The Wage and Hour Litigation Blog

Authored by Steve Shardonofsky

A federal judge in Oregon recently gave the Secretary of Labor a very important tip:  Just because the FLSA appears to be silent on a particular issue does not give the U.S. Department of Labor authority to fill the gap with regulations.  In a June 7, 2013 opinion [here], a district court ruled that the DOL’s April 2011 amended tip-pool regulations were invalid because they conflicted with the clear intent of Congress in the FLSA, even though the FLSA is silent regarding the use of tip pools when an employer does not take a tip credit.

In a “tip pool,” employees contribute a portion of their tips to a general fund that is later distributed and shared with other employees.  Although the FLSA permits the use of tip pools, the statute and its regulations limit the types of employees who can participate in a tip-pool to those who “customarily and regularly” receive tips like waiters, bartenders, busboys, bellhops, and other front-of-the-house employees.  But, if the employer does not take a tip credit (that is, if the employer does not pay less than the federal minimum wage to tipped employees), employers and employees can agree to include non-tipped employees like dishwashers and cooks in the tip pool.  At least this was the general consensus before April 2011, as illustrated by the Ninth Circuit’s decision in Cumbie v. Woody Woo, Inc.  In Woody Woo, the Ninth Circuit found that under the clear and unambiguous text of Section 3(m) of the FLSA, Congress intended only to limit the use of tips by employees when the employer claims a tip credit.  If the employer does not take a tip credit and restaurant employees thus receive wages at or above minimum wage, then federal minimum wage law does not regulate the tip pool.

In April 2011, however, the DOL expressly rejected Woody Woo and revised its regulations (29 C.F.R. §§ 531.52 and 531.54) to state that tips are the property of the employee whether or not the employer has taken a tip credit and that a valid tip pool may only include “those employees who customarily and regularly receive tips”—without exception.  As we discussed previously [here], the DOL issued a Field Assistance Bulletin (an internal document explaining its enforcement position to DOL personnel) in February 2012 in which the Wage Hour Division outlined its intent to actively enforce the revised regulations on a nationwide basis.  And enforce it they did.  Since 2012, the DOL has challenged tip pools in the hospitality industry, particularly in the western United States.

Some employers and industry groups have fought back, however, by suing the DOL and challenging the validity of the revised regulations in court.  The DOL’s Wage and Hour Division is authorized to enforce the FLSA’s minimum wage and overtime provisions.  Thus, many practitioners argue that the DOL lacked authority to issue the revised regulation and lacks authority enforce the regulation unless an employee’s tips are being used in violation of one of those provisions.  The district court in Oregon agreed, holding that the amended regulations were invalid because the clear intent of Section 3(m) of the FLSA was “only to limit the use of tips by employers when a tip credit is taken” and because “an employment practice does not violate the FLSA unless the FLSA prohibits it.”

Although Section 3(m) is silent regarding the use of tip pools when an employer does not take a tip credit, the court chastised the DOL’s practice of trying to fill this apparent gap with the revised regulations:

To express its intention that certain activities be left free from regulation, Congress need not lace the United States Code with the phrase, ‘You shall not pass!” . . .  For the DOL, silence is always an implicit gap to be filled by regulation.  The DOL’s position seems to be that Congressional silence regarding an area of economic activity is never a considered decision to let the economic actors make their own choices.  . . .  The Court’s ability to discern Congressional intent is no so limited.

Ultimately, the court concluded that it would “not alter the text of a statute in order to satisfy the policy preferences of the Secretary of Labor.”

Although this decision is significant for restaurants and other business in the hospitality industry, the court’s reasoning will have broader implications when the DOL or other federal agencies overstep their regulatory authority.  This much is sure: Just because the FLSA appears to be silent on a particular issue does not give the DOL authority to fill the gap with regulations.

Authored by Alex Passantino

A cable installation company recently entered into a consent judgment with the U.S. Department of Labor, agreeing to pay over $1 million in back wages and liquidated damages to nearly 200 workers. [here] The consent judgment also enjoins the company -- and its former vice president -- from future violations of the FLSA. 

The Wage & Hour Division’s investigation found 77 employees misclassified as independent contractors.  The company treated some of its cable installers as employees and others -- who apparently were performing the same work -- as independent contractors.   In addition, all non-exempt workers, regardless of whether they were classified as independent contractors or employees, were paid on a piece rate basis.  WHD found that no overtime premium was paid for hours worked in excess of 40 in a workweek. 

Under the FLSA, a non-exempt employee may be paid on a piece rate basis.  Employers sometimes mistakenly believe that payment on a piece rate basis eliminates the need to track hours and/or to pay overtime compensation.  Under the FLSA, however, overtime compensation must be paid for hours worked in excess of 40 by non-exempt employees, including those employees paid on a piece rate basis. 

We’ve Really Been Hearing More About Misclassification of Independent Contractors, Haven’t We?

Yes.  Although WHD has been targeting the misclassification issue for quite some time now, it really has started to renew its focus on independent contractors. [here and here] The Department of Labor has a “Misclassification Initiative,” which is focused on preventing, detecting, and remedying employee misclassification.  In addition to WHD’s efforts, the Misclassification Initiative has resulted in Departmental memoranda of understanding with the Internal Revenue Service and numerous state government agencies. 

As a result, it is increasingly likely not only that WHD will conduct an investigation into your use of independent contractors, but also that an investigation by WHD will result in subsequent investigations by other government agencies, and vice versa.  Thus, the misclassification of independent contractors can result in liability for minimum wage and overtime violations, as well as tax, unemployment, benefits, and workers’ compensation issues.

Well . . . What Should We Do?

If you use independent contractors as part of your business model, it is critical to ensure that those independent contractors are properly classified.  Remember that different laws may have different “tests” for determining independent contractor status; the wage and hour standard is generally regarded as the most difficult to meet.  Take some time to review your independent contractor agreements to ensure compliance before one -- or more -- government agencies reviews them for you. 

W.H.D.? (“What Happened, Dude?”) is a weekly blog post in which we break down recent enforcement activity by the U.S. Department of Labor’s Wage & Hour Division (WHD), look at what went wrong for the employer, and share some lessons for other employers.

Authored by Alex Passantino

Independent Contractors.  Subcontractors.  Franchises.  Employment Agencies.  According to the Wage & Hour Division, use of these relationships is an action that requires special scrutiny.  When WHD states that it is targeting "fissured industries," it means those industries in which it is more likely that workers are performing under one of these relationships -- anything where there is something less than a direct employee-employer relationship.

