Category Archives: Federal Labor Standards Act (FLSA)

Summary of the 2020 FLSA Regulation Changes for Employers

Contributed by Sara Zorich, January 31, 2020

gavel and scales of justice

2020 has already proven to be a busy year for changes in the Fair Labor Standards Act (FLSA).  Below is a summary of the changes thus far: 

  1. New FLSA Salary Threshold (Effective January 1, 2020)

As previously reported, as of January 1, 2020, the FLSA requires employers to pay all salary exempt employees at least $684/week (equivalent to $35,568 per year for a full-year worker).

2. Changes to the FLSA Regulations Regarding the “Regular Rate of Pay” for Purposes of Calculating Overtime (Effective January 15, 2020)

The FLSA generally requires nonexempt employees to receive overtime pay of at least one and one-half times their regular rate of pay for any hours worked in excess of 40 hours per workweek, but what is included in the “regular rate of pay” is not always obvious. Based on years of court and agency precedent, and workplace changes since the regulations were implemented over 50 years ago, the DOL revised the following regulations to clarify and provide examples of whether certain benefits, perks and other miscellaneous payments must be included in the “regular rate of pay” for overtime purposes. Changes were made to the following regulations: 29 CFR §778.202, 203, 205, 207, 211, 212, 215, 217, 218, 219, 220, 221, 222, 223, 224, and 320. See the Department of Labor website for more information

3. Joint Employer Final Rule (Effective March 16, 2020)

The US Department of Labor updated the joint employer test under the FLSA (29 CFR 791.1 – 791.3) to address the changing nature of employment and varying court decisions.  The test for joint employment is important because when two entities are found to be joint employers under the FLSA, each is liable for compliance with the provisions of the FLSA.  Of note, a joint employer does not have to be a business.  A joint employer can be an individual, partnership, association, corporation, business trust, legal representative, public agency, or any organized group of persons, excluding any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such a labor organization

The new joint employer rules address two different scenarios:

Scenario 1: Situation where an employee works one set of hours for an employer and another person/entity simultaneously benefits from that work.  The other person/entity is a joint employer only if the other person/entity is acting directly or indirectly in the interest of the employer.  Joint employment will be determined by applying the following four factors as to whether the other person/entity has direct control (or indirect control) over the employee:

  • hires or fires the employee;
  • supervises and controls the employee’s work schedules or conditions of employment to a substantial degree;
  • determines the employee’s rate and method of payment; and
  • maintains the employee’s employment records.

The DOL has indicated that whether an individual or entity is a joint employer will depend on all the factors of a case and appropriate weight will be given to each factor depending on the circumstances. Further, additional factors may be relevant but only if they indicate whether the potential joint employer is exercising significant control over the employee.

Scenario 2: Situation where one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek. If the entities are joint employers, then they must combine the hours worked for each entity for purposes of determining if the minimum wage and overtime requirements of the FLSA are met. The joint employer test will generally be met if:

  • There is an arrangement between the two entities to share the employee’s services;
  • The employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or
  • If the entities share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.

The final rule also provides eleven (11) examples of how the test should be applied.

In light of these changes, employers should review their wage and hour practices for not only compliance with the FLSA but also compliance with state law as many state laws are more onerous than the FLSA.

DOL’s First FLSA Opinion Letter of the Decade Provides a Reminder—And Guidance—For Reconciling Non-discretionary Bonuses and Overtime Pay

Contributed by Steven Jados, January 16, 2020

money and clock

On January 7th, the U.S. Department of Labor’s Wage and Hour Division issued its first Opinion Letter of 2020, and the Letter serves as a reminder to businesses that retroactive overtime payments may be necessary if non-discretionary bonuses are paid to non-exempt (hourly-paid) employees.

The scenario at issue in the Letter is that an employer had an announced policy through which employees were paid a $3,000 bonus after they completed ten weeks of training.  A particular employee worked 40 hours per week in eight of those ten weeks. But in the fifth week he worked 47 hours, and in the ninth week he worked 48 hours, so he was entitled for overtime pay for those two weeks.

