions that forbid employers from punishing workers for taking sick leave under the law.

As mentioned above, Oakland voted to raise that city’s minimum wage. Additionally, that minimum wage initiative increased the paid sick leave benefit available to workers in that city. Oakland employees will earn at least one hour of paid sick leave for every 30 hours on the job with a cap of 40 or 72 hours, depending on the size of the business. Oakland’s initiative is more generous than the State of California’s new paid sick leave law, which only provides workers a minimum of 24 hours, or three normal work days, of paid sick time per year. New Jersey voters in Montclair and Trenton also backed paid sick leave initiatives, becoming the seventh and eighth cities in the state to approve those benefits.

No matter the results higher up the ballot, strong popular support for populist initiatives like minimum wage increases or paid sick leave is not surprising. According to the National Conference of State Legislatures (NCSL), over the past decade most state ballot measures to raise the minimum wage have passed by wide margins, in many cases by more than 2-to-1. In 2006 alone, state initiatives to raise the minimum wage passed by large majorities in Arizona (65.6%), Missouri (75.6%), Montana (74.2%), Nevada (68.4%), and Ohio (56.5%) according to the NCSL’s report. Even in the face of opposition from Governor Chris Christie, New Jersey voters approved a 2013 ballot initiative to raise the state minimum to $8.25 by more than 60%.

More of these initiatives are on the horizon. Both Philadelphia and Chicago will consider minimum wage increases in spring 2015 elections, the New Jersey legislature has advanced a paid sick leave bill, and a number of other cities and towns are considering both minimum wage and paid sick leave initiatives as well. We will continue to keep you up to date on these important wage and hour developments.

For most of the year, we have been discussing the upcoming FLSA regulations and what employers can expect related to the white collar exemptions. Recently, the DOL delayed the release of proposed rules, potentially for several months. The DOL’s announcement has raised a host of questions, some of which I discussed with SHRM’s legal editor, Allen Smith, this week. The DOL’s own “savage journey to the heart of the American Dream”—at least the part of it that defines how you must be paid while chasing it—continues to raise questions for employers (apologies to Hunter S. Thompson fans…I couldn’t resist). With Election Day upon us, it is a good time to take a deeper look at this issue and review some of the top questions we have received on this topic.

Are there any positive signs for employers that you can glean from the DOL taking more time to issue this proposed regulation, such as spending more time listening to employers?

You would certainly like to think that the DOL would take more time listening to employer input. However, I suspect this acknowledgment is simply a reflection of two things. First, the DOL and the Obama administration generally have limited resources to prepare, vet, and approve draft regulations. The DOL has been busy recently, having just finished the process of promulgating a rule to implement the President’s Executive Order on the minimum wage for federal contractors. Second, there was little chance that the DOL was going to take action at any time prior to or immediately after the midterm elections. As I discuss below, this timeline isn’t that far off of the 2004 timeline when the Bush administration undertook a similarly far-reaching rewrite.

Does the announcement have a downside or create more uncertainty for employers about where the white-collar exemptions are headed?

I don’t see any downside. If anything, it is a brief respite for employers—a few more months under the current regime. Revised regulations are a matter of when, not if, for employers. The Presidential Memorandum to the DOL, as well as Secretary Perez’s comments earlier this year on the issue, are pretty clear about the two areas that will almost certainly change: the minimum salary and the job duties tests. We discussed these in more detail here on the blog back in April.

What changes should the DOL make?

Honestly? Start over. Congress has not made a substantial revision to the FLSA since at least 1983, and before that since the 1960s (the Contract Work Hours Standards Act, Equal Pay Act, and the ADEA). Congress has frankly ceded too much authority to the DOL to legislate, which is the root of so much of the uncertainty surrounding revisions to the white collar exemptions (both now and in 2004). The result is byzantine, complex, and counterintuitive laws and regulations, complicated by inconsistencies in state laws. The FLSA also fails to account for how the U.S. workforce has changed in 75+ years. In July 1939, according to data available from the Bureau of Labor Statistics, manufacturing employment (one component of goods-producing industries) was 9,231,100, while total goods-producing employment was 11,447,000. By comparison, in July 1939, service-producing industries employed 19,115,000. However, in July 2014 (the latest final data from the BLS), manufacturing employed a seasonally adjusted 12,154,000, while goods-producing industries overall employed 19,118,000. In July 2014, service-producing industries employed 119,889,000. The FLSA and its regulations have never been updated to reflect this shift to a service-based economy.

