Tag Archives: FLSA

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.

Is Your Company’s “Flexible Scheduling” Policy a Violation of Wage and Hour Law?

Contributed by Amanda Biondolino, October 25, 2017

An employer who allows its employees the “flexibility” to self-schedule time off the clock must make sure that it is paying its employees for all time worked. And beware, under the Fair Labor Standards Act (FLSA), “hours worked” is not limited to only that time an employee spends performing his or her job duties. Short breaks of twenty minutes or less are also counted as hours worked and must be paid.

The Third Circuit Court of Appeals recently held as a bright-line rule: Where breaks of twenty minutes or less are in question, the time must be paid. The court adopted the U.S. Department of Labor policy rationale that “breaks of twenty minutes or less are insufficient to allow for anything other than the kind of activity (or inactivity) that, by definition, primarily benefits the employer.” There will not be a factual analysis, or a case-by-case determination. Simply stated, if an employee is at the worksite, and is taking time away from their work-related duties for twenty minutes or less, they must be compensated for that time.

In the case decided by the Third Circuit, the employer did not deny that it permitted its call-center employees to log off their computers and use their time free from any work related duties, but it refused to call those time periods “breaks.” Rather, the employer considered it part of a “flexible time” policy, in which employees could take an unlimited amount of unpaid time away from work at any time, for any duration, and for any reason.

The court rejected the employer’s attempt to characterize time in a way that deprived employees of rights they were entitled to under the FLSA and considered the time an employee spent logged off the computer as a “break.” The employer violated the FLSA by not compensating employees for breaks that lasted twenty minutes or less.

Bottom Line: This is a reminder to employers that all policies and procedures should be vetted by experienced labor and employment counsel. In addition, all time worked including break periods should be accurately recorded, not only to comply with the record-keeping requirements of FLSA, but to document any abuse.

Employers should also keep in mind that some states may have their own break requirements that employers in those states must follow. Therefore, it is imperative that employers review their break policies and check applicable laws to ensure compliance with both federal and state law.

Although federal wage and hour laws do not generally mandate employee breaks, and state laws may vary, a strict policy that forces employees to choose between getting paid and basic necessities such as using the restroom runs contrary to “humanitarian and remedial” purpose of the act and will violate the law. These kinds of short breaks must be compensated. The FLSA and corresponding state wage and hour laws are designed to protect employees, and will be liberally construed.

 

 

The List of Gotchas Continues to Grow for Employers Offering Cash-In-Lieu of Benefits

Contributed by Rebecca Dobbs Bush, June 10, 2016

Years ago, providing cash to employees that declined benefits was fairly common. Over the past few years, increasing regulations have made that practice mostly obsolete. Then, on June 2, 2016, the Ninth Circuit added FLSA overtime implications to the list of gotchas.

We routinely receive questions from employers contemplating offering cash to employees that decline benefits. Non-exhaustive examples of the concerns are:

  • The option needs to be provided through a cafeteria plan
  • The cash amount may impact “affordability” under the ACA
  • The option cannot enable/require an employee to purchase an individual policy
  • The option needs to be offered to all eligible employees and not just a select few or those with high claims
  • Depending on the timing/structure of the payments, an employer can risk losing overpayments to employees that leave mid-year
  • With events such as marriage or birth of a child, employees can still exercise HIPAA special enrollment rights
  • Unintended consequences – individuals with high claims will not likely be the ones declining coverage

If this isn’t enough reason to change course, the Ninth Circuit, in Flores v. City of San Gabriel, confirmed that employers need to also account for overtime obligations under the Fair Labor Standards Act (“FLSA”).

CashThe City offered a set amount to employees for purchasing benefits. An employee could decline coverage and receive the unused portion as an extra cash payment on her regular paycheck. In a case of “first impression” (i.e., where no court has decided the issue before), the court determined cash payments to employees should have been included in regular rate of pay and overtime calculations.

The City argued that payments should not be part of the “regular rate” because they were not for “hours worked” and similar to payments such as vacation or sick time. The court did not agree.  Instead, the court held that a payment may not be excluded from the employees’ regular rate of pay where it is generally understood as “compensation for work, even though the payment is not directly tied to specific hours worked by an employee.” The court likened the payments to board and lodging which is not pay for “hours worked” but is still included in the “regular rate.”

The City also argued that the  payments were not part of the “regular rate” because they were made “incidental” to a “bona fide” benefit plan. The City lost this argument for 2 reasons: 1) the payments were not to a third party; and 2) the payments were not “incidental” to the plan, as they represented more than 40% of contributions to the plan.

All of this begs the question – Can an employer still possibly structure a cash-in-lieu offering to its employees that is compliant with all state and federal laws?  What is clear is that any employer offering or contemplating a cash-in-lieu option should immediately contact experienced counsel in order to verify compliance and/or for assistance in promptly remedying non-compliance.

Urgent Alert: U.S. DOL Proposes Major Changes to Exempt Salary Status

Contributed by Jeff Risch and Sara Zorich

Today, the U.S. Department of Labor (“DOL”) has announced that they are issuing a proposed rule to increase the minimum salary requirements under the Fair Labor Standards Act for exempt employees. A draft version can be found at: http://www.dol.gov/whd/overtime/NPRM2015/OT-NPRM.pdf. The final proposed rule will be issued in the Federal Register and will provide a comment period for the public.

