file0001835967537The Connecticut Supreme Court, in a unanimous decision that will be officially released April 4, 2017, has ruled that employers may not use the “tip credit” for pizza delivery drivers and therefore, the employees must be paid the standard minimum wage.

You can download the decision in Amaral Brothers, Inc. v. Department of Labor here.  The decision is no doubt a disappointment to employers who believe that the Connecticut Department of Labor’s regulations in this area far outstretch the plain language of the applicable wage/hour statute.

The case arises from a request by two Domino’s franchises for a “declaratory ruling” from the Connecticut Department of Labor (DOL) that delivery drivers are “persons, other than bartenders, who are employed in the hotel and restaurant industry, …who customarily and regularly receive gratuities.” The request arises from Conn. Gen. Stat. §31-60(b), which has been amended over the years.

Why would the employer make such a request? In doing so, the employer wanted to take advantage of the “tip credit”, in which employees are paid below the conventional minimum wage, but his or her salary is supplemented by tips from customers.

Originally, as noted by the employer’s brief to the Court: “The DOL denied Plaintiff’s Petition for the following stated reasons: (1) the regulations were valid because they served a remedial purpose, were time-tested and subject to judicial scrutiny…; and (2) the only act of “service” was handing the food to the customer at the customer’s door and so delivery drivers’ duties were not solely serving food as required under Regulations of Connecticut State Agencies § 31-62-E2(c). The DOL’s decision was that only employers of “service employees” as defined by the DOL could utilize the credit, and Plaintiff’s employees were not service employees.

A lower court upheld the DOL’s conclusions “agreeing that the regulations were ‘reasonable’, ‘time tested’, and had ‘received judicial scrutiny and legislative acquiescence’. The court also determined that the ‘minimum wage law should receive a liberal construction.'”  (You can also view the DOL’s brief to the Court here.)

The Connecticut Supreme Court upheld the Department of Labor’s interpretations here finding that the regulations issued by the agency were “not incompatible” with the enabling statute.  In doing so, the Court noted that this is a bit unusual because the employer was contending that the regulations were originally valid when issued, but repealed by implication when there was an amendment to the statute at issue.

The Court’s decision traced the origin of the tip credit in a portion of the decision that only lawyers will love. But then they get to the heart of the matter: “It was reasonable for the department to conclude that the legislature did not intend that employees such as delivery drivers, who have the potential to earn gratuities during only a small portion of their workday, would be subject to a reduction in their minimum wage with respect to time spent traveling to a customer’s home and other duties for which they do not earn gratuities.”

While the court’s decision directly implicates delivery drivers, it only impacts those employed directly by the employer (see also: UberEats, GrubHub etc.).  Nevertheless, in upholding the DOL’s interpretation here, the scope of who falls within the tip credit at restaurants is going to be further challenged in the courts.

Before employers make any further conclusions, Connecticut businesses should also be aware that the scope of the tip credit and of tip pooling is being debated at the federal level as well.  The National Restaurant Association has joined many others in asking the U.S. Supreme Court to hear a case on the subject. We should hear shortly whether the Court will accept such a case.

The Court’s decision is yet another reminder that restaurants in Connecticut should review the situations in which the tip credit is being utilized. Issues regarding tip pooling should be reviewed as well.  This case doesn’t answer all the questions that come up in the restaurant context. But in terms of figuring out the scope of the law, it helps to answer (albeit in a manner not helpful to employers overall) some outstanding questions.

I have this running joke with my wife that anytime I’m on vacation, it seems that big employment news breaks.

And this vacation is no exception.

And it’s probably the biggest employment law news this year. Not the best time for me to have to write a blog post on my phone.  Ah well.  You all will forgive any typos.

Last night, a Texas judge issued a nationwide injunction barring implementation of the new overtime rule that was scheduled to go into effect December 1.