A bonus like this is considered non-discretionary under federal law because it was announced to employees in advance and not limited by any sort of discretionary language.  (Limiting discretionary language could take the form of a statement that the bonus would only be paid “when, in management’s sole discretion, company performance warranted bonus payments.”)  But there was no limiting, discretionary language, so the bonus is non-discretionary. 

And the characterization of the bonus as non-discretionary is critical because non-discretionary bonuses must be included in an employee’s regular rate of pay for purposes of determining the overtime pay rate for workweeks in which an employee works more than 40 hours.

Calculating overtime pay when a non-discretionary bonus covers a single week is relatively simple.  The employer multiplies the employee’s hourly rate by the total hours worked for the week, adds the bonus amount to that result, and then divides by the total hours worked to get the “regular rate” for the workweek.  Employees are to be paid 1.5 times the regular rate for each overtime hour worked.

But in situations in which a bonus applies to more than one workweek, the amount of the bonus must be apportioned, for overtime pay purposes, over the workweeks the bonus covers—and retroactive overtime payments must be made for each workweek in which an employee worked more than 40 hours.  Generally speaking, this means that the bonus must be divided equally among the workweeks at issue if it seems the bonus was earned in equal parts each workweek.  However, in other circumstances involving, e.g., performance-based bonuses, it might be more reasonable to apportion the bonus payment by the hour, not the week —particularly if the total hours worked varied significantly from week to week within the bonus period.   

For the ten-week training bonus, the DOL stated it was reasonable to consider the bonus earned in equal parts each week, so $300 was allocated to each of the workweeks. And to be clear, that $300 only factors into the two workweeks in which the employee worked more than 40 hours. No additional payment was owed for the eight weeks in which the employee worked only 40 hours.

The bottom line is that, in the new year—particularly in Illinois in light of the state’s increased penalties for wage and hour violations—it is critically important for employers to remember that retroactive overtime payments must be made for non-exempt employees who work more than 40 hours in any workweek for which a non-discretionary bonus is paid.  This may seem like a tremendous burden, particularly for small businesses, but rest assured that it is far less burdensome than defending a wage and hour lawsuit brought by one or more employees who were not properly paid under the law.         

DOL Opinion Letter: Excessive 15-Minute Breaks Are Not Compensable

Contributed by JT Charron, April 25, 2018

On April 12, 2018, the Department of Labor (DOL) issued an opinion letter addressing the intersection between the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA) when an employee needs multiple rest breaks throughout the day due to an FMLA covered serious health condition.

employee with clock in background

Employee working with clock in background

Background

The FLSA generally requires employers to compensate employees for all time spent working. Although the Act does not require employers to provide rest or meal breaks, it does regulate whether such breaks—if provided by the employer—must be paid as compensable working time. Specifically, breaks of up to 20 minutes are generally considered primarily for the benefit of the employer and must be paid.

The FMLA, on the other hand, provides eligible employees with up to 12 weeks of unpaid job-protected leave for employees with a serious health condition. FMLA leave may be taken incrementally and, in certain circumstances, in periods of less than one hour.

Employers are not required to pay for excessive breaks

What if an employee needs to take multiple breaks during the work day due to his/her serious health condition? According to Opinion Letter FLSA 2018-19, such breaks are not compensable because they are not “primarily for the benefit of the employer.” Importantly, however, the DOL noted that an employer must still compensate the employee for breaks she would have received regardless of her serious health condition. To illustrate this point, the DOL provided the following example:

[I]f an employer generally allows all of its employees to take two paid 15-minute rest breaks during an 8-hour shift, an employee needing 15-minute rest breaks every hour due to a serious health condition should likewise receive compensation for two 15-minute rest breaks during his or her 8-hour shift.