The proposed rule sets forth guidance and requests comment on the following proposed changes:

  1. Set the minimum salary level to qualify for the white collar exemptions at 40% of the national weekly earnings for full-time salaried employees ($921 per week or $47,892 annually but expected to increase to $970 a week and $50,440 annually in 2016);
  2. Increase the minimum salary for Highly Compensated Employees to 90% of the national weekly earnings of full-time salaried workers ($122,148 annually);
  3. Establish a mechanism for automatically updating the minimum salary to meet the exemption on a yearly basis. While the proposed rule sets forth different types of mechanisms for calculating the automatic update (using a fixed percentile of wage earnings or using the CPI-U (an economic indicator for measuring inflation)) they do not identify which mechanism will be utilized;
  4. Increase the minimum salary level for exempt employees in American Samoa to $774 per week; and
  5. Change 29 CFR 541.709 to increase the current base rate for employees in the motion picture industry from $695 to $1,404 per week.

As stated, this is a proposed rule that is subject to a required comment period. The rule will not go into effect until the comment period has ended. However, employers MUST be cognizant of the proposed salary increases and begin contemplating how this is going to affect your current workforce.

Further, while not proposing any current rulemaking on the issues identified below, the proposed rule requests public comment on the following:

  1. Whether to allow non-discretionary, incentive bonuses and/or commissions to satisfy 10% of the standard salary requirement for the white collar exemptions and if such are allowed how often these bonuses/commissions must be paid (monthly or more frequently);
  2. Whether changesshould be made to the duties test for thewhite collar exemptions including:
    1. Whether employees should be required to spend a minimum amount of time performing work that is their primary duty for qualifying for the exemption and what that minimum amount should be, if any?
    2. Should the DOL follow the California state model and require 50% of an employee’s time be spent performing the employee’s exempt primary duty?
    3. Does the current duties test appropriately distinguish between exempt and non-exempt employees? Should the long/short tests be brought back?
    4. Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and non-exempt duties concurrently) working or should there be a limit on the amount of non-exempt work?
  3. Whether the Department should add examples of additional occupations to provide guidance for employers in administering the exemptions?
  4. Examples from employers in the computer and technology industries as to what additional occupational titles or categories should be included in the examples along with duties that would generally meet or fail the exemption.

These additional inquiries are indications that the DOL is looking to potentially make further revisions to the exemptions.

In Light of the Proposed Regulations, Employers Should Analyze the Following:

  1. How many of your current employees will be affected by this new rule?
  2. Is a salary increase for those who do not currently meet the salary requirement a plausible financial decision to the required increases?
  3. Are there job positions that should now be reclassified as non-exempt and the employees will now be entitled to overtime if they work over 40 hours?
  4. Tightening up policies regarding working overtime and working with management to limit the number of overtime hours worked for non-exempt employees.
  5. Reviewing handbooks and policies regarding exempt and non-exempt status.
  6. Reviewing benefits applicable to exempt and non-exempt employees and how a change in status may impact the benefits to your employees.

Employers have OPTIONS Regarding these Proposed DOL Changes:

  1. Increase the employee’s salary to that proposed in the new regulations so they continue to meet the exemption;
  2. Keep the salary the same and pay the required overtime payments based on the employee’s regular rate of pay;
  3. Reduce the employee’s salary or change the employee to hourly at a lower rate so the total earnings do not change after overtime is paid;
  4. Eliminate the employee working any overtime hours; or
  5. Some combination of the above options.

The attorneys at SmithAmundsen are here to assist employers in navigating these business changes.

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.

 

Is Your Company Prepared for the U.S. Department of Labor’s Amendments to the White Collar Exemptions?

Contributed by Sara Zorich

On March 13, 2014, we reported that President Barack Obama signed a Presidential Memorandum directing his Secretary of Labor to update the regulations to expand the number of employees eligible for overtime under the Fair Labor Standards Act (FLSA).  In May 2014, the Obama Administration released its Regulatory Agenda indicating that the U.S. Department of Labor (DOL) was scheduled to release its “white collar” overtime exemption regulations proposed rules in November 2014.  We anticipate that the new proposed regulations will be significantly narrower than the current regulations with regard to the duties which qualify for exempt status and the salary level.  Most likely, no final rule making will be in effect until the spring of 2015 since the new regulations will be subject to a 30 day comment period which can be extended to 60 days.

Employers will need to pay particular attention to these new rules since employers continue to be faced with litigation over employees’ exempt status.  Recently in the matter of Rogers v. AT&T Servs., Inc., N.D. Ill., No. 1:11-cv-05550, 9/3/14, Judge St. Eve of the Northern District of Illinois denied cross-motions for summary judgment regarding the exempt status of AT&T’s Problem Determination Managers (PDMs).  PDM’s were responsible for managing outage calls regarding Middleware products.  While the court found that the PDM’s job duties directly related to AT&T’s general operations satisfying the first prong of the administrative exemption, the court denied the cross motions for summary judgment holding there was a genuine issue of fact as to whether the PDM’s exercised the requisite independent judgment and discretion to qualify for the administrative exemption.  The court held there was not enough evidence in the record to assess whether and to the extent the employees were exercising independent, discretionary decisions about “significant” matters vs. summarizing the actions of others.

Employers can be proactive and prepare for the DOL’s new regulations by (1) reviewing their current classification of employees as exempt or nonexempt under the current FLSA regulations and state law to ensure current compliance, (2) reviewing pay policies and work rules to ensure current compliance and identify any that may need to be updated, and (3) ensuring processes are in place to track hours worked.

We will continue to monitor and communicate further developments as they occur.