In an important 5-4 decision, the U.S. Supreme Court this morning held, for the first time, that class or collective action waivers, particularly in wage/hour cases, and contained in arbitration agreements between employers and employees are valid and enforceable.

Because wage and hour class and collective actions are quite costly for employers to defend against, this decision should cause employers in Connecticut (and nationwide) to re-evaluate their employment relationships with employees and consider enacting wide-ranging arbitration agreements that include class-action and collective action waivers.

The decision in Epic Systems Corp. v. Lewis (download here) was just released at 10 a.m. this morning, so I’ll have more in an upcoming post after I’ve had time to digest it, but here’s the summary from the Supreme Court itself:

In each of these cases, an employer and employee entered into a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties. Each employee nonetheless sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court. Although the Federal Arbitration Act generally requires courts to enforce arbitration agreements as written, the employees argued that its “saving clause” removes this obligation if an arbitration agreement violates some other federal law and that, by requiring individualized proceedings, the agreements here violated the National Labor Relations Act. The employers countered that the Arbitration Act protects agreements requiring arbitration from judicial interference and that neither the saving clause nor the NLRA demands a different conclusion.

Until recently, courts as well as the National Labor Relations Board’s general counsel agreed that such arbitration agreements are enforceable. In 2012, however, the Board ruled that the NLRA effectively nullifies the Arbitration Act in cases like these, and since then other courts have either agreed with or deferred to the Board’s position.

Held: Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s saving clause nor the NLRA suggests otherwise.

In doing so, the court relies on two main arguments. First, the Federal Arbitration Act compels this and notes that the Concepcion decision from a few years back foretold this (which I previously previewed in a prior post).  Second, the National Labor Relations Act doesn’t compel a different result.

Justice Gorsuch writes the majority opinion here and concludes: “The policy may be debatable but the law is clear: Congress
has instructed that arbitration agreements like those before us must be enforced as written. ” He criticizes the dissent for its language suggesting a retreat from modern day labor laws:

In the dissent’s view, today’s decision ushers us back to the  Lochner era when this Court regularly overrode legislative policy judgments. The dissent even suggests we have resurrected the long-dead “yellow dog” contract. … But like most apocalyptic warnings, this one proves a false alarm. … Our decision does nothing to override Congress’s policy judgments.

Justice Ginsburg writes the dissent and concludes:

If these untoward consequences stemmed from legislative choices, I would be obliged to accede to them. But the edict that employees with wage and hours claims may seek relief only one-by-one does not come from Congress. It is the result of take-it-or-leave-it labor contracts harking back to the type called “yellow dog,” and of the readiness of this Court to enforce those unbargained-for agreements. The FAA demands no such suppression of the right of workers to take concerted action for their “mutual aid or protection.”

It’s an “Epic” day at the Supreme Court.   Will this have the same effect for state law claims? How should employers implement these changes? When? For all employees?

Lots of questions but today, at least, the Supreme Court answered one of the biggest employment law questions out there.

Three years ago, I floated the idea that perhaps an agency could come up with a modest “amnesty” program that would give employers a chance to get into compliance with FLSA laws, without facing the draconian consequences such an admission might entail.

Now, late yesterday, the United States Department of Labor announced its own pilot program doing exactly this. 

It’s being called the “PAID” program (Payroll Audit Independent Determination), and is designed to expedite “resolution of inadvertent overtime and minimum wage violations under the FLSA.”

According to a press release:

Employees will receive 100 percent of the back wages paid, without having to pay any litigation expenses, attorneys’ fees, or other costs that may be applicable to private actions.

The PAID program facilitates resolution of potential violations, without litigation, and ensures employees promptly receive the wages they are owed.  Under this program, the Wage and Hour Division will oversee resolution of the potential violations by assessing the amount of wages due and supervising their payment to employees.

The Division will not impose penalties or liquidated damages to finalize a settlement for employers who choose to participate in the PAID program and proactively work with the Division to fix and resolve their potential compensation errors.

But there will be limits.  Employers who are in litigation or currently under investigation are excluded, for example.  Moreover, it is a one-time use; employers can’t keep coming back under it.  And it will require employers to take other steps as well.