The judge stated:

The parties dispute the scope of the injunction. The State Plaintiffs seek to apply the injunction nationwide. Defendants contend a nationwide injunction is inappropriate. Instead, Defendants suggest the injunction should be limited to the states that showed evidence of irreparable harm. Absent contrary intent from Congress, federal courts have the power to issue injunctions in cases where they have jurisdiction. It is established that “the scope of injunctive relief is dictated by the extent of the violation established, not by the geographical extent of the plaintiff class.” A nationwide injunction is proper in this case. The Final Rule is applicable to all states. Consequently, the scope of the alleged irreparable injury extends nationwide. A nationwide injunction protects both employees and employers from being subject to different EAP exemptions based on location.

I had hinted last Friday that this was a long shot lawsuit but this year we’ve seen more than our fair share of long shots coming true (Cubs anyone?).

It’s possible that this may be appealed but that seems unlikely with a new President set to take office in less than two months.  Rather it seems more likely that the rule is now on hold…perhaps permanently.

In any event, employers that haven’t implemented the plan yet do not need to do so now. The ones that have may wish to roll back any changes (but with caution).  And talk to your local employment attorney.

I’ll have more upon my return next week.

 

Throw out the release?
Throw out the release?

Yesterday, I had the opportunity to talk at the Connecticut Legal Conference about employment law issues. My talk focused on free speech rights in the workplace — a topic I’ve covered well in some prior posts here and here, for example.

One of the other topics of our discussion was the Cheeks v. Freeport Pancake House case — a recent case by the Second Circuit discussing wage & hour claim settlements under the Fair Labor Standards Act.

I’ve talked about this issue in prior posts as well but the general takeaway from the discussion yesterday was a renewed emphasis on receiving approval from either a federal court or the U.S. Department of Labor on any wage/hour claim settlements.

In most employment law cases filed in federal court, when a settlement is reached, the parties typically stipulate to the dismissal of the claim under a rule of civil procedure (Rule 41).

In Cheeks, the Second Circuit said that wasn’t good enough due to the unique nature of wage/hour claims and that employees were particularly susceptible to bad settlements:

We conclude that the cases discussed above, read in light of the unique policy considerations underlying the FLSA, place the FLSA within Rule 41’s “applicable federal statute” exception. Thus, Rule 41(a)(1)(A)(ii) stipulated dismissals settling FLSA claims with prejudice require the approval of the district court or the DOL to take effect. Requiring judicial or DOL approval of such settlements is consistent with what both the Supreme Court and our Court have long recognized as the FLSA’s underlying purpose: “to extend the frontiers of social progress by insuring to all our able-bodied working men and women a fair day’s pay for a fair day’s work.”

The Court pointed out settlements in other cases which might be troubling.

In [one case], the proposed settlement agreement included (1) “a battery of highly restrictive confidentiality provisions ․ in strong tension with the remedial purposes of the FLSA;” (2) an overbroad release that would “waive practically any possible claim against the defendants, including unknown claims and claims that have no relationship whatsoever to wage-and-hour issues;” and (3) a provision that would set the fee for plaintiff’s attorney at “between 40 and 43.6 percent of the total settlement payment” without adequate documentation to support such a fee award….. In [another case], the district court rejected a proposed FLSA settlement in part because it contained a pledge by plaintiff’s attorney not to “represent any person bringing similar claims against Defendants.” … “Such a provision raises the specter of defendants settling FLSA claims with plaintiffs, perhaps at a premium, in order to avoid a collective action or individual lawsuits from other employees whose rights have been similarly violated.”

Would these apply to claims that were not filed in federal court to begin with? The speakers said the decision left that open a bit but still recommended that parties seek USDOL approval or even file the suit in federal court and seek judicial approval at the same time.

While the court noted that this might be difficult, “the burdens…must be balanced against the FLSA’s primary remedial purpose: to prevent abuses by unscrupulous employers, and remedy the disparate bargaining power between employers and employees.”

Note: These same rules do not apply to settlements under the state wage/hour laws and if you’re not covered by the FLSA, there isn’t much of a need to follow that — at least until the issue is raised in state courts.

But suffice to say that if you get a claim by a current or former employee regarding, say, past overtime wages, be wary of settling the claim without receiving outside approval.

wheelchairOver the weekend, I finished planning for our webinar tomorrow on the new overtime rules.  In digging deeper into the materials produced by the Department of Labor on the final rule, I looked at the use of volunteers as a solution — particularly for non-profit organizations.