In recent weeks, WHD has brought the fissured industries back into the forefront.  In a lawsuit filed in federal court, WHD seeks to recover back wages for 800 workers who WHD alleges were misclassified.  See here.  The workers -- who apparently performed construction work -- were classified as members and owners of a limited liability company that provided workers to construction contractors.  WHD is using a full complement of enforcement tools, seeking back wages, liquidated damages, and a permanent injunction, and asserting joint employment among the companies that provided the workers and the companies that used the workers.

In a separate enforcement action [See here], WHD assessed back wages on behalf of four construction employees determined to have been misclassified as independent contractors.  

Why is WHD Pursuing this Fissured Industry Initiative?

WHD provides a pretty concise description in its press releases:

The misclassification of employees as something other than employees, such as independent contractors, presents a serious problem for affected employees, employers and to the economy. Misclassified employees are often denied access to critical benefits and protections, such as family and medical leave, overtime, minimum wage and unemployment insurance, to which they are entitled. Employee misclassification also generates substantial losses to the Treasury and the Social Security and Medicare funds, as well as to state unemployment insurance and workers’ compensation funds.  

With its recent agreements with state and federal taxing authorities, WHD's efforts in the fissured industries often have the result of increasing depleted government coffers in addition to the pockets of workers for whom it recovers back wages.  It's a win-win for WHD.  But for employers in the fissured industries -- hotels, restaurants, construction, janitorial services, employment agencies -- it's a cause for concern:  the entire industry is targeted for enforcement actions, not simply the companies that use the relationships.

Well . . . What Should We Do?

For companies that use one or more of the relationships above, take time to ensure that you have properly classified workers as independent contractors.  In addition, if you use subcontracting, franchising, or employment agencies, make sure that the entities providing these services are compliant with state and federal laws, including the FLSA.  As is the case in the lawsuit described above, the users of the services may be subject to liability under a joint employment theory. 

Of course, all employers in the hotel, restaurant, construction, janitorial services, employment agency, or other fissured industries -- regardless of whether they use one or more of the relationships -- should ensure that their wage and hour practices are in compliance.  (And consider attending our upcoming webinar.)

W.H.D.? (“What Happened, Dude?”) is a weekly blog post in which we break down recent enforcement activity by the U.S. Department of Labor’s Wage & Hour Division (WHD), look at what went wrong for the employer, and share some lessons for other employers.

Authored by Alex Passantino

$35 million. 

Even the ability of a public sector employer to use comp time did not prevent the Puerto Rico Department of Corrections and Rehabilitation from paying $35 million in back wages and interest to nearly 4,500 current and former employees.  See here.  In a consent judgment representing one of the largest recoveries in the history of the Wage & Hour Division, the Commonwealth also agreed to install electronic timekeeping systems, train supervisors, hire additional staff (to reduce the need for overtime), employ human resources liaisons to monitor payroll, track payroll complaints and resolutions, and report its compliance efforts annually to the Wage & Hour Division. 

Under certain circumstances, employees of state or local government agencies may receive compensatory (comp) time off, at a rate of not less than one and one-half hours for each overtime hour worked, instead of cash overtime pay.  In the case of law enforcement personnel, the employees may accrue or “bank” up to 480 hours of comp time.  Private employers may not use a comp time bank for non-exempt employees. 

In this case, the Department of Corrections and Rehabilitation apparently “regularly allowed employees’ comp time ‘banks’ to greatly exceed 480 hours.”

But, I’m a Private Sector Employer.  What Does this Have to Do With Me?

At this time, not a whole lot.  The case is notable for its use of a consent judgment that calls for affirmative relief over and above any statutory obligations.  As we’ve mentioned previously (here), we anticipate an increased use of these non-traditional enforcement tools.

It is also worth noting that there are efforts in Congress to bring comp time to the private sector.  Earlier this week, the House Education and Workforce Committee approved the Working Families Flexibility Act of 2013 (H.R. 1406).  See here.  In its current state, H.R. 1406 would allow employers to offer its employees a choice between comp time and cash wages, with an annual cap of 160 hours on comp time accrual.  The bill also contains several provisions to protect employees, including a requirement that the comp time agreement be in writing and safeguards to ensure that the comp time choice and use are voluntary.  The bill does nothing to change the FLSA’s 40-hour workweek and/or the manner in which overtime compensation is accrued -- comp time would accrue at a rate of 1.5 hours for every overtime hour worked.

Well . . . What Should We Do?

Take some time to review the provisions of the Working Families Flexibility Act (here).  Remember that this is not the law for private sector employers; it is a bill being proposed in Congress and whether it becomes an option for your business depends upon how Congress votes.  Private sector employers must continue to pay non-exempt employees at a rate of one-and-one-half the regular rate of pay for all hours worked in excess of 40 hours in a workweek, unless and until a law is passed that changes that obligation.  We will, of course, keep you advised of the progress of the Working Families Flexibility Act of 2013 and any other legislation that may impact an employer’s obligations under the FLSA.

W.H.D.? (“What Happened, Dude?”) is a weekly blog post in which we break down recent enforcement activity by the U.S. Department of Labor’s Wage & Hour Division (WHD), look at what went wrong for the employer, and share some lessons for other employers.

Authored by Alex Passantino

Yesterday, President Obama released the details of his FY2014 budget.  Although significant policy differences make it highly doubtful that this budget will become “the” budget, the President’s proposal provides some clear insight into the policy preferences of the Administration. 

Buried deep within the budget documents, beyond the questions of “stimulus funds” and “entitlement reforms,” lies the answer to the question most pressing to the readers of this blog:  “What about the Wage and Hour Division?”  The answer:  “More of the same.”

WHD’s request includes a $16 million funding increase to $243 million and 63 additional FTEs, which would bring the total number of WHD employees to 1872.  The additional funds and personnel apparently would be used to continue WHD’s “fissured industry” enforcement activities, with WHD identifying business models such as “subcontracting, franchising, temporary employment, labor suppliers, [and] independent contracting” as worthy of particular scrutiny.  WHD specifically noted its continued focus on independent contractor misclassification.   

WHD will continue to emphasize enforcement under the Davis-Bacon Act and Service Contract Act, as well as in residential construction.  WHD also plans to focus on some of its more limited programs:  Section 14(c), which allows lower rates of pay to individuals with disabilities; H-2A, which is the agricultural temporary visa program; and H-2B, which is the non-agricultural temporary visa program. 

WHD’s budget request also includes $5.8 million for a “new, integrated information technology system.”  The system will allow improvements to: policies and procedures, such as the process for assessing civil monetary penalties and the certification of farm labor contractors, or opportunities to develop more comprehensive, interconnected profiles of violators in order to improve the effectiveness of the enforcement program

This system will assist WHD as it spends increasing amounts of its investigative resources on targeted (as opposed to complaint-based) investigations and uses “[p]enalties, sanctions, the FLSA hot goods provision, and similar strategies . . .  as appropriate to ensure future compliance among violators and to deter violations among other employers.” 

