By: Molly Gabel and Samuel Rubinstein

Seyfarth Synopsis: Over a year since it was introduced, the New York State Senate and Assembly recently passed the Healthy Terminals Act.  The Act, among other things, gives the government the authority to set prevailing wages and overtime rates for covered airport workers.  At this time, it is unclear whether Governor Cuomo will sign the Act.

Introduction

On July 22, 2020, after a year of sitting in committee, Senate Bill S6266D (also known as the Healthy Terminals Act) passed in both the New York State Senate and Assembly.  The purported impetus behind the Act was the number of airport workers who were uninsured.  The Act is heading to the Governor’s desk for his signature.  If it is signed, the Act will take effect on January 1, 2021.

Prevailing Wage

A key priority for worker groups lobbying for the legislation was to have a prevailing wage for covered airport workers.  If the Governor signs the bill, the “fiscal officer,” usually the Comptroller of a city, will determine the prevailing wage every September 1st beginning in 2021 “for the various classes of covered airport workers in the locality.”  “Wage” includes the “basic hourly cash rate of pay” and a supplemental benefits rate for fringe benefits, including “medical or hospital care, pensions or retirement or death compensation for injuries or illness resulting from occupational activity, unemployment benefits, life insurance, disability and sickness insurance, accident insurance, and other bona fide fringe benefits not otherwise required by federal, state, or local law to be provided by [the] covered airport employer.”  The obligation to pay prevailing supplements may be discharged by furnishing any equivalent combinations of fringe benefits or by making equivalent or differential payments in cash under the fiscal officer’s rules and regulations.

Overtime

The bill amends the existing Prevailing Wage for Building Service Employees law to include “covered airport employers” and “covered airport workers.”  Pursuant to this amendment, covered airport workers will be entitled to overtime at a rate not less than one-and-one-half times the prevailing basic cash hourly rate for work of more than eight hours in any one day or more than forty hours in any workweek.  N.Y. Labor Law § 232.

Covered Airport Employers, Employees, and Locations

The Act applies to “covered airport employers,” which is defined broadly to cover any entity employing any covered airport worker in an occupation, industry, trade, business, or service.  However, it does not apply to a public agency.  Notably, and although exclusions may come in through the regulatory rulemaking process if the bill is signed into law, the bill itself appears to cover air carriers and their employees.  The bill itself also appears to cover private-sector employers covered by collective bargaining agreements and does not explicitly allow for a waiver in collective bargaining agreements.

Covered airport workers include “any person employed by a covered airport employer to perform work at a covered airport location provided at least one-half of the employee’s time during any workweek is performed at a covered airport location.”  It does not include any person employed in an executive, administrative, or professional capacity as defined under the United States Fair Labor Standards Act.  Furthermore, it does not include any employees covered under the Public Work and Grade Crossing Elimination Work Articles of the New York Labor Law.

Finally, a “covered airport location” are the airports within the state operating under the jurisdiction of the Port Authority of New York and New Jersey.  This currently includes John F. Kennedy, LaGuardia, and New York Stewart International Airport.

Other Requirements

The bill contains extensive recordkeeping requirements associated with the calculation of the prevailing wage.  It also includes various contracting-related language requirements.

Employer Takeaways

Assuming that Governor Cuomo signs the bill, it is imperative for employers with air terminal operations to consider how this Act will impact them.  Employers should carefully consider whether they can avail themselves of various federal and state constitutional and preemption or other defenses.

By: Catherine M. Dacre and Christina Jaremus

The U.S. Department of Labor’s Wage and Hour Division earlier this week published additional employer guidance regarding compliance with the FLSA during the COVID-19 pandemic (“Guidance”).  The Guidance is a helpful aide in understanding general wage and hour principles during the crisis.  But it leaves some questions with respect to more nuanced scenarios, and did not address some questions many employers have, such as whether temperature checks constitute compensable time under the FLSA.  Below are the highlights, with additional insight on the issues the Division did not address.