For the “for-profit” world, this is probably not a realistic option.  The DOL really frowns on any such designation.

But on the last page of the 10-page guidance for non-profits, is a whole section on how non-profit organizations can use volunteer services if certain conditions are met.

To be sure, the new overtime rule doesn’t change the existing rules governing volunteers, but as non-profits look at how to address the issue internally, the use of volunteers may pop up.

So who is a volunteer? According to the DOL: 

A volunteer generally will not be considered an employee for purposes of the FLSA if the individual volunteers freely for public service, religious, or humanitarian objectives, and without contemplation or receipt of compensation. …  Under the FLSA, a person who works in a volunteer role must be a bona fide volunteer.

Some examples of the many ways in which volunteers may contribute to an organization include:
• members of civic organizations may help out in a community rehabilitation program;
• men’s or women’s organizations may send members to adult day care centers to provide certain personal services for the sick or elderly;
• individuals may volunteer to perform such tasks as driving vehicles or assisting with disaster relief; and
• individuals may volunteer to work with children with disabilities or disadvantaged youth, helping in youth programs as camp counselors, scoutmasters, den mothers, providing child care assistance for needy working parents, soliciting contributions or participating in benefit programs for such organizations, and volunteering other services
needed to carry out their charitable, educational, or religious programs.

So, problem solved right? Well, not exactly. The DOL suggests that volunteers serve on a part-time basis and, here’s the key point:
“should not displace employees or perform work that would otherwise typically be performed by employees.”

And what about having paid employees volunteer their extra time? According to the DOL: paid employees of non-profit organizations may not volunteer to provide the same type of services to the non-profit organization that they are otherwise
typically employed to provide.

The DOL provides two examples:

  1. A non-profit medical clinic has an office manager who handles office operations and procedures. The clinic hosts an annual 5K fun run in order to raise funds for its free services. In past years, the office manager also spent time on race day working by registering runners the morning of the run. Newly non-exempt under the Final Rule, the non-profit clinic may permissibly choose to utilize more volunteers this year to register runners instead of tasking the office manager with that assignment (provided all the conditions for bona fide volunteers are met), thus avoiding the accumulation of overtime hours in that week for the office manager.
  2. Using the same facts as above, many other individuals from the community volunteer on race day. The volunteer activities, such as packet pickups, course marshaling, water distribution, and staffing food tables at the finish line, are activities that are not typically performed by employees of the medical clinic. Based on these facts, the individuals are likely bona fide volunteers.

The use of volunteers can be part of a solution to rising overtime costs at a non-profit, but only just part.  The notion that you can just replace your employees with volunteers is not realistic.

We’ll talk more about this and other overtime issues tomorrow.  Hope you are able to join us.

With the new federal overtime rules going into effect later this year, I thought it would be useful to talk about in a free webinar.

And apparently, many of you think it would be useful too because in the 48 hours that we’ve opened up the signups to our webinar, we already have a record-breaking number of signups.

worker3But because it’s online, we have room for more.  So consider this your invite to attend a free webinar on June 7th from noon to 1 p.m. EDT.

Topics will include:

  • Overview of the new federal overtime rule
  • Comparison with Connecticut’s existing (and unchanged) wage and hour rules
  • Tips on how to comply with both state and federal law
  • Discussion of common scenarios arising under the new law

I know there’s a lot of anxiety about these rules, but I hope this webinar can put a smile to your face and ease some of your concerns.

If not, then watch the James Corden version of the “Chewbacca Mom” meme.    If that doesn’t put a smile to your face, I’m not sure the webinar is going to help.

presentsIf you like to open your presents on Christmas Eve, the U.S. Department of Labor is for you. Last night, the DOL posted the final revised rule on overtime on its website ahead of its planned announcement this afternoon.

What a gift for employment lawyers!  Needless to say, I was up late unwrapping all my “gifts.”