It should come as no surprise that WHD’s agenda for FY14 is continued, aggressive enforcement.  Taking action now -- e.g., auditing and assessing pay practices, reviewing exemptions, educating field management about their role in the  investigative process -- will go a long way to preventing you from being surprised by the results of that agenda.

Authored by Alex Passantino

Today, President Obama nominated Thomas E. Perez to serve as the Secretary of Labor. Mr. Perez currently serves as the Assistant Attorney General for the Civil Rights Division at the United States Department of Justice, a position he has held since October 8, 2009. 

Like many of President Obama’s other Labor nominees, Mr. Perez has spent his entire career in government service and academia.  Prior to his service at Justice, Mr. Perez was a member of the Montgomery (MD) County Council and served as the Secretary of Maryland's Department of Labor, Licensing and Regulation (DLLR).  Among other things, DLLR enforces workplace safety laws and wage and hour laws. 

Earlier in his career, he spent time as a federal prosecutor, and chaired the interagency Worker Exploitation Task Force, which oversaw a variety of initiatives designed to protect vulnerable workers.  He served as Special Counsel to the late Senator Edward Kennedy.  He also taught law at the University of Maryland and was a part-time professor at the George Washington University School of Public Health.

Given his background as a prosecutor, as well as in wage and hour law, the nomination of Mr. Perez sends a pretty clear message to the regulated community about the emphasis the Obama Administration intends to place on wage and hour enforcement in the second term.  As we’ve noted previously, WHD has dramatically increased the number of investigative personnel around the country and has taken a more aggressive enforcement stand than it has in years past.  Mr. Perez’s nomination would seem to indicate -- depending, of course, on the never-ending budget circus -- an intention to continue down that path.

Co-authored by Arthur Rooney and Jessica Schauer Lieberman

Are work clothes “clothes” under the FLSA?  And how much weight should be given to the Department of Labor’s opinion on this issue, especially when that opinion has changed more than once?

Yesterday, the Supreme Court agreed to answer these questions when it agreed to review the Seventh Circuit’s decision in Sandifer v. U.S. Steel, which we discussed in a post on May 2012.  In short, the plaintiffs in Sandifer claimed that they were owed wages for time spent changing into and out of their work clothes in a locker room at the plant.  But the company argued that it did not have to pay for these activities because the parties had agreed that time spent changing clothes would not be compensable during collective bargaining.  And FLSA §203(o) states that time spent “changing clothes . . . at the beginning or end of each workday” is excluded from compensable time if it is treated as non-work time by a collective bargaining agreement.  So that raised the question: are work clothes or personal protective gear “clothes” under the FLSA?

In June 2010, the DOL issued an Administrator’s Interpretation that took a narrow view of the definition of “clothes.”  According to the DOL, the exception for changing “clothes” does not include protective gear.  The DOL also stated that changing clothing--even if not itself a compensable activity--may nevertheless be considered a “principal activity” sufficient to trigger the continuous workday, making subsequent activities compensable.

In Sandifer, the Seventh Circuit rejected plaintiffs’ attempts to rely on the DOL’s Interpretation. The Court stated that, “[p]rotection--against sun, cold, wind, blisters, stains, insect bites, and being spotted by animals that one is hunting--is a common function of clothing, and an especially common function of work clothes by factory workers.  It would be absurd to exclude all work clothes that have a protective function from section 203(o), and thus limit the exclusion largely to actors’ costumes and waiters’ and doormen’s uniforms.”  The Court also held that the plaintiffs’ workday started when they arrived at their work site, and not when they changed their clothes or started walking to their work areas.  The Seventh Circuit refused to give the DOL’s views any weight because the DOL had changed its position three times within a period of less than fifteen years, and it failed to adduce any knowledge or expertise that would justify those shifts in interpretation.

The plaintiffs sought Supreme Court review of the Seventh’s Circuit’s ruling regarding the definition of “clothes” as well as its decision that changing clothes cannot trigger the start of the continuous workday.  The Supreme Court, however, only agreed to hear argument on the first of those issues.

The Supreme Court’s agreement to address the definition of “clothes” most immediately impacts employers who rely on 203(o) and a collective bargaining agreement to exclude time spent donning and doffing protective gear.  The issue is of key importance to employers in the poultry and meat processing industries, as well as the basic metals industry, which are heavily unionized and where extensive protective gear is required.  The issue is also one that the authors of this Blog have been watching for some time; an article published by Seyfarth’s Richard Alfred and Jessica Schauer Lieberman in 2011 criticized the DOL’s Interpretation, highlighting many of the same grounds that were later cited in the Seventh Circuit’s decision.

The decision should also have more far-reaching effects, however, because the Supreme Court is likely to address the deference due to DOL opinions expressed in administrator’s interpretations.  The DOL has articulated new or changed interpretations of the FLSA on a wide variety of issues through administrator’s interpretations, opinion letters, and amicus briefs.  For example, in a 2010 administrator’s interpretation, the DOL reversed prior opinion letters and found that mortgage loan officers are not exempt.  Last June, in Christopher v. SmithKline, the Supreme Court rejected the DOL’s interpretation of the FLSA articulated in an amicus brief.  Now, the Court has an opportunity to do the same in the context of an administrator’s interpretation.  Depending on how the Court decides Sandifer, it could deal a further blow to the DOL’s efforts to make changes in the law without engaging in rule-making. 

Authored by Alex Passantino

'Twas the week after Christmas, and all through the land     

Our readers were focused on their year '13 plans;                                                                  

And though we've no desire to knock you off track,                                                             

We thought that 2012 deserved one last look back.                                                             

Hours, exemptions, pay rates, and more;                                                                         

Nearly 100 posts (for those keeping score).                                                                           

We know every issue will not give you your kicks,                                                                  

So we considered them all, and we picked out just six.

At the top of the list, one case, it stood out.                                      

And our blog frequently mentioned what it was all about.                                                      

We note it again, cause it's not every day                                                                        

That the SCOTUS addresses the FLSA.                                                                          

Pharma Sales Reps were the source of debate                                                                    

As the justices considered their overtime fate. 

But beyond the exemption lay a larger issue,                                                                

Which brought Roberts, CJ, and eight justices, too.                                                               

A unanimous ruling that courts won’t defer                                                                          

To an agency brief that's made up on the spur.                                                                   

No Auer.  No Skidmore.  No Seminole Rock.                                                                           

No deference at all, which came as a shock.                                                                      

And five Justices found that sales’ “other disposition”                                                    

Includes what happens with drugs ‘tween sales rep and physician.