Employer takeaway

Employers can rest easy knowing that they do not have to pay employees for unlimited rest breaks simply because they are necessitated by an FMLA-approved serious health condition. Employers should carefully administer and track any such breaks to ensure compliance with both the FMLA and FLSA—along with any applicable state or local laws (e.g., local paid sick leave laws and required paid rest breaks).

 

High Court Says No More Narrow Construction Standard for FLSA Exemptions

Contributed by Sara Zorich and Michael Hughes, April 13, 2018

wage and hour

Scale weighing money and time

On April 2, 2018 in the matter of Encino Motorcars, LLC v. Navarro, No. 16-1362, 2018 WL 1568025 (U.S. Apr. 2, 2018), the Supreme Court rejected the long held principle that exemptions to the Fair Labor Standards Act (FLSA) should be construed narrowly and found that car dealership service advisors are exempt from the FLSA’s overtime-pay requirement. In a 5-4 decision, the Court held there was no reason or basis under the FLSA to narrowly interpret FLSA exemptions and that exemptions should be read equally as any other provision of the Act.

Impact – Car dealerships can confidently rely on Encino Motorcars to support their classification of service advisors as exempt from federal overtime. While this decision doesn’t impact service advisors working outside of a car dealership, the 7(i) exemption is still in play.

However, this decision is much more far reaching in its overall impact on FLSA exemptions. Encino Motorcars is a WIN for employers who for decades have had to overcome court and DOL-imposed heightened standards when applying the FLSA overtime exemptions. This decision should make it easier for employers to establish the applicability of an FLSA exemption if challenged by an employee.

DOL Says Goodbye to Six-Factor Unpaid Internship Test

Contributed by JT Charron, January 10, 2018

On Friday, the Department of Labor abandoned its six-part test for determining whether an intern must be paid, and replaced with the more employer-friendly “primary beneficiary test.” This announcement came less than a month after the Ninth Circuit became the fourth federal appellate court to expressly reject the DOL’s six-factor test in favor of the primary beneficiary test.

Background

Under the Fair Labor Standards Act (FLSA) employers must generally pay employees minimum wage for all hours worked, and overtime for all hours worked over 40 in a week. The FLSA, however, exempts certain individuals from these requirements, including bona fide interns. To determine whether an intern was bona fide, the DOL introduced a six-factor test in 2010, which required that:

  1. The internship was similar to training that would be offered in an education environment;
  2. The internship experience was for the benefit of the intern;
  3. The internship was not displacing a regular employee;
  4. The training provide by the employer to the intern may have impeded the employer’s operations;
  5. The intern was not expecting a permanent position at the conclusion of the internship; and
  6. Both the employer and the intern understand that there was no compensation.

    56243229 - interns wanted internship training trainee concept

    “interns wanted” sign

According to the DOL, if even one of these factors did not apply, the individual was an employee — not an intern — and was required to be paid minimum wage and overtime.

The Primary Beneficiary Test

First articulated in 2015 by the Second Circuit Court of Appeals, the primary beneficiary test is a case-by-case approach that gives consideration to the following seven factors:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee — and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Importantly, no single factor is dispositive, and the employee/intern distinction will be based on the unique circumstances of each case.

Bottom Line

While the primary beneficiary test will provide more flexibility for businesses preparing for the 2018 internship season, employers must still be careful in designing internship programs. As the above factors indicate, the primary beneficiary of any program must still be the intern — not the employer.

The Impact of Local Minimum Wage and Paid Sick Leave Ordinances on the Transportation Industry

Contributed by Michael Wong, January 5, 2018

Over the past few years, cities, counties and local municipalities have been enacting laws and ordinances increasing the minimum wage and requiring paid sick leave for employees. While there have been growing pains with how these apply to normal hourly non-exempt employees and tipped servers, do these apply to motor carriers and employees who are truck drivers?  This can be the most frustrating legal response of all, “it depends.”