Remember: These changes apply only to the so-called white-collar exemptions: Executive, Administrative and Professional.  So, if the employee falls within a different exemption, this rule does not apply.

And, as I’ll explain below, for Connecticut employers, the challenges are just beginning.  The rule applies to all employers covered by the FLSA (FLSA covers employers engaged in interstate commerce and gross volume of $500,000.00 in sales) but Connecticut employers will also have to worry about state law as well.

Here are the highlights (the DOL has released a chart comparing all the changes as well):

  • As expected, the new rule changes the salary basis to $47,476 annually ($913/week) — slightly less than the proposed rule last year. In plain English, anyone who makes less than this amount must be paid overtime for any hours over 40 in a work week — regardless of his or her duties.
  • This threshold will change every three years, and will be tied to the salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South.
  • The new rule makes no changes to the duties test.   If an employee had duties that fell within the executive exemption, for example, they will still be exempt — that is, if their minimum salary now meets the threshold of $47,476.
  • The rule increases the “highly compensated employee” exception to the exemption to $134,004 – and that too will change every three years. (But note that Connecticut law does not have such an exception.)
  • The rule becomes effective December 1, 2016. Note that December 1 is a Thursday, so employers will have to make sure that the entire pay period is compliant with the new rule.
  • The new rule will now permits employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.  This is a brand new element and should help employers meet that threshold (a bit).

The USDOL also released guidance for non-profits and higher education to address concerns in those areas.  Those employers should review that guidance specifically.

For Connecticut employers, though, take a deep breath before jumping in.  Connecticut has its own state law and regulations that are now in conflict with this federal rule. And as the CTDOL notes in its guide to wage & workplace laws: “The laws that provide the higher or stricter standard shall apply.”

What does that mean here? We’ll have to wait and see if the Connecticut Department of Labor updates its guidance for starters.  It is challenging for Connecticut to update its regulations so, for now, we can only hope that the CTDOL might at least shed some light on how it might enforce the state rules. (There is a helpful chart that it has used in the past, for example, that could be updated.)

But here, on first glance, are three other items of concern I have for now:

  1. The salary test in Connecticut does not contain an allowance to consider nondiscretionary bonuses.  Will that change (at least as a matter of enforcement) now that the federal regulations allow employers to consider that? And how should the deduction rule be applied in such an instance? Would Connecticut recognize an increased salary basis but without such bonuses as the more “protective” of the law?
  2. The CTDOL has previously recognized a “no man’s land” (its words) where the interaction of the rules is confusing; how will it deal with a similar (and much larger) no man’s land where the salary is higher, but the duties test has been met?
  3. Connecticut does not have an exemption for highly compensated employees. The new federal rule does not change state law and thus the HCE exemption will still not apply here.  Will the CTDOL reconsider that in light of the increased threshold at a federal level?

What’s the Takeaway for Employers in Connecticut?

For employers in Connecticut, do not just blindly adopt the new federal rule into your workplace.

For example, increasing the base salary to avoid overtime obligations under the federal rule may not matter if the employee does not meet the duties test under Connecticut law for the same exemption.

This is one of those situations that will require a case-by-case look at specific positions and the interaction between state and federal law.  Unfortunately, you’ll probably want to consult heavily with various HR consultants or lawyers specializing in employment law.

So, as a said before, stay calm. You can do this.  You have until December.

 

USDOL Headquarters in DC
USDOL Headquarters in DC

Late Monday, several reports on Twitter indicated that the Department of Labor would be announcing and releasing the final version of the revisions to the white-collar overtime regulations.  You can see my prior posts on the subject here and here.

This has been a long time coming. It was way back in 2014 (!) that the President indicated that he wanted the USDOL to revisit them.

And the anticipation on Twitter has been breathless with so-called experts predicting for months that the new regulations would be released any day. Or last week.  Or in July.  And speculation on what would be in the final overtime rule has run rampant.

So, rather than predict what will be in the final regulations, I want to highlight three areas that I’ll be looking at in my initial review of the regulation.