Our second big item for the past year                                                                             

Gives hospitals all over a reason to cheer.                                                                 

Automatic break cases have been oh so scary                                                                    

But departments and managers and practices vary,                                                            

And faced with these cases, this giant morass                                                               

Increasingly, courts have been saying "no class."

Third -- a crucial pairing that’s been quite hot of late                                                   

Collective wage claims and the word “arbitrate”                                                                  

Attacks on class waivers have sunk like a stone                                                                 

Since SCOTUS approved them in Concepcion.                                                           

Employment class waivers should have the same fortune                                                    

But first must maneuver around D.R. Horton.                                                                        

In Sutter, the Supremes decide if arbitrations are class-y,                                                      

While California, it seems, is contrary -- so sassy.

The fourth of our topics is only beginning,                                                                      

Soon SCOTUS will decide if Genesis is winning                                                                       

By offering a plaintiff all possible pay                                                                              

Then moving the court:   “Make this case go away.”                                                          

With the case fully briefed, and the arguments heard,                                                          

It won’t be ‘til next year that we learn the last word. 

Our fifth and sixth issues go hand-in-hand,   

It’s the wage-hour wave that’s been sweeping the land.                                                     

Whether it’s agency efforts or plaintiff-filed cases,                                                             

FLSA violations will get thrown in your faces.                                                               

Aggressive enforcement might lay you down flat.                                                               

Will your customers know?  Well, there’s an app for that.                                                   

And these targeted efforts to cause course correction,                                                       

Won’t be going away, due to Barack’s re-election.                                                             

And the plaintiffs’ bar will also be sticking around,                                                               

As their wage-hour case filings continue to abound.

So make sure that next year, you review all this “stuff.”    

And thanks for the page views; we can’t thank you enough.                                                

We wish you success in 2013.                                                                                        

From your favorite blogging (and book-writing) team.

THANKS TO ALL OF OUR READERS. BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!

Authored by Steve Shardonofsky

As we blogged here earlier this year, the Fifth Circuit in Martin et al. v. Spring Break ’83 Productions, L.L.C. et al.; No. 11-30671 (July 24, 2012) became the first federal appellate court to enforce a private FLSA settlement.  Now, the United States Supreme Court may get a chance to weigh in on this issue for the first time since the 1940s.  That is because on October 22, 2012, the plaintiffs in Martin filed a petition for writ of certiorari seeking review of the Fifth Circuit’s decision, arguing that the case creates a circuit split regarding private FLSA settlements and the standard for individual liability under the FLSA. 

If the Supreme Court takes the case, the result may have important and far-reaching consequences for all employers and practitioners in this area.  For decades, based on Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697 (1945) and D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946), employers have acted on the assumption that private settlements of FLSA claims are unenforceable without DOL supervision or court approval.  As a result, employers cannot obtain a valid release even when they pay their employees all compensation owed for alleged misclassification or off-the-clock work.  In addition, during pending collective action litigation, the requirement for court approval of FLSA settlements means that any settlement agreement will likely be part of the public record and may then be published in blogs and discussed in legal articles.  This information is therefore often available to the plaintiffs’ bar and can sometimes result in negative publicity and copy-cat lawsuits.  But as we blogged here earlier this year, the Fifth Circuit’s decision in Martin could signal a significant change in this area.  Although that case is currently limited to the Fifth Circuit, if the Supreme Court accepts review and affirms, employers across the country could realize significant benefits from private, confidential FLSA settlements.  On the other hand, if the Supreme Court does not accept review or reverses on this issue, employers would not necessarily be worse off than they are right now—since the prevailing best practice all along has been to obtain DOL supervision or court approval for FLSA settlements.

In Martin, four union-represented plaintiffs filed a grievance against Spring Beak ’83 Louisiana, L.L.C. alleging that they had not been paid for all their hours worked.  The International Alliance of Theatrical Stage Employees Local 478 (as exclusive representative of the employees in the bargaining unit) and Spring Beak Louisiana entered into a settlement concerning the disputed hours worked.  The Union and Spring Break Louisiana agreed that the settlement payments were the “amounts due and owing” to the aggrieved employees.  And in exchange for those payments, the plaintiffs waived their right to file any complaints or lawsuits.

Before the settlement agreement was signed by Union representatives, however, the plaintiffs filed a lawsuit against Spring Break Louisiana and several other individual and corporate defendants to recover their unpaid wages.  On appeal, the Fifth Circuit affirmed summary judgment in favor of the defendants, holding that the four plaintiffs had waived their FLSA claims as part of the settlement—even though the settlement was never approved by the DOL or a district court.  The Fifth Circuit also affirmed summary judgment in favor of the individual defendants (several officers and managers), holding that they were not “employers” under the FLSA.

In the cert petition, the plaintiffs argue that Supreme Court review is necessary because Martin created a circuit split with the Eleventh Circuit, which held in Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982) that FLSA claims may be settled only by court approval or DOL supervision.  The Fifth Circuit in Martin had distinguished Lynn’s Food Stores because of the absence of procedural safeguards during the settlement in that case (among other things, the plaintiffs were unaware that the employer owed them back wages, did not consult with an attorney before signing the agreement, and some of them did not speak English) and because the settlement in that case occurred outside the context of a lawsuit.

The plaintiff also argue that Supreme Court review is appropriate because the Fifth Circuit’s ruling conflicts with the Supreme Court’s prior decision in Barrentine v. Arkansas-Best Freight Sys., 450 U.S. 728, 745 (1981), which held that a union cannot waive individual FLSA rights through collective bargaining.  In Martin, the Fifth Circuit also distinguished Barrentine: “Here, Appellants accepted and cashed settlement payments—Appellants’ FLSA rights were adhered to and addressed through the Settlement Agreement, not waived or bargained away.  The concerns the Court in Barrentine expressed, that FLSA substantive rights would be bargained away . . . are not implicated by the situation here where Appellants’ Union did not waive FLSA claims, but instead Appellants, with counsel, personally received and accepted compensation for the disputed hours.”  As the Fifth Circuit further explained in Martin, “FLSA rights were not waived, but instead, validated through settlement of a bona fide dispute, which [plaintiffs] accepted and were compensated for.”

If the Court grants certiorari, this case would resolve the apparent Circuit split between the Fifth and the Eleventh Circuit regarding the effectiveness of private FLSA settlements and would clarify whether or not Barrentine prevents unions from settling of FLSA rights .  The cert petition also asks the Supreme Court to take up the issue of individual liability under the FLSA.  Consequently, if the Court grants the cert petition, it may also provide guidance regarding the proper standard for determining individual liability under the FLSA.  The Supreme Court’s decision on plaintiffs’ cert petition in Martin is not expected until the spring of 2013.