  1. Reimbursements For Costs Associated With Telework

The Guidance clarifies that employers generally may require employees who are covered by the FLSA to pay for business expenses associated with teleworking (internet access, increased use of electricity, laptop, etc.), unless doing so reduces the employee’s earnings below the required minimum wage or overtime compensation.  But there are other laws to bear in mind:

  • Greater Restrictions Imposed By State Law: Many state laws require an employer to bear such costs. For example, California Labor Code Section 2802 requires employers to reimburse employees “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer.”
  • Greater Restrictions Imposed By Other Federal Laws: The Americans with Disabilities Act (“ADA”) imposes an additional wrinkle.  Employers may not require employees to pay or reimburse the employer for such items if telework is being provided to a qualified individual with a disability as a reasonable accommodation under the ADA.
  1. Maintaining the Exempt Status of Salaried Employees During the Pandemic

Below are tips based on the Guidance to navigate pay deductions, mandatory use of paid leave, the performance of non-exempt job duties, and salary reductions without jeopardizing an employee’s status as exempt from overtime.

  • Deductions From Pay: To maintain an employee’s status as exempt from overtime, a private employer is required to pay the exempt employee their same salary in any week in which they perform any work. This is the rule regardless of whether the employee is working from home or if a COVID-19-related emergency causes an unexpected early or mid-week office closure.  Exempt salaried employees are not required to be paid their salary in weeks in which they perform no work.  But employers may not deduct wages from an exempt employee’s salary for partial day absences during any week in which the employee performs any work, even if, for example, an early or mid-week emergency related to COVID-19 exposure mandates an unexpected office closure.
  • Mandating Use Of Vacation Or Other Paid Leave: A private employer may direct exempt staff to take available vacation or debit their leave banks in the case of an unexpected office closure, whether for a full or partial day, provided the employees receive in payment an amount equal to their guaranteed salary.
  • Performing Non-Exempt Job Duties: A salaried executive, administrative, or professional employee who is exempt from the FLSA’s minimum wage and overtime requirements under Section 13(a)(1) may temporarily perform other nonexempt duties as necessitated by the COVID-19 public health emergency without losing the exemption.  Specifically, the regulations permit an employee who otherwise qualifies for a Section 13(a)(1) exemption to perform nonexempt duties during emergencies that “threaten the safety of employees, a cessation of operations or serious damage to the employer’s property” and which are beyond the employer’s control and could not reasonably be anticipated. The Division opined that the COVID-19 public health emergency meets the FLSA’s regulatory criteria for emergencies.  Such employees must continue to be paid on a salary basis of least $684 per week.
  • Salary Reductions: An employer may prospectively reduce the amount regularly paid to a salaried employee exempt under Section 13(a)(1) for economic reasons related to COVID-19. Any such reduction must be predetermined rather than an after-the-fact salary deduction based on the employer’s day-to-day or week-to-week needs.  Salary changes must not be an attempt to evade the salary basis requirements and must actually be because of COVID-19 or an economic slowdown as opposed to the quantity or quality of work the employee performed.  However, employees must continue to be paid on a salary basis of least $684 per week to maintain their exempt status.
  1. Encourage Telework In A Non-Discriminatory Fashion

The Guidance makes clear that an employer may encourage or require employees to telework as an infection-control or prevention strategy.  An employer may base its strategy on timely information from public health authorities about pandemics, public health emergencies, or other similar guidance.  Of course, employers must not single out employees either to telework or to continue reporting to the workplace on a basis prohibited by any of the Equal Employment Opportunity laws, including but not limited to: disability, age, or pregnancy.

  1. Employer Liability For Unsafe Conditions In An Employee’s Home

The Department of Labor’s Occupational Safety and Health Administration (OSHA) previously issued a directive stating that the agency will not conduct inspections of employees’ home offices, will not hold employers liable for conditions in employees’ home offices, and does not expect employers to inspect the home offices of their employees.