What’s the big picture here? Will DOL still have enough time to issue a final rule in Obama’s administration?

The big picture is that this is a temporary reprieve. Employers have not dodged the bullet; exactly when we can expect a final rule is in flux, but whether we will see one is not. Any proposed rule in early 2015 would give the DOL nearly two years to consider any public comments and to prepare a final rule for approval by the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). At the very earliest, a proposed rule released in January/February 2015 could lead to a final rule by late spring or early summer next year. To put this in perspective, the 2004 regulatory change took over 18 months to implement from announcement to final rule, and we’re not even to the 12 month mark yet with this proposed change. The real wildcards will be the 2016 elections and, after a rule is promulgated, the inevitable legal challenges to any revisions, either or both which could potentially delay their implementation further.

Supreme Court.jpgThis month marked the opening of the Supreme Court’s new term. For employment law practitioners, this session will be particularly busy with seven cases analyzing a range of employment questions, from the scope of the EEOC’s duty to conciliate discrimination claims (Mach Mining v. EEOC, oral argument set for January 2015 or later) to the applicability of a whistleblower protection law to employees who make disclosures “specifically prohibited by law” (Dep’t of Homeland Security v. MacLean, oral argument November 8). Over at the FMLA Insights blog, my colleague Jeff Nowak discusses Young v. UPS, where the Court will consider whether, and in what circumstances, the Pregnancy Discrimination Act requires an employer that provides work accommodations to non-pregnant employees with work limitations to also provide work accommodations to pregnant employees with similar work limitations.

In this post and our next post, we’ll cover the two cases from this term of particular interest to the wage and hour world. The first, Integrity Staffing Solutions, Inc. v. Busk, concluded oral arguments earlier this month. There, the Court will consider whether time spent in security screenings is compensable under the Fair Labor Standards Act (FLSA). Warehouse workers sued Integrity Staffing under the FLSA for uncompensated time they were required to spend in lengthy security screenings of up to 25 minutes at the end of the shifts during their assignments to work in Amazon warehouses.

Under the FLSA, as amended by the Portal-to-Portal Act, employers generally need not compensate employees for “preliminary” (pre-shift) and “postliminary” (post-shift) activities, unless the activities are “integral and indispensable” to an employee’s principal activities. To be “integral and indispensable,” an activity must be (1) “necessary to the principal work performed” and (2) “done for the benefit of the employer.”  The district court initially dismissed the warehouse workers’ claims on the grounds that such post-work activities were not compensable under the FLSA. However, the Ninth Circuit reversed, agreeing with the workers that passing through security stations was done for Integrity’s benefit and was necessary, not ancillary, to the worker’s principal duties as warehouse employees. Integrity has asserted that the Ninth Circuit’s decision “squarely conflicts with decisions from the Second and Eleventh Circuits holding that time spent in security screenings is not subject to the FLSA because it is not ‘integral and indispensable’ to employees’ principal job activities.”

The oral argument transcript is posted on the Supreme Court’s website, but the questions seemed to fall along the same lines as we saw in the Court’s decision last term in Sandifer v. U.S. Steel. In that case (admittedly different because it involved a collective bargaining agreement and not the FLSA), the majority decided that time spent putting on and taking off certain protective gear is not compensable. For instance, the questions asked from those Justices in the Sandifer minority to Integrity Staffing’s counsel and the Solicitor General attempted to cast the security screening as a compensable task – like showering off chemicals at the end of a shift or closing out a cash register. On the flip-side, the questions from those Justices in the Sandifer majority cast the screening as part of the non-compensable process of clocking out.