Authored by Alex Passantino

Last week, hotels around the country received unexpected visits from investigators of the U.S. Department of Labor's Wage and Hour Division (WHD).  This week, WHD announced an initiative to investigate restaurants in the Los Angeles area, one of several (including Portland and San Francisco) such initiatives around the nation.  These activities are the latest evidence that WHD's long-expected aggressive enforcement agenda is finally coming to fruition.

Since the early days of the Obama Administration, WHD has been hiring new investigators --350, according to Solicitor of Labor Patricia Smith.  Now that those investigators have been trained and are ready to hit the streets, WHD can fully implement its strategic enforcement
initiatives.

Among the most critical initiatives WHD is pursuing is one dealing with "fissured" industries.  Fissured industries, according to WHD, are those that rely on subcontracting or, in the case of restaurants and hotels, have numerous different franchising and operating arrangements.  These arrangements -- again, according to WHD -- result in increased rates of wage and hour violations.

As a result, WHD is focusing a significant portion of its investigative resources on the restaurant and hotel industries.  Typical issues addressed in these investigations include the proper payment of tipped employees, the exempt status classification of office and management employees, uniform deductions, payment of the proper rate for overtime hours (particularly for tipped employees), whether the required notice has been given to tipped employees, and whether the employer has the required posters.  Of course, issues related to timekeeping are also addressed in these investigations.

While these industries have long been among those targeted by WHD, employers in these industries should expect more frequent visits.  Moreover, WHD -- as is the case with DOL generally -- has adopted more aggressive enforcement tactics.  Whether it is starting investigations with little or no notice, or requiring the payment of liquidated (double) damages to resolve an investigation, or assessing civil money penalties, WHD is using its full arsenal of tools.

One favored tool has been what senior DOL officials have described in various contexts as "shaming."  Shaming includes issuing press releases and making all violations available in a publicly-searchable enforcement database.  That database has apparently been linked with Yelp! in a recent app known as Eat, Sleep, Shop, which allows consumers to search for restaurants, hotels, and retailers in a location, then view both their Yelp rating and their enforcement history, presumably so the consumers can determine for themselves whether the fact that an assistant manager was erroneously classified as exempt 2 years ago should outweigh the quality of the tiramisu.

The app's synchronization of quality ratings and enforcement data puts employers' reputations on the line in a way that simply cannot be duplicated by issuing a press release.  It is at the consumer's fingertips at the moment the decision is made as to where someone should eat, sleep, or shop.

The -- frankly unprecedented -- placement of an employer's reputation on the line (as well as its pocketbook) in an investigation makes it even more critical that employers review their wage and hour practices before WHD shows up at the door.  Employers in the hotel and restaurant industries need to ensure compliance to preserve their reputations.

To do otherwise would be a "shame."

Authored by Alex Passantino

As noted previously on this blog, the U.S. Department of Labor’s Wage and Hour Division recently proposed to limit the application of the Fair Labor Standards Act’s companionship services exemption.  After two brief extensions, the period for public comment on the proposal ended last Wednesday, March 21, 2012. 

The proposed regulation relates to a 1974 amendment to the FLSA that created an exemption from the minimum wage and overtime requirements for individuals who are engaged in providing “companionship services”  to the elderly or infirm.  Specifically, the exemption applies to:

any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves (as such terms are defined and delimited by regulations of the Secretary).

29 U.S.C. 213(a)(15).

The Current Rule

In 1975, the Department of Labor promulgated regulations related to companionship services.  In those regulations, the Department permitted the application of the exemption to employees of third-party employers (i.e., employers other than the individual or family for whom the employee is providing companionship services).  Moreover, the Department defined “companionship services” as

those services which provide fellowship, care, and protection for a person who, because of advanced age or physical or mental infirmity, cannot care for his or her own needs.  Such services may include household work related to the care of the aged or infirm person such as meal preparation, bed making, washing of clothes, and other similar services.

29 CFR 552.6.

The exemption also applies to the performance of “general” household work, provided that the work does not exceed 20 percent of the total weekly hours worked.  Id.  Also excluded from the term “companionship services” is the provision of services “relating to the care and protection of the aged or infirm which require and are performed by trained personnel, such as a registered or practical nurse.”  Id. 

The Department concluded in 1975 that its regulations were “more consistent with the statutory language and prior practices concerning other similarly worded exemptions.”  40 Fed. Reg. 7405 (1975).  Nevertheless, since 1975, the Department twice has proposed to amend the domestic services regulations.  Both times, however, it has declined to do so.  Indeed, in 2007, the Department vigorously defended its regulations -- to the United States Supreme Court -- as being the “most consistent” with the statute.

The Proposed Rule

On the heels of 37 years of Departmental defense of the current regulations (and 37 years of Congressional acquiescence in the Department’s explanation and interpretation of Congressional intent in passing the 1974 Amendments), the Department once again proposed to revise the companionship services regulations.  Specifically, the proposed rule would eliminate the companionship services exemption for third-party employers (thus requiring the payment of minimum wage and overtime), severely limit the ability of the companion to engage in “meal preparation, bed making, washing of clothes, and other similar services [for the aged or infirm person]” by subjecting these tasks to the 20% limitation now applicable to “general” household work, and reinforce the prohibition on the provision of medical care.

The proposal immediately garnered attention far in excess than might be expected for an FLSA rulemaking involving a single, relatively specifically-applicable exemption.  President Obama announced the proposed rulemaking at the White House in advance of its publication in the Federal Register.  The House of Representatives Education and the Workforce Committee held a subcommittee hearing on “Ensuring Regulations Protect Access to Affordable and Quality Companion Care.”  Senator Alexander questioned Secretary of Labor Hilda Solis about the proposal at a hearing of a Senate Appropriations subcommittee. 

Not surprisingly given the public attention and the presence of the proposed rule at the intersection of labor issues and health care, response to the proposal was intense.  The public docket shows that approximately 9500 commenters submitted their views on the Department’s proposal.  Comments were submitted by a wide range of businesses, organizations, and individuals.  Private duty companies, companionship services workers, disability rights organizations, consumers of companionship services and their families, small businesses, trade associations, labor unions, governmental entities, and Members of Congress (among many others) expressed their opinions of the Department’s proposed rule.

The comments ranged from short statements of approval or disapproval to comprehensive analyses of the anticipated economic and societal impact in the event that the Department published a final rule mirroring the proposal.  Some commenters addressed their desire to expand the FLSA’s minimum wage and overtime requirements to companionship services workers.  Others expressed their concern with the profound shift that such an expansion would have on an aged or infirm individual’s continuity of care, the ability of society to maintain a sufficient supply of home care aides, the potential for increased cost to taxpayers, the liability of American families for minimum wage and overtime violations (and the cost of recordkeeping requirements), and the ability of small businesses to create jobs, among other issues.  Numerous comments also suggested alternative language and different policy choices.