In most cases, minimum wage laws enacted by states follow the Fair Labor Standard Act (“FLSA”) and provide exemptions for motor carriers.  Indeed, under Section 12(b)(1) of the FLSA, employees whose duties, wholly or in part, affect the safety of operation of a motor vehicle and are involved in interstate commerce are exempt from being paid overtime. Whether a municipality’s minimum wage ordinance applies, depends on the language and rules of the ordinance. For example, the rules of the Cook County, Illinois minimum wage specifically state that a regulated motor carrier subject to subsection 3(d)(7) of the Illinois Minimum Wage Law is not a “Covered Employer” that would be required to pay covered employees the Chicago or Cook County minimum wage. Similarly, the rules of the City of Chicago minimum wage states that individuals employed for a motor carrier who are subject to the Department of Transportation regulation are not subject to the Chicago minimum wage.

However, paid sick leave laws and ordinances are different.  Neither the Cook County, Illinois earned sick leave ordinance or City of Chicago earned sick leave ordinance have the same exclusion for motor carriers or truck drivers.  While neither expressly states that motor carriers are required to provide paid sick leave to employees who are truck drivers, they also do not state that motor carriers or truck drivers are exempt.  Due to the plain language exempting motor carriers and truck drivers from the minimum wage ordinances, there is a very strong argument that motor carriers are required to provide their employees who are truck drivers with paid sick leave.

Indeed, this interpretation is not unusual within the growing trend of states, cities and local municipalities expanding employee rights – including those of truck drivers. Currently there are 8 states and 30 cities and municipalities that have paid sick leave laws which include:  Illinois (local), Washington (state and local), California (state and local), Arizona (state and local), Oregon (state and local), Minnesota (local), Vermont (state), Massachusetts (state and local), Pennsylvania (local), New Jersey (local), New York (local), Connecticut (state) and Washington, D.C. (local).

Bottom line, the different paid sick leave laws do not address or expressly exempt motor carriers or truck drivers from being subject to the law or ordinance. By not addressing or expressly exempting motor carriers and their employees, these laws are creating significant exposure for motor carriers that fail to make changes by providing employees who are truck drivers with the ability to earn paid sick leave or considering how those employees are being compensated. Certainly, with the patchwork of laws and nuances in each jurisdiction, it can be extremely frustrating and difficult to try and implement a globally compliant policy.  Thus, special attention must be taken when crafting such policies and review by experienced counsel should be part of the process.  Moreover, motor carriers utilizing truck drivers who are independent contractors or owner/operators should take particular pause to consider the increased liability from misclassification claims and the potential damages under the paid sick leave laws, in addition to any applicable minimum wage law or ordinance.

The Cook County Wage Theft Ordinance Makes Compliance with Federal and State Wage and Hour Laws Even More Important

Contributed by Julie Proscia

The Cook County Board of Commissioners recently passed an ordinance which prohibits any company or individual who is found guilty or liable of wage theft from obtaining Cook County procurement contracts, business licenses or property tax incentives for up to five years. The ordinance is effective May 1, 2015. Cook County is now the largest municipal entity in the United States to have passed an ordinance of this nature.

Under the new Cook County Wage Theft Ordinance, businesses found to have violated the Fair Labor Standards Act (FLSA), Illinois Wage Payment and Collection Act, Illinois Worker Adjustment and Retraining Notification (WARN), Illinois Employee Classification Act, and/or any other similar state laws regarding the payment of wages may find themselves ineligible to do business with the County of Cook.  This is applicable to any person or entity who, within the prior five-year period, has admitted or has been adjudicated liable in any judicial or administrative proceeding of committing, absent a finding of “good cause,” a repeated or willful violation of federal or state wage payment laws. Under the terms of the ordinance, a business violator may:

  • become ineligible and/or disqualified from receiving or renewing business licenses in Cook County;
  • be barred from contracting with Cook County;
  • be found in default under existing Cook County contracts; and/or
  • become ineligible for property tax incentives.