In particular, one of the central (and hard to define) points in this analysis is the scope of a “principal” activity. At one point, the Chief Justice noted that “no one’s principal activity is going through security screening,” but that employers hire workers to do something else. He viewed “principal” as meaning “things that are more significantly related” to the job itself. Other Justices argued that the importance of “inventory control” to Amazon’s business made the security screening integral and indispensable. Questions like these show the struggle that the Justices had (as they did in Sandifer) in determining whether “principal” refers only to the narrow, central duty, or whether it could include a broader list of integral tasks. Could the location of the conduct matter?  Is there a corollary to “on call” time and the concept of a person either waiting to be engaged or being engaged to wait?  The oral argument demonstrated the difficulty for employers in understanding a clear definition of this concept.

Insights for Employers

It is hard to envision a result different from Sandifer given the makeup of the Court, but a “win” for the employer here could be a mixed bag. Both commentators and practitioners have struggled to identify clear concepts and rules in the Sandifer majority’s opinion. A similarly opaque opinion in Integrity Staffing could present even greater challenges for employers and wage and hour practitioners, particularly if it is not limited solely to security screenings. A broadly worded opinion could easily blur the lines between other compensable and non-compensable pre- and post-shift activities and lead to a whole new round of litigation over this volatile area.

Aside from the statutory interpretation arguments under the FLSA, cases like these also set incentives for both employers and employees. Integrity Staffing argues that if the security time is compensable, then employees will have a strong incentive to “take their time” on their way through the security screen, behavior that would be difficult to discipline. On the other hand, if security time is not compensable, then employers would have little reason to worry about committing resources to alleviate wait times at security screening stations, time clocks, lockers, entry/exit gates, or other pre- and post-shift bottlenecks. Across companies and industries, small shifts in incentives like these carry substantial financial implications for everyone in the workplace.

We expect a decision early in 2015, and we will cover it in detail here as soon as the opinion is released. In Part 2 of this series, we’ll look at Perez v. Mortgage Bankers Association, where the Court will resolve the question of whether a federal agency must engage in notice-and-comment rulemaking before it can significantly alter an interpretive rule that articulates an interpretation of an agency regulation—an issue of particular interest to wage and hour, labor, and employment lawyers of all stripes.

Recently, we detailed the efforts to push for paid sick leave by state and local governments in light of California’s passage of a statewide paid leave law. Soon after our post, the U.S. Department of Labor’s Women’s Bureau Director Latifa Lyles posted an entry on the DOL’s official “Work in Progress” blog, advocating for broader paid family leave across the country. Lyle notes that the United States remains the only industrialized nation without paid family leave. The post included data from the Bureau of Labor Statistics and offered arguments in support of paid leave. Most notably, the DOL announced that it has approved new funding for studies on the feasibility of implementing paid leave:

Today, we were delighted to announce that the Department of Labor has awarded $500,000 to assist Massachusetts, Montana, Rhode Island, and the District of Columbia in funding feasibility studies on paid leave. The studies will inform the development or implementation of paid family and medical leave programs at the state level – seeking solutions that work for their unique communities.

As Secretary Perez has said, it’s time for America to lead on paid leave. It’s time to make strides in our workplace policies to meet the long-standing realities of today’s working women and families. It is critical to the nation’s economic success, and these grants are an important step in the right direction.”

Rhode Island (along with California and New Jersey) expanded its state disability insurance program to cover family leave. In Rhode Island, workers may receive a portion of their regular paycheck for up to four weeks through the state disability insurance program. The District of Columbia’s amendments to its Accrued Sick and Safe Leave Act recently took effect upon the D.C. Council’s approval of its 2015 budget. The amended law requires D.C. employers to provide paid leave to employees for physical or mental illness, preventive medical care, family care, and certain absences associated with domestic violence or sexual abuse. The amount of leave that an employer is required to provide varies depending on its size. The D.C. Department of Employment Services (DOES) has updated its “Official Notice” to reflect these changes. All D.C. employers must conspicuously post the “Official Notice,” which is available on the DOES website.