What’s Next

The Department must now consider and analyze the thousands of comments it received, and determine whether to proceed with a final rule in the same form as it was proposed, modify the rule to address some of the more significant concerns raised in the comments, or abandon the rulemaking in its entirety.  This process can take months; the Department has not yet established a target date for completion of their review and publication of the final rule.

In addition to the regulatory proceedings, several Senators and Representatives have proposed (or are working on) pieces of legislation defining the parameters of the companionship services exemption through statute (thereby “trumping” the Department’s regulatory proposal) and/or otherwise significantly limiting the Department’s rulemaking authority with respect to this exemption.  Whether and when such legislation will advance remains to be seen.

Ultimately, despite the potential for significant legislative or regulatory upheaval in the industry, the regulation remains unchanged as of today.  Employers of companionship services workers continue to be subject to the rules at Part 552 of the Code of Federal Regulations. 

We will, of course, continue to keep you advised of any updates.

Co-authored by Richard Alfred and Jessica Schauer

Many employers in today’s business environment have had to make do with fewer employees to meet the constraints of smaller budgets.  As the economy shows signs of rebounding, many companies face pressure to grow their business in spite of a lack of resources to support increased hiring.  At the same time, competition for entry-level professional jobs, especially among recent college graduates, has become fierce.  Many unemployed professionals see working for free as a way to build their resumes, gain experience, get their feet in the door, and stay current in their field.  Both groups – employers and those seeking work – have increasingly turned to unpaid internships to provide educated and eager help for employers and opportunities for those in the entry-level job market.

Employers considering unpaid internship programs, and those that already have them, however, should beware – the Department of Labor and plaintiffs’ employment counsel are watching.  Two new lawsuits in the Southern District of New York by interns against high-profile employers demonstrate this trend.  In Wang v. The Hearst Corp., filed this week, a former intern for the fashion magazine Harper’s Bazaar claims that the publisher violated state and federal wage law by making her work as many as 55 hours per week without pay.  The plaintiff claims that interns “are a crucial labor force” for the magazine and that she spent her time coordinating deliveries of samples, maintaining records of the contents of the magazine’s sample trunks, and processing reimbursement requests – activities for which she claims she should have been paid.  Hearst has told the press that its internship program is educational in nature and conforms to legal requirements.  A similar lawsuit filed last fall, Glatt v. Fox Searchlight Pictures, Inc., alleges that the defendant violated wage laws when it used unpaid interns during production of the 2010 film “Black Swan.”  These are only two examples of what may be a growing litigation trend.

The fact that an unpaid intern performs work voluntarily is not enough, by itself, to avoid violations of the Fair Labor Standards Act; for-profit employers are prohibited from using volunteers.  However, for-profit employers can hire unpaid interns without running afoul of the FLSA, so long as they meet the stringent test for “trainees.”  An individual who meets this test is not considered an employee and thus is not covered by the minimum wage or overtime provisions of the FLSA.  Many states have analogue laws that may also apply and should be considered.

The Department of Labor has identified six criteria to determine whether an unpaid internship meets this test: (1) the internship is similar to training which would be given in an educational environment; (2) the experience is primarily for the benefit of the intern; (3) the intern does not displace regular employees, and works under close supervision of existing staff; (4) the employer that provides the training derives no immediate advantage from the activities of the intern; (5) the intern is not necessarily entitled to a job at the conclusion of the internship; and (6) the employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.  The test is more likely to be satisfied where the internship has a classroom component and participants learn skills applicable to multiple employment settings. 

Given growing attention to internship and volunteer programs, as demonstrated by the Hearst and Fox Searchlight lawsuits, employers should carefully evaluate programs of this kind that they have in place or are considering to ensure compliance with the FLSA and applicable state laws.

Authored by Alex Passantino

For the past two years or so, perhaps the most anticipated rulemaking in the wage and hour world has been what has been described at various times as the "FLSA Recordkeeping" or "Right-to-Know" rulemaking.  As we have discussed previously on the blog, this expected regulation immediately drew the concern of the employer community when it was reported that it would require employers to prepare a written analysis of an employee’s exempt status under the FLSA, provide a copy of that analysis to the employee, and maintain a copy of that analysis for review by a Department of Labor Wage & Hour Division investigator.  More recent descriptions call that initial report into question, but the concern remained.   

As a result, the employer community has been following the rulemaking carefully.  In the past several versions of the Department of Labor's Regulatory Agenda, the Wage & Hour Division set forth its anticipated timeline for issuing a proposal:  first, August 2010; then, April 2011; then, October 2011.  No proposed regulation has ever been published; nor does it appear that a proposal has ever even been formally submitted for review by the White House Office of Management and Budget's Office of Information and Regulatory Affairs.

Perhaps recognizing the difficulties of pursuing this controversial rulemaking in an election year, in the most recent Unified Regulatory Agenda (Fall 2011, published on January 20, 2012), the Department moved the "Right-to-Know" rulemaking from its current agenda* to a section designated "Long-Term Actions," which are described as "items under development but for which the agency does not expect to have a regulatory action within the 12 months after publication of this edition of the Unified Agenda."  The "Next Action" for the rulemaking is undetermined, as is the next date for action.  

Ultimately, there is no “Right-to-Know” rule in effect at this time, and DOL has now said that it does not expect to propose it before January 20, 2013.  Given recent statements by Acting Administrator Nancy Leppink to BNA’s Daily Labor Report (subscription), however, the issue is not necessarily gone forever: “the proposal is one of WHD's priorities.  ‘We're continuing to work on that regulation,’ she said, adding, ‘We're learning about what the issues are' from the ongoing misclassification enforcement initiative.”

We will continue to monitor the issue and keep you apprised of any developments.

[*]  The current agenda for the Wage & Hour Division includes proposed rulemakings related to Youth Employment in Agriculture, amendments to the Family and Medical Leave Act, and the FLSA’s companionship exemption.  In addition, the Wage & Hour Division indicates that it will be publishing a Request for Information regarding the se of power-driven hoisting apparatus by children under 18 years of age.

Authored by Alex Passantino

Today, the Department of Labor’s Wage and Hour Division (WHD) announced that it would soon be publishing a Notice of Proposed Rulemaking regarding the companionship exemption from the Fair Labor Standards Act.  Among other changes, the Department will propose to limit the exemption to companions employed only by the family or household using the services.  The Department proposes to change the regulations to prevent third party employers, such as in-home care staffing agencies, from claiming the exemption, even if the employee is jointly employed by the third party and the family or household. 