  1. Salary Test: The proposed rule last year raised the salary test to $50,440 from its current level of $23,660 (which the vast majority of employees meet in Connecticut due to minimum wage being high.)  The latest thinking is that the final rule will set that threshold at $47,000.  (UPDATED: News reports on Tuesday afternoon indicated that the threshold will be set at $47,476 and be updated every three years.)  What does that mean? It means that any employee who is paid less than that amount regardless of his or her duties would need to be paid overtime for any work over 40 hours.  That would indeed be a big change.  So, when we look at the new rule, first item to look at is the salary threshold set by the USDOL.  There is no question it will be high; it’s just a question of how high.  Bonus item to look at: Will the salary test be tied to inflation? In other words – will the threshold keep up with inflation automatically in future years? The proposed version tied it to the 40 percentile of income; will that remain in the final rule?
  2. Duties Test: The proposed rule did not explicitly change the duties test for overtime — meaning that the administrative, professional and executive exemptions would still apply as current framed — albeit at a higher salary threshold.  However, the proposed rule solicited input from the public about how best to alter the duties part of the test.  Would the USDOL be so bold as to introduce changes to the duties test without first floating it in a proposed rule? The prevailing wisdom is no, but keep an eye on that and any hints about future revisions to this rule. (UPDATED: News reports on Tuesday suggest that no changes to the duties tests will be forthcoming.)
  3. Timing: Another thing to look for in the final rule: How much time will employers have to comply? And how long until the rules go into effect? Back in November 2015, a government official suggested that employers would have 60 days to comply. Will that hold up? (UPDATED: News reports on Tuesday also indicated that employers will have until December 1, 2016.) 

For employers in Connecticut, the new rules will make things particularly challenging. For years, Connecticut’s stricter overtime rules have been the go-to source for employers. However, with the new federal rules being even stricter (or, more favorable to the employee) than the state rule, we may see a return to federal dominance.  So a bonus thing to look for in Connecticut: How will these rules interact with Connecticut’s rule? Don’t just read the federal rule in isolation.

And to be clear, there are other aspects of this rule that we will undoubtedly have to look for.  But I’m not going to make predictions about a rule we haven’t seen.

I will make one overall prediction, however: Publications, blogs and people on Twitter are going to be hysterical over the pronouncements of the new rule. My suggestion? Ignore them.  The hype is designed, in part, on scaring employers into a frenzy.

What to do instead? Employers should view this new overtime rules with a bit of detachment.  Get the facts.  Then, figure out what applies to your business and start work on a plan to meet those requirements.

U.S. Department of Labor Headquarters
U.S. Department of Labor Headquarters

Over the last few days, Twitter has been a-twittering with buzz that the Department of Labor has sent the final overtime rules to the OMB.

This is the equivalent of one department sending another one an e-mail with the new rules. Why? Because it’s just the next step in getting the rules approved.  But nothing more than that. Moreover, this step always happens in the issuance of regulations.

And here’s the really important point: We still don’t know what these final rules will be.

So ask yourself, is it really worth getting excited about one department sending the rules to another?

That said, SHRM had some additional information from a speaker at a conference this week about when we can actually expect to see the new rules:

At the SHRM Employment Law & Legislative Conference yesterday, Tammy McCutchen, an attorney with Littler in Washington, D.C., and a former administrator of the DOL’s Wage and Hour Division, advised attendees to keep an eye on reginfo.gov, which tracks government agencies’ regulatory actions as they are submitted for review to OMB. Sure enough, the rule appeared on the site late March 14.

At the conference, McCutchen told attendees she believed the rule would work its way quickly through OMB and most likely be published by July 7, and take effect on Labor Day, Sept. 5. Alternatively, she said, the rule would be published the Friday before Labor Day, Sept. 2, to take effect Nov. 1—just prior to Election Day.

If you recall, I first reported on the timing of this back in November 2015.  In that post, I reported on what I heard at the ABA Labor & Employment Law conference — “late 2016”.

Despite all the Twitter posts this week: Things are still on target.

For employers in Connecticut, this is really wait-and-see territory.  First, we don’t know what the new overtime rules are going to be. And second, Connecticut has it’s own rules and we will need to analyze the interaction between existing state laws and these new federal overtime regulations.