As we discussed previously, Massachusetts voters will consider an initiative on the November ballot, Question 4 (“The Massachusetts Paid Sick Days Initiative”), that would “entitle employees in Massachusetts to earn and use sick time according to certain conditions.” Roman Catholic bishops and a group of 75 state economists have come out in support of the initiative. The Massachusetts Catholic Conference, with signed support from Cardinal Seán P. O’Malley, Archbishop of Boston, and Bishops Robert J. McManus, Mitchell T. Rozanski, and Edgar M. da Cunha, has called the initiative “reasonable and fair” because of the security it would provide low-wage workers. The economists’ statement explains that research points to economic benefits associated with sick time and highlights what they see as a lack evidence of employment losses or reduced economic activity in cities and states that have passed paid sick day ordinances.

In case there was any question, an Indiana staffing company, Access Therapies, learned late last month that the Immigration and Nationality Act (INA) does not absolve employers of their responsibilities under state wage and hour laws. The Southern District of Indiana denied Access Therapies’ motion to dismiss a counterclaims filed by a Philippine citizen who had signed several agreements and promissory notes with the company in return for its sponsorship of his H-1B petition.

According to the counterclaim, the staffing company agreed to hire the therapist for a three year term and to sponsor his H-1B visa. In addition, the company agreed to provide the therapist with free housing for three years, and to pay the fees associated with the H-1B visa process. During the visa process, the therapist took remediation classes for and passed a required English-language proficiency test and obtained certain credentials necessary to work. The staffing company paid the fees, but required the therapist to sign two promissory notes for these expenses: one for $610 and the second for $750. Ultimately, the staffing company required the therapist to sign five more promissory notes for $20,000 (payable if he did not fulfill the three-year term of his written agreement), $2,479.11; $15,000; $200; $164; and $1,910.25—a total of more than $41,000. When the employment relationship ended early and the staffing company sued, the therapist countersued for violations of Indiana’s statutory wage law, breach of contract, and unjust enrichment. Among other theories in its motion to dismiss, the staffing company claimed that the INA preempted and supplanted Indiana law.

The staffing company essentially argued that all of the therapist’s counterclaims were based on the company’s failure to comply with the H-1B requirements and therefore the INA (which provides no private right of action for such a violation) controlled and the therapist’s failure to pursue an administrative remedy with the DOL precluded his claims.

The court disagreed, finding that the staffing company had either demanded payments from him that were not owed or failed to pay him wages and benefits that were owed, which did not raise any INA concerns. However, the court observed that “Indiana statutory and common law provide[d] remedies for just this sort of alleged conduct.” The court held that the staffing agency had failed to identify any language in the INA that would expressly preempt the therapist’s state law claims. The court declined to apply field preemption, either. Field preemption only applies when a federal law so thoroughly occupies a legislative field to reasonably infer that “Congress left no room for the States to supplement it” in state law. Since the INA provided no private right of action, the court reasoned that “basic” state law remedies under “basic” state law theories could not be preempted. Given this separation between the aims of the INA and Indiana’s wage and hour and common law precepts, the court did find any conflict that would require federal preemption.

The court also rejected the explicit argument about an administrative remedy under the INA. Not only did the staffing company’s cited case law fail to address preemption, some of the cases actually permitted state law breach of contract or wage claims to proceed independently of any INA claims.

This case serves as a good reminder for employers that an immigrant—whether documented or not—is still an employee. Like any other employee, they are subject to state and federal wage and hour laws. Hiding behind the INA, or even an employee’s undocumented status, provides no defense to deficient pay practices.

lunch9568375.jpgInternal Revenue Code § 119 allows employers to deduct 100% of the value of meals provided to employees when they are for the convenience of the employer, and they are furnished on the business premises of the employer. Meals provided for “the convenience of the employer” are also excludable from the employee’s taxable income. However, last month, the IRS announced that it plans to change that interpretation, which will have significant implications for both tax and wage and hour liability. The IRS announced as part of its Priorities Guidance Plan that it plans to issue new guidance regarding employer-provided meals, which we can assume is not a positive development for employers. The Wall Street Journal reported that IRS auditors have already started “flagging the issue and demanding back taxes from companies amounting to 30% of the meals’ fair market value.” 