As of May 1, 2015, businesses requesting tax incentives from the Cook County Assessor must certify, under oath, that for the past five years they have not been found in willful or repeated violations of federal or state wage and hour laws. Unless an express waiver is granted by the County Board, any person or business that has been found liable for a repeated or willful violation of state or federal wage payment laws will be ineligible for tax incentives. Moreover, if the County Assessor becomes aware that an employer has violated wage and hour statutes within the prior five years, the Assessor has the authority to revoke the incentive or classification unless the employer cures the violation within 45 days.

The new ordinance also requires that any person seeking to contract with the County of Cook must certify, under oath, that the applicant has not been found to have repeatedly or willfully violated federal or state wage and hour laws anywhere in the country, either by an administrative agency or a court. If a violation is deemed to have occurred, the County Chief Procurement Officer has the authority to issue a notice of default under existing contracts.

Because of the ramifications of the new Wage Theft Ordinance, it is even more important than ever that entities and individuals that do business within and with the County of Cook are in compliance with federal and state wage and hour requirements.  It is also important that, if your business has been found in violation of federal or state wage and hour laws in the prior five years, you have any applicable application to the County of Cook reviewed by counsel prior to submission to ascertain if a waiver can be sought or asserted. Lastly, it is imperative to have counsel involved in any settlement agreements that are drafted to ensure that the wording utilized does not inadvertently solve one problem while creating others.

Thinking About Hiring Interns? Tips for Doing It Right.

Contributed by Suzanne Newcomb

Despite winter-like weather across much of the country, it is March and that means college students are searching for internships. On January 30, a federal appeals court heard oral arguments on a pair of class action lawsuits in which interns in the film and publishing industries sued for unpaid wages. Although the court has yet to rule, there are steps your organization can take now to avoid this type of litigation.

Under the FLSA anyone who performs work is entitled to compensation. For non-profits, federal regulations clarify that “volunteers” who freely serve public agencies for civic, charitable or humanitarian reasons are not “employees.” In 1947, the U.S. Supreme Court carved out an exception applicable to for-profit businesses, holding that “trainees” were not “employees.” In 2010, the U.S. Department of Labor published Fact Sheet #71 which states an unpaid internship at a for-profit business is legally permissible only if:

  1. It is similar to training given in an educational environment;
  2. It primarily benefits the intern, not the organization;
  3. The intern is closely supervised by existing staff and does not displace regular employees;
  4. The employer derives no immediate advantage from the intern’s activities; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job after the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages.

Whether these factors are a rigid checklist or simply a guiding framework is at issue in the pending Second Circuit case. For now, for-profit businesses should consider this a checklist. If you fall short on any factor, the internship should be paid.

All organizations that hire unpaid interns — for-profit businesses and not-for-profit organizations alike – should:

  1. Make clear at the onset that the position is unpaid and is not likely to lead to a paid position with your organization (preferably this will be in writing signed by both parties).
  2. Coordinate with the student’s educational institution to provide credit for the internship whenever possible.
  3. Never use an unpaid intern to fill a paid position (even temporarily).
  4. Remember that internships are designed to provide educationally rich learning experiences, not a source of free labor.
  5. Recognize that while having an internship program may benefit the organization overall, the program itself will likely decrease efficiency and could negatively impact the organization’s bottom line.
  6. Follow all normal hiring protocol if you do consider a former intern for a paid position.

Supreme Court Rules No Pay for Employees’ Time Waiting in Security Line

Contributed by Sara Zorich

On December 9, 2014, the U.S. Supreme Court handed down a victory for employers in Integrity Staffing Solutions, Inc. v. Busk, No. 13-433, 2014 WL 6885951 (U.S. Dec. 9, 2014) when the Court held that time spent by employees waiting for and undergoing security screenings before leaving the employer’s workplace was not compensable under the Fair Labor Standards Act (FLSA).

Plaintiffs sued Integrity Staffing Solutions alleging that it required hourly workers to undergo anti-theft screening, taking about 25 minutes per day, before leaving the warehouse and the end of each shift and that such time was compensable time under the FLSA.