The pilot program is being run nationwide for approximately six months, after which the Department will evaluate the pilot program and consider future options.

Employers and their counsel are going to need to do a crash course to learn about its availability.  Some FAQ are available on the DOL website but there’s still more that needs to be filled in.

It’s clear, for example, that this won’t necessarily prevent a private lawsuit from flowing or from employees who might reject this and seek out their own counsel.

And for employers in Connecticut, a word of extreme caution:  There will still be the issue of STATE law violations that aren’t addressed by this program.

Indeed, when I floated this idea with a CT Department of Labor official years ago, he noted that legislation would have to be written because the CTDOL didn’t have the ability to create such a program.

I will continue to monitor this as well as my firm but if you have any interest in FLSA issues, you’ll want to contact your employment counsel to stay up to date on this very important development.

 

 

There is news in the employment law world beyond sexual harassment.  Arbitration clauses to be exact.

Yesterday, the Second Circuit issued a small, but important decision for employers that will continue to limit FLSA wage & hour claims.

The court ruled that an employee’s FLSA claims in court were barred by the arbitration clause contained in his employment agreement.  While it isn’t the first time, it’s clear logic will be tough to ignore.

(The case, Rodriguez-Depena v. Parts Authority, Inc. et al can be downloaded here.)

For the court, it was not even a close call. The court ruled that the Supreme Court’s pronouncement years ago that age discrimination claims were barred by an arbitration clause controlled.

The court also looked at whether its decision in the Cheeks v. Freeport Pancake House, Inc. – which required oversight of settlements of FLSA claims — precluded arbitration. The court said it did not.

The rationale of Cheeks, however, is assurance of the fairness of a settlement of a claim filed in court, not a guarantee of a judicial forum.

For employers in Connecticut it remains to be seen if the Connecticut Supreme Court will be all in on such a logic for state wage & hour law claims, but the federal endorsement of arbitration provisions provide a strong basis for doing so.

The case is yet another sign that employers have a few options when it comes to FLSA claims.  It has previously held that class action waivers for FLSA claims are also valid.  

Nevertheless, employers should once again consider whether mandatory arbitration provisions are right for their workforce, particularly when combined with class action waivers.  Having such provisions in place could make a big difference in the future.

My colleague, Gabe Jiran, returns the blog today with this quick post updating us on where things stand on the DOL’s proposed changes to the overtime rules (and providing me with an excuse to link to one of the few songs to mention “overtime” in the title.)

As you may recall from some of the prior posts here, employers scrambled to address the Department of Labor’s changes to the salary threshold for white collar exemptions under the Fair Labor Standards Act.  That change would have increased the salary threshold from $23,360 to $47,476 annually in December, 2016.

However, several states challenged this increase, resulting in a federal court in Texas issuing a nationwide injunction stalling the increase.  Of course, many employers had already made changes to address the increase, but the injunction still stands.

Then the election happened. Which changed everything.

Now, the DOL under the new Trump administration has indicated that it will not advocate for a specific salary level under its regulations, but will instead gather information about the appropriate salary levels.

The DOL has thus issued a request for information to get feedback, which can be accessed here.

What does this mean for employers? While this process will most likely result in an increase in the salary levels, it seems that the DOL will do so based on responses to its request for information rather than arbitrarily setting a salary level.

For now, employers should continue to follow the current regulations and the $23,360 salary level while, of course, also following the Connecticut guidelines where applicable too.

But stay tuned here: Developments in this area now seem on the way.

I had a lot of plans this week to do another deep dive into an employment law issue but then, well, let’s just say life happens.

Among the things? Lots of questions from clients about the new overtime rules.  While everyone has had months to plan, there are definitely a few procrastinators out there.

But this may (and I emphasize and underline MAY) work out to those procrastinator’s advantage.   Reports this week are that a Texas court is considering issuing an injunction that would stop the overtime rule in its tracks.  The court has indicated that it will consider the matter by November 22nd. And moreover, even if it doesn’t issue an injunction on that date, it will consider the entirety of the case by 11:59:59p on November 30th.