Nonetheless, employers who are required to keep records of work-related injuries and illnesses will continue to be responsible for keeping such records related to a home office.  As work-related injuries and illnesses are less “visible” to the employer when an employee is working from home, employers should consider updating their policies to remind employees to report such illnesses and injuries in the same manner they would if they were working in the Company’s office.

  1. Exceptions To The Continuous Workday Rule And Recordkeeping Obligations

Under the Wage and Hour Division’s continuous workday guidance, all time between the performance of the first and last principal activities of a workday is generally compensable work time.  The Division recognizes, however, that applying this guidance to a teleworking arrangement would discourage needed flexibility during the COVID-19 emergency.  An employer that allows employees to telework with flexible hours during the COVID-19 emergency for personal and family obligations does not need to count as hours worked (and compensate employees for) all of the time between an employee’s first and last principal activities in a workday.

This is relatively easy to administer when an employee agrees to set blocks of time for their teleworking schedule.  For example, the employer and employee might agree on the following schedule: work 7 a.m. to 11 a.m., home school children from 11:00 a.m. to 4:00 p.m. when schools are closed, and work from 4:00 p.m. to 7:00 p.m. during weekdays.  This schedule would only require the employer to compensate the employee for 7 hours of work.  However, we all know that life does not always go according the schedule.  For example, what happens when, during scheduled work time, an employee’s home schooling obligations cause an unexpected 20 minute break?

  1. The Guidance Does Not Address The Compensability Of Temperature Checks

The Guidance does not address the compensability of time employees spend undergoing temperature checks that so many employers have implemented during the pandemic. Under the FLSA, temperature checks seem most analogous to time spent on security screenings (or bag checks), which has been held noncompensable under the FLSA under the Supreme Court’s 2014 Integrity Staffing Sols., Inc. v. Busk decision.  Wage and Hour Division guidance would be very helpful in confirming this point.  Note, however, that several state laws will treat this question differently, including California’s.

If you have questions regarding whether your Company’s employment practices comply with state or federal wage and hour laws, contact your favorite Seyfarth attorney.

By: Matthew Gagnon, Steve Shardonofsky, Jim Swartz, and Coby Turner

The COVID-19 pandemic has spawned a wave of employment litigation directly and indirectly based on COVID-19-related health risks and employers’ response to the crisis.  Seyfarth has been tracking lawsuits filed in state and federal courts across the country, and will be reporting on the emerging trends within this wave of COVID-19 employment litigation and offering practical strategies for avoiding and responding to these lawsuits.  This legal update provides our initial impressions from our data collection and analysis.

1.    Types of Lawsuits

In both state and federal courts, employees have advanced a wide variety of claims in response to COVID-19’s effect on their workplaces. Given the unprecedented nature and breadth of the pandemic and corresponding economic repercussions, the claims cover a rather broad range of topics, but those advanced so far tend to fall into one or more of several categories:

  • Failure to provide a safe working environment. These claims have been asserted as negligence claims, violations of state or federal workplace safety laws and COVID-19 safety protocols, and even wrongful death claims.  Common allegations include failure to provide workers with adequate personal protective equipment and failure to implement customer or visitor policies (such as required temperature checks or masks) to protect employees.
  • Discrimination claims. Age and disability discrimination claims dominate COVID-19-related filings to date.  For instance, a 70-year-old plaintiff in New Jersey state court alleged that he was denied a work-from-home accommodation that he requested due to his medical condition and age, which he asserted presented additional risk of complications from COVID-19. Similar allegations—that a plaintiff was forced out of a job because of his age due to the employer’s concern about exposing an older worker to COVID-19—appear in this early wave of litigation and are arguably supported by the EEOC’s recent FAQ publication.
  • Leave claims. Numerous lawsuits have been filed alleging that employees have been unlawfully denied sick leave or family and medical leave for reasons related to COVID-19 under the Family Medical Leave Act, the Families First Coronavirus Response Act, state and local paid leave laws, and employer sick-leave policies.
  • Retaliation and whistleblower claims. Typically asserted in reference to an employee’s termination, retaliation claims commonly appear in these early COVID-19-related cases. Frequently, these lawsuits assert that an employee was terminated for complaining about workplace safety or working conditions (including complaints about the failure to provide appropriate personal protective equipment or the failure to comply with applicable COVID-19 safety protocols) or for exercising leave rights related to COVID-19. Some of these cases have also been couched in terms of state-law claims for wrongful termination against public policy.
  • Wage-and-hour claims. While the usual litany of wage-and-hour class and collective actions continues seemingly without regard to the pandemic, a number of new filings have involved circumstances directly caused by COVID-19 business impacts. For example, cases disputing compensation practices related to sanitation and hygiene protocols, expanded schedules, and on-call time have been filed in significant numbers across the country. In addition, a number of cases asserting an employer’s failure to pay contractually-agreed commissions or fees have been filed. Other categories of claims are reasonably foreseeable, as well. For example, wage-and-hour claims motivated by changes in working schedules or venues (e.g., work-from-home situations) and state-law-dictated expense reimbursement claims have not yet reached critical numbers, but may become a more fertile area for employee-litigants in the coming months.

2.    Affected Industries

Although no industry has been completely immune to this early wave of litigation, certain business sectors have seen heightened litigation activity as a consequence of the pandemic.  Three stand out due to either the risk of COVID-19 exposure or the typical conditions under which these businesses operate.

First and foremost, the health care sector has been targeted by employees and their unions, patients, and residents.  In the words of the Centers for Disease Control, “[g]iven their congregate nature and resident population served (e.g., older adults often with underlying chronic medical conditions), nursing home populations are at high risk of being affected by respiratory pathogens like COVID-19 . . . .”  Pharmacies and other healthcare businesses also experience the confluence of being an essential business and frequent exposure to potential COVID-19 patients.  Perhaps predictably, nursing homes, other residential or in-patient medical facilities, and other healthcare businesses are starting to see a wave of claims alleging failure to provide a reasonably safe workplace for healthcare provider staff and other employees.

Similarly, manufacturers have seen a significant share of newly filed COVID-19-related employment cases.   Manufacturing environments often involve close-contact, indoor operations.  Unlike healthcare facilities, manufacturing operations may not have the level of familiarity with personal protective equipment designed to inhibit the transmission of respiratory diseases. Accordingly, employees in these environments have tended to bring more claims related to workplace safety issues and attempts to exercise leave rights.

Finally, retail businesses have seen a variety of COVID-19-related claims.  Many retail businesses were permitted to remain open under state and local shelter-in-place orders and the rest are slowly reopening. Employees of these retailers have brought a panoply of claims related to accommodations needed for existing disabilities, working conditions, and retaliation.

3.    Proactive Steps to Avoid COVID-19 Litigation

While each lawsuit involves a close examination of the applicable law and relevant facts, there are some initial measures employers can take to minimize the risk of being sued and mitigate the potential exposure once a COVID-19-related lawsuit has been filed.

First, businesses should have a return-to-work plan that addresses some of the safety concerns that occupy a central place in this recent spate of lawsuits.  Seyfarth has published a checklist to assist employers with the process of bringing employees back into the workplace in a safe and transparent manner.  This resource covers a number of business re-opening topics, including many of the concerns alleged in recent COVID-19 litigation.  The checklist is available here.  Seyfarth safety, wage-hour, and employment counseling attorneys have also presented numerous webinars discussing a broad range of COVID-19-related compliance issues for the workplace. Those webinars can be viewed here.

Second, employers should prioritize addressing systemic issues that could affect large groups of employees. Employers should make time to create solid policies (and demonstrate its efforts to comply with them) that address and minimize risks and concerns  that could impact different employee populations on a collective basis. Seyfarth has discussed COVID-19-related class action avoidance here.