The companionship exemption was included in the 1974 FLSA Amendments and provides an exemption from the FLSA’s minimum wage and overtime requirements for “any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves.”  The implementing regulations followed in 1975 and have remained largely unchanged since that time, providing that:  “Employees who are engaged in providing companionship services, . . . , and who are employed by an employer or agency other than the family or household using their services, are exempt from the Act's minimum wage and overtime pay requirements.”

In the early 2000s, however, the regulations were subjected to several legal challenges, including one that reached the United States Supreme Court.  Around that time, in the first-ever Wage and Hour Advisory Memorandum, WHD read the statutory language “naturally . . . to exempt any employee who provides companionship services to an aged or infirm individual in a private home.”  WHD further noted that “the statute does not draw any distinction between companions who are employed by the owners of the homes in which they are working and companions who are instead employed by third party employers.”  Ultimately, in the case of Long Island Care at Home, Ltd. v. Coke, a unanimous Supreme Court upheld WHD’s interpretation of the statute.   

In explaining why it now seeks to change the regulations, the Department notes that there has been a growing demand for long-term in-home care, a substantial increase in the in-home care services industry, and “among the lowest in the service industry” earnings of in-home care employees.

Thus, the Department proposes to eliminate the application of the companionship exemption for third-party employers.  In addition, the Department would further limit application of the exemption to those individuals for whom companionship services is not a vocation.  The Department proposes to do so by limiting the application of the exemption to individuals who provide “fellowship” and “protection” to the aged or infirm.  The Department also proposes to allow up to 20% of an employee’s time to be spent on “incidental intimate personal care” services, which include:  “occasional” dressing (such as putting on coats and shoes); “occasional” grooming (such as combing and brushing hair or washing hands and face); “occasional” driving to and from appointments; “occasional” toileting; “occasional” feeding, “including preparing food eaten by the person while the companion is present”; “occasional placing clothing that has been worn by the person in the laundry, including depositing the person’s clothing in a washing machine or dryer, and assisting with hanging, folding, and putting away the person’s clothing” and “occasional” bathing “when exigent circumstances arise.” 

The proposal would also further explain which medical care services cannot be provided by companions, including “catheter and ostomy care, wound care, injections, blood and blood pressure testing, turning and repositioning, determining the need for medication, tube feeding, and physical therapy.”

It is important to remember that this is simply the Department’s proposal.  Once the proposal is published in the Federal Register -- presumably within the next several days -- interested parties will have the opportunity to provide comments regarding the Department’s proposal (typically 60 to 90 days).  Only after review and analysis of those comments, and publication of a final rule, will these proposed changes be effective. 

Co-authored by Alexander J. Passantino and Brett Bartlett

As mentioned previously on this blog, the Department of Labor’s Wage and Hour Division has been in the process of finalizing regulations regarding the Fair Labor Standards Act.  Today the Wage and Hour Division published those regulations in the Federal Register.  The rules will be effective 30 days after publication.

Usually referred to as the FLSA Amendments rulemaking, much of the regulatory package addresses numerous statutory amendments that have been made to the FLSA over the past few decades.  For example, the new regulations update numerous references to the federal minimum wage to reflect the current minimum wage of $7.25.  The final regulation, however, is not simply limited to implementing “technical” revisions to existing regulations.

Division Questions Bonus Payments to Fluctuating Workweek Employees

Perhaps the most significant development in the regulatory package is not a revision at all.  Rather, the Wage and Hour Division elected not to implement proposed clarifying language in section 778.114, which relates to the application of the fluctuating workweek method of payment.  Under the fluctuating workweek method, an employee is paid a fixed salary for fluctuating hours.  If the employee works in excess of 40 hours in a workweek, the salary is divided by the number of hours worked, and the resulting rate is divided in half.  The half-time rate is then paid (in addition to the salary) for all hours worked in excess of 40.  The proposed clarifying language would have made clear that, in addition to his or her fixed salary, an employee could be paid bonuses and other non-overtime premiums without invalidating the fluctuating workweek pay method.  Instead, the Division will leave in place what many view to be ambiguous language in the current version of 778.114.

The Division explains in the Preamble to its revised regulations that it considered the comments from numerous sources explaining why bonus and other premium payments should or should not invalidate the fluctuating workweek pay methods.  The Division acknowledges that such payments benefit employees.  Ultimately, however, the Division concludes that “bonus and premium payments . . . .are incompatible with the fluctuating workweek method of computing overtime . . . .”

This is an interesting conclusion because the method of calculating overtime under the fluctuating workweek pay provision and that for calculating overtime on bonuses and similar non-overtime payments are virtually identical.  When a non-exempt employee is paid a nondiscretionary bonus, an additional amount may be due as an overtime premium (if the employee works any overtime hours during the time period covered by the bonus).  The determination of the proper rate at which the overtime premium is paid is made in precisely the same way as the fluctuating workweek half-time rate.  The bonus is divided by the number of hours worked, and the resulting rate is divided by one half.  The half-time rate is then paid (in addition to the bonus) for all hours worked in excess of 40.  Nevertheless, the Wage and Hour Division has taken the position in its Preamble to the new rule that these two identical methods of calculation are “inconsistent.” 

Despite its acknowledgement that bonuses and other non-overtime pay premiums benefit employees, the Division’s stated position will make the fluctuating workweek pay method invalid for any employee who receives them.  Under the Division’s interpretation, payment of such bonus or premium amounts would cause an employer to “lose” the ability to use the fluctuating workweek method (i.e., the employer will have to calculate the overtime rate based on 40 hours and a time and one-half overtime rate instead of as described above).  Presumably, this risk will result in fewer employers providing bonuses to their fluctuating workweek employees because of the substantial additional costs resulting from the Department’s interpretation.

Rule Requires Information to be Provided to Employees When Employer Takes Tip Credit, Addresses Tip Pooling

In an effort to resolve a dispute with respect to whether an employer must “inform” an employee of the tip credit provisions or must “explain” how those provisions work, in the 2008 proposal, the Wage and Hour Division proposed that an employer must inform its employees that it intends to avail itself of the tip wage credit.  The proposal went on to state that the notice shall be provided in advance of the employer’s use of the tip credit and must advise employees that their employer intends to treat tips as satisfying part of the employer’s minimum wage obligation.  The Division proposed that the notice did not need to be provided in writing.

The final regulation also requires than an employer “inform” its employees, but requires that much more information be provided.  Under the final regulations, an employer seeking to use the tip credit must inform a tipped employee (before it utilizes the tip credit) of the following:

• the direct cash wage the employer is paying a tipped employee;
• the additional amount the employer is using as a credit against tips received, which cannot exceed the difference between the minimum wage and the actual cash wage paid by the employer to the employee;
• that the additional amount claimed by the employer on account of tips as the tip credit may not exceed the value of the tips actually received by the employee;
• that the tip credit shall not apply with respect to any tipped employee unless the employee has been informed of the tip credit provisions; and
• that all tips received by the tipped employee must be retained by the employee except for the pooling of tips among employees who customarily and regularly receive tips.