While I still think the lawsuit may be a reach, it doesn’t seem as far fetched as it did a few weeks ago. Earlier this week, a similar Texas court issued a permanent injunction prohibiting the implementation of the so-called “Persuader Rule” from the NLRB.  Government overreach seems to be a theme in Texas.

What should this mean for employers? Well, I still think planning is very much in order. But if employers haven’t yet flipped the switch on their plans, they may want to hold out for a few more days to see if this Texas case leads to anything.

Why? Because once you raise an employee’s salary, for example, it’d be very hard to roll it back.

So procrastinators take heart! Maybe, just maybe, your tardiness will pay off.

But I still wouldn’t count on it.

Author’s note: I will be proverbially “going fishing” for a few days, so don’t expect any late breaking posts until after Thanksgiving here.  I’ll be posting a few “From the Archives” posts in the interim.

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.

Making Lemonade Out of Lemons
Making Lemonade Out of Lemons

Are you tired of lawyers commenting already on the new overtime rules?

(The answer should be no, of course, since you’re reading this blog and thus have room for one more view.)

But I think it’s fair to say that we haven’t seen a feeding frenzy like this on employment law in many, many years.  And with the massive publicity of this rule comes an opportunity, as I’ll explain too.

So, dear readers, deep breath time.   We’ll get through it together.

There’s already been lots of pixels spilled about how employers can “solve” their overtime issues that will arise under this rule by making various changes in their workplace.

For example, employers can increase an employee’s salary to $47,476 annually if that employee otherwise meets the duties test, to keep an employee “exempt” from overtime.

Or the employer can limit the overtime that the employee can work, explaining that it is concerned with controlling costs.

But in all the analysis, I think one big thing has been overlooked: Employers can use this announcement as an opportunity to review and re-classify all sorts of employees — even if they are not directly impacted by the new rule.

Too often, employers who discover that they have misclassified employees believe that they are in a conundrum. Keep their head down and hope no one notices, or properly classify the employee and keep their fingers crossed that they don’t get sued for back pay.  Neither option is a great one for employers who need to get into compliance. (I once proposed an amnesty proposal to solve this dilemma.)   Sometimes, employers have legitimate reasons why an employee has been classified as non-exempt but wants to avoid any future issues. Perhaps in other situations the employee isn’t working overtime anyways.

But here is where the opportunity comes in: As I highlighted at the start, the new overtime rule has received unprecedented amounts of publicity in the workplace. No doubt most of your employees have now heard something about it.  So, some won’t be surprised if they are notified that things are changing for their position as a result of the new rule.

While the rule doesn’t provide amnesty for employers who make such changes, the new rule does remove some of the suspicions employees may have about the changes — even when those changes are perfectly legal.  Employees may be more understanding.  Employers can explain truthfully that the new rule has required them to review the classification of all of its employees and the changes are as a result of the rule.

So, yes, the rule may be difficult to comply with. But don’t miss out on the opportunities that may arise from this rule as well.  Full compliance with the law will be so much cheaper than paying for a massive wage-and-hour suit.  And as I’ve said before, compliance is the ultimate goal. You should not be looking for ways to circumvent the law.

So ultimately, perhaps you’ll view the new overtime rule as more about lemonade than lemons, as the saying goes.

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.

Walter Olson, who has been blogging at Overlawyered longer than just about anyone, has a very notable story about the Obama administration’s efforts to expand wage & hour law and intensify its enforcement.

In so doing, the U.S. Department of Labor has invoked a little known provision under the Fair Labor Standards Act called a “hot goods” order, “which freezes the physical output of an employer that it suspects of having violated wage & hour law.”

Walter tracks an Oregon case in which the Labor Department labeled an estimated $5 million worth of fresh blueberries as forbidden to enter the commerce stream.  The growers were offered a deal: “fork over a demanded cash settlement [and] this is the kicker — agree not to appeal.”  Given that blueberries are a perishable crop, the growers took the deal and agreed to pay $240,000.

But a federal court threw out that settlement ruling that the government had overstepped its power.   And last month, the government dropped the case against the growers.

The Department of Labor has released its own fact sheet though on the subject, as of October 2014.   In doing so, it has put employers on notice that this is still in play.

While this provision isn’t likely to be used often against employers, it’s worth reading Walter’s post about it.