Any new restrictions on the deductibility of employer-provided meals could impact Silicon Valley employers who have long relied on free meals in employee cafeterias as well as employers such as hotels and restaurants that provide free meals from their facilities. However, another, potentially larger concern for employers could be wage and hour-related. If the IRS changes its guidance to include employer-provided meals in the definition of employee compensation, employers would also arguably need to include the value of meals in their calculations of non-exempt employees’ “regular rates.” 

Indeed, even without any changes in the IRS definition, plaintiffs’ attorneys have already shifted their focus to the value of these fringe benefits. Recently, employees at Anheuser-Busch sued the company because, among other claims, it allegedly failed to include the value of “various forms of non-cash compensation, such as discounted and/or free beer” in calculations of those employees’ regular rates of pay. 

For employers, offering fringe benefits like meals provide extra value to employees, both by providing competitive compensation and by improving job satisfaction. The impending changes by the IRS could hurt employers not only by increasing costs, but also by impacting employee morale. Keep an eye on new IRS guidance in coming months and be prepared to consider both the tax and wage and hour implications of any changes to the treatment of fringe benefits.

US Department of Labor logo.jpgBack in late May, we told you that the Department of Labor had released its required Semiannual Regulatory Agenda. The Agenda, which is not binding on the DOL, included several FLSA-related items. Most importantly, the DOL listed its plans to address the “white collar” overtime exemption regulations with proposed rules next month, in November 2014. The section, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” appears on page 56 and 57 of the Agenda. At the time, we predicted that “even with a short 30-day comment period and a quick turnaround on a final rule, the DOL is unlikely to have any new regulation in place before spring 2015.” 

Late last week, the DOL’s Solicitor of Labor, M. Patricia Smith, confirmed that the DOL will not even meet its self-imposed November 2014 deadline for a proposed rule. Ms. Smith offered that the Department is “months away from a proposed regulation” and hoped to see it rolled out early in 2015. This delay pushes the issue well past the November elections, but does not mean that no final rule will be forthcoming prior to the end of the Obama Administration. Revised regulations are likely a matter of when, not if, so you should be ready to start reassessing your FLSA compliance sometime next year. 

Exactly when we can expect a final rule is in flux. Any proposed rule in early 2015 would give the DOL nearly two years to consider any public comments and to prepare a final rule for approval by the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). At the very earliest, a proposed rule released in January/February 2015 could lead to a final rule by late spring or early summer. 

We will keep you up to date as we learn of further developments on these important revisions to the Fair Labor Standards Act’s regulations.

iStock_WageIncrease.XSmall.jpgBack in February, we told you about President Obama’s Executive Order 13658 increasing the minimum wage for federal contractor employees. Late last week, the Department of Labor’s Wage & Hour Division (WHD) submitted its Final Rule implementing EO 13658 to the White House Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). 

The Final Rule addresses public comments in response to WHD’s Notice of Proposed Rulemaking. OIRA will conduct a final review, approve the text of the regulation, and publish it in the Federal Register. The period for the Office to review a draft regulation is limited by a different Executive Order to 90 days, with the possibility of a single, 30-day extension. While there is no minimum period for review, the average review time in past years has been approximately two months. EO 13658 requires the DOL to issue regulations by October 1, 2014. Given its typical timelines, it is unclear whether OIRA would have sufficient time to review the Final Rule in time to meet that deadline. 

As we explained when we first covered EO 13658, we expect the Final Rule mandating the $10.10 minimum wage will apply to federal contractors who receive new contracts on or after January 1, 2015, or who have services covered by the Service Contract Act, or concessions and services in connection with federal property or lands. We will keep you updated on the status of OIRA’s review as it progresses and confirm the effective date once the rule is published.