The Supreme Court overturned the Ninth Circuit by deciding that the security screenings were noncompensable postliminary activities under the FLSA.  The Court stated that the screenings were not the principal activities the employees were employed to perform.  Instead, employees were hired to retrieve products from warehouse shelves and package such for shipment.  Furthermore, the Court held that the activities were not “integral and indispensable” to the employee’s job activities.  The Court noted that “an activity is therefore integral and indispensable to the principal activities that an employee is employed to perform if it is an intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.”

The Court’s decision rejected the Ninth Circuit’s test focusing on whether the activity was required by the employer and instead looked to whether the activity was tied to the productive work the employee was hired to perform.  The Court held that a test that turns on whether the activity is for the benefit of the employer is overbroad and would make activities compensable that the Portal-to-Portal Act was enacted to address.  The Court provided further guidance noting that an activity is compensable if the employee could not perform his/her principal activities without putting on certain clothes but would not be compensable if changing clothes was merely for the convenience of the employee and not directly related to his/her principal activity.

Conclusion: This decision clarifies and limits what are compensable activities under the FLSA.  If the pre or post activity is something the employee must do in order to perform the principal activities of his/her job then it is compensable.  In light of this decision, employers should review their pay policies and procedures and consult with employment counsel regarding the applicability of the Portal-to-Portal Act.

 

Security Screenings: Does the Boss Pay the Cost?

Contributed by Steve Jados

On March 3, 2014, the U.S. Supreme Court announced it will review Busk v. Integrity Staffing Solutions, Inc., in which the Ninth Circuit held that time spent in (and waiting for) post-shift security screenings is compensable under the federal Fair Labor Standards Act (“FLSA”).  The employees in Busk, who worked in a warehouse filling Amazon.com orders, were screened only at the end of their workdays for the purpose of preventing the theft of Amazon merchandise.  Accounting for time spent waiting to be screened, the screening process took approximately 25 minutes for some employees.

The Ninth Circuit Court of Appeals’ decision in Busk should be particularly concerning to employers because Busk is the most recent of only three federal appellate court decisions addressing whether security screening time is compensable under the FLSA.  The other two decisions both held that such time was not compensable.

The Ninth Circuit spent few words explaining why it chose not to follow the prior decisions, but two distinctions between Busk and the prior decisions are apparent.  First, the Ninth Circuit viewed the security screening in Busk as one in which only certain employees were subjected to screening.  In contrast, the workplaces at issue in the prior cases were an airport and a nuclear power plant, environments in which employees at all levels, along with customers and visitors, were required to be screened.

The second distinction is that the screening in the prior cases was related to broader safety concerns (e.g., preventing terrorists from accessing airplanes and nuclear material), as opposed to the concern in Busk, which was limiting employee theft of private property.

Whether the Ninth Circuit properly interpreted the FLSA is now in the Supreme Court’s hands.  If the Court sides with the plaintiffs, employers who conduct end-of-shift security screenings may have to make dramatic procedural changes.  For instance, the start and end times of shifts may have to be staggered so that employees are not required to spend as much as 25 minutes waiting to be screened.  Similarly, employers may have to employ additional screeners or implement new technology to ensure that screening is completed as quickly as possible.  Even employers with screening procedures much faster than those at issue in Busk may face significant exposure as the amounts of uncompensated time aggregate year after year for each and every shift every hourly employee works.

It is unclear whether the Supreme Court will use Busk as an opportunity to create a bright-line rule under which all security screening time is non-compensable, or whether the Court will carve out new rules under which some, or perhaps all, security screening time is compensable.  Whichever path the Court takes, it is clear, in light of the Court’s decision to hear Busk, and the Court’s recent decision in Sandifer v. U.S. Steel Corp., that this Court appears determined to leave its mark on the landscape of wage and hour law.  While we wait for the Court to rule on Busk, employers that use post-shift anti-theft searches may want to explore ways to make those searches more efficient.