Furthermore, although the Division is not requiring written notification of these terms to the employees, it notes that “employers may wish to do so, since a physical document would, if the notice is adequate, permit employers to document that they have met” these requirements.

In addition, the final regulation addresses the issue of the maximum amount an employer may require an employee to contribute to a tip pool.  The final regulation adopts the proposal to eliminate a limitation on the maximum permissible contribution percentage.  The Division will also require employers to notify employees of tip pool contribution requirements, limits the employer’s use of tip credit to the amount of tips ultimately receives, and states that the  employer “may not retain any of the employees’ tips for any other purpose.”

Other Issues Addressed Include Definition of Employee Engaged in “Fire Protection Activities”; Division Declines to Act on Public Sector Compensatory Time Off, Automobile Service Managers, Meal Credits

Among the other issues addressed in the final rule, the Division is:

• Adding reference to the statutory conditions under which commuting in an employer-provided vehicle will not be compensable under Employee Commuting Flexibility Act of 1996;
• Adopting statutory amendment regarding employees engaged in fire protection activities and eliminating existing 20% tolerance rule for such employees (but maintaining it for law enforcement personnel);
• Declining to adopt proposed rule to exempt from overtime service managers, service writers, service advisors, and service salesmen of automobiles (and certain other vehicles);
• Stating that tips are in all cases the property of the employee (except in connection with a valid tip pool);
• Committing to “study” issues related to employers’ ability to take a wage credit for employer-provided meals where employees have religious or dietary restrictions and/or do not have adequate time to eat;  and
• Declining to adopt proposal that stated that the compensatory time rules for public sector employers do not require a public agency to allow the use of compensatory time on the day specifically requested, but only require that the agency permit the use of the time within a reasonable period after the employee makes the request, unless the use would unduly disrupt the agency’s operations; instead, current rule requires use on specific day requested, unless request is unduly disruptive.

Some of these provisions will have wide impact across a number of industries; others are necessarily limited.  Regardless, employers in all industries should take time to review their policies and practices to ensure compliance with the new provisions. 

Co-authored by Alex Passantino and Leon Sequeira

Late last year, the U.S. Department of Labor released its long-awaited Fall 2010 Semi-Annual Regulatory Agenda.  The Semi-Annual Regulatory Agenda (the “reg agenda”) gives the public a preview of the regulatory activity the DOL expects to undertake in the coming months (and years).  The reg agenda contains brief descriptions and target dates for DOL’s regulatory initiatives, including Notices of Proposed Rulemaking (in which the Department will propose new or revised regulations and allow the public a period of time -- usually 60 to 90 days -- to provide its input through comments) and Final Rules (in which the Department, after considering the comments provided through the process described above, issues the rules by which the regulatory community will be bound).

Among the many regulatory activities described in the reg agenda are a number of initiatives by the Department’s Wage & Hour Division.  Among the items identified by WHD are proposed rules increasing employer recordkeeping obligations under the Fair Labor Standards Act  and implementing amendments to the Family and Medical Leave Act, as well as final rules addressing amendments to the FLSA (and a number of other issues) and the nondisplacement of qualified workers under the Service Contract Act.

“Right to Know Under the Fair Labor Standards Act”

In this proposed rulemaking, DOL “proposes to update the recordkeeping regulations under the Fair Labor Standards Act in order to enhance the transparency and disclosure to workers of their status as the employer's employee or some other status, such as an independent contractor, and if an employee, how their pay is computed.”  This proposed rulemaking already has garnered significant attention.  Originally identified by the Department early last years as “Records to be Kept by Employers Under the Fair Labor Standards Act,” this proposal immediately drew the concern of employer community when it was reported that it would require employers to, among other things, prepare a written analysis of an employee’s exempt status under the FLSA, provide a copy of that analysis to the employee, and maintain a copy of that analysis for review by a WHD investigator.  The fact sheet released by the Department along with the reg agenda and the rebranding of the proposal does little to alleviate this concern.

The proposal was originally slated for publication in August 2010, but now has a target proposal date of April 2011.  Given the significance of the issues implicated by this rulemaking, we will continue to monitor its progress and fully anticipate submitting comments for the regulatory record at the appropriate time.

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Authored by Kevin Young

In a move that could substantially impact businesses employing drivers and treating them as exempt from federal overtime requirements, the U.S. Department of Labor (the “DOL”) has narrowed its view of the Motor Carrier Exemption (the “MCE”) to the Fair Labor Standards Act (the “FLSA”), as set forth under 29 U.S.C. § 213(b).  The move, which the DOL announced in Assistance Bulletin 2010-2, will essentially require employers relying on the MCE to more persistently evaluate its applicability to their employees.

As a general matter, the MCE exempts from federal overtime requirements employees over whom the Secretary of Transportation has power to set qualifications and maximum hours.  As written, it exempts drivers, driver’s helpers, loaders, and mechanics whose work affects the safe operation of certain vehicles in interstate commerce.  Qualifying vehicles include those: (a) weighing over 5 tons; (b) designed to transport either (i) more than 8 individuals, for pay, or (ii) more than 15 individuals; or (c) used to transport certain hazardous materials.

Until now, the DOL’s position has been that the MCE applies to employees in four-month increments from the time that they perform, or could be asked to perform, the exempt work.  Rooted in DOT authority and endorsed by many courts, this stance was relatively generous for employers using the MCE, as a day-by-day review of the vehicle driven or worked upon by each employee is not necessary.  In light of recent amendments to Congress’s SAFETEA-LU legislation, however, the DOL has now changed course, explaining that the MCE cannot apply in a workweek in which an employee’s work is on a non-qualifying vehicle. 

To illustrate, suppose a freight company employs a pool of drivers, any of whom may be called upon to drive a truck weighing over 5 tons to transport goods to a site in another state.  Even after the DOL’s guidance, those drivers are, as a general matter, exempt from overtime requirements for a four-month period.  However, if a driver from the pool is asked to work on one of the company’s 2-ton pickup trucks, even for a day, then she is nonexempt for that week and must receive overtime pay for hours worked over 40, regardless of what trucks she works on the rest of the week, month, or year.

In sum, employers relying upon, or considering relying upon, the MCE should remain cognizant of these developments.  While the four-month rule remains in effect, the range the DOL once afforded it has no doubt been narrowed, perhaps requiring a daily qualification of the MCE for certain employees.  Although it remains to be seen how much weight, if any, a federal court will place on the guidance, its authority in the case of a DOL investigation is quite clear.