Remember: Keep Calm & Carry On.

Photo Courtesy Library of Congress c. 1943
Photo Courtesy Library of Congress c. 1943

It’s hard getting excited about joint employment.

In fact, it’s pretty yawn-inducing.  (Seriously, get a cup of coffee before reading this.)

But a few weeks back, the Department of Labor issued some new guidance on the topic that has been making the rounds of the employment law blogs.

Now, you might be asking — what is joint employment? Well, I can dispel with the notion that it has to do with medical marijuana. Rather, the DOL has described two types of relationships and how the administrative interpretation (AI) plays into it:

Horizontal joint employment exists where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee. The analysis focuses on the relationship of the employers to each other. ….

Vertical joint employment exists where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work. This other employer, who typically contracts with the intermediary employer to receive the benefit of the employee’s labor, would be the potential joint employer. Where there is potential vertical joint employment, the analysis focuses on the economic realities of the working relationship between the employee and the potential joint employer.

For the vast majority of employers, this guidance will have little impact. If you use mainly full or even part time staff, you may not have to worry about joint employer issues — you ARE the employer.

In some industries, like construction, hospitality, agriculture and janitorial work, there could be an impact.  In some instances, a larger firm could be liable if a subcontractor did not pay its employees minimum wage or unemployment benefits.  If you subcontract out a lot of work, the decision is a good reminder to review your agreements and review the tests that a court may use to rule on the issue.

Various law firms have been issuing guidance on this. One alert states:

The issuance of this AI should serve as a reminder to businesses that they need to think carefully about whether they may be viewed as joint employers over workers they do not consider to be their employees, even workers over whom they have little control. If they are likely to be considered joint employers, they need to consider whether they want to take steps to decrease this likelihood. For example, if two closely related entities concurrently make use of the services of certain employees, they may want to consider ending that approach. On the other hand, they may choose to accept the fact that they will be viewed as joint employers, identify the potential risks and liabilities that may result from joint employment, and decide in advance how they intend to minimize and allocate those risks, such as through an indemnification agreement.

Companies involved in intermediary worker engagements (e.g., staffing companies, subcontractors, and other intermediaries) will want to ensure, to the extent feasible, that they are not considered employers of each other’s employees.

I think that’s important to keep in mind.  But remember that this isn’t exactly a new issue. I’ve been talking about joint employer issues for years — it’s just that we’re seeing some more publicity about it now.

USDOL Solicitor Smith speaks at ABALEL conference
USDOL Solicitor Smith speaks at ABALEL conference

Over the next few days, I hope to provide a few updates from attending last week’s ABA Labor & Employment Law Annual Conference in Philadelphia.  There were many good, substantive programs there and lots to be gleaned for employers.

One of the sessions focused on the proposed revisions to the white collar overtime exemptions that were released for comment earlier this year.  The Department of Labor Solicitor Patricia Smith provided some insights in a panel discussion about where things were headed.

(For more background on these proposed revisions, see my prior post here.)

The solicitor indicated that the DOL received over 270,000 (!) comments to the proposed revisions and that more than 3,000 of those were “substantive” in nature. That unprecedented number of comments means that a good deal of time must be spent by the DOL to review those comments. She indicated the DOL was still reviewing the comments.

As a result, she indicated that the final version of these white collar revisions would not come out until sometime in 2016.

You might be asking: When exactly?

Well, she didn’t indicate that other than to say that she hint opaquely that it might be “late” in the year.

My own speculation (and let me be clear that it is just that) is that the final revisions may not come out until after the 2016 Presidential election.  If they are released beforehand, it is possible, and perhaps probable, that they will become a campaign issue.

In any event, when the final revisions come out, the DOL solicitor indicated that employers will have 60 days to comply.  Thus, at this point, the very earliest employers can expect to implement these revisions is March or April 2016 – and again, that’s not likely.

So what are employers to do now? The usual things: Keep up to date on what is going on; review your existing positions for compliance and with an eye towards the revisions; consider your salary range for people that are close to the $50k proposed threshold.