Third, employers should review existing policies and consider their application in the context of COVID-19.  Accommodation policies, typically used to provide reasonable accommodations for qualified employees with disabilities, may have broader application in light of the pandemic, and employers should consider whether it is feasible and desirable to extend the accommodation process to individuals whose medical conditions place them at higher risk of serious illness if they contract COVID-19.  Similarly, employers should carefully consider whether any of its efforts to promote a safe workplace—even those intended to protect older workers or workers with a medical condition that heightens risk—could have a discriminatory effect on the basis of protected characteristics.  Wage-and-hour policies could also be implicated as workers are asking to and being asked to work in different venues or with different hygiene protocols.  Existing policies likely do not address those situations from a pay perspective, so employers should either issue specific guidance to employees on these issues or contextualize existing policies.  Consulting with subject matter expert attorneys to develop the appropriate approach may help avoid the types of lawsuits now being filed in substantial numbers.

COVID-19 will continue to impact employers around the world in new and unpredictable ways. We will continue to monitor case filings and significant decisions and look forward to sharing our insights and analysis, guidance on best practices, and industry-focused information about COVID-19-related litigation activity.

By: Michael Steinberg, Hillary Massey, and Barry Miller

Seyfarth Synopsis:  Two recent Department of Labor Opinion Letters addressing the FLSA’s outside sales exemption provide helpful guidance and flexibility to employers with unique business models.

In contrast to some of the FLSA’s more byzantine exemptions, the outside sales exemption (“OSE”) is a surprisingly simple test, with just two parts:  (1) the employee’s primary duty must be “making sales” or “obtaining orders or contracts”; and (2) the employee must “customarily and regularly” perform that duty outside of “the employer’s place of business.”  Notwithstanding its structural simplicity, the OSE can pose tricky issues when an employer deploys salespeople in new settings that were not contemplated when the FLSA and its implementing regulations were passed decades ago.

In two recent Opinion Letters, the DOL addressed a pair of unique sales roles that have emerged in the modern economy:  employees who drive company trucks to public events and use the parked vehicles as a base from which to sell products, and employees who sell products at garden shows and big box stores operated by third parties.

FLSA2020-6: Company vehicles are not the “employer’s place of business”

In FLSA2020-6, the DOL concluded that the OSE applies to employees who drive company-owned trucks to “high-population areas and events,” including concerts and festivals, in order to demonstrate products and make sales.  The trucks are “stocked with merchandise, marketing displays and demonstration units,” and the salespeople walk around the event with tablets to demonstrate products and process sales.

The DOL first concluded that the employees satisfy the “making sales” prong because they complete their own sales of tangible products or obtain signatures for service contracts, and they are credited for their individual sales.

The DOL also addressed the more subtle question of whether the trucks are the employer’s place of business for purposes of the “outside” requirement of the OSE.  The DOL answered this question “No,” noting that the trucks are not “fixed sites” used as a sales headquarters because the employees drive the trucks from site to site with no “permanent . . . physical connection to a deployment site.”  The agency also noted that even if the trucks were the employer’s place of business for purposes of the OSE, the employees would nonetheless be customarily and regularly engaged in outside sales work because they do not stay “stationary in their trucks.”  Instead, they walk around the events to mingle with customers, and the DOL analogized them to classical door-to-door salesmen in this regard.

Noting that the employees typically spend about 80% of each workweek “deployed” at event sites, which changed each day, the DOL also concluded that the employees “customarily and regularly” perform the duty of making sales away from the employer’s place of business.

FLSA2020-8:  Sales at Trade Shows and Big-Box Stores

In FLSA2020-8, the DOL addressed employees who “travel to various retail operations,” including: (1) garden shows/tradeshows/county fairs; and (2) “big-box stores.”  The salespeople “set up displays in which they exhibit and demonstrate products they are selling” in traveling road shows.  At the sales sites in in the first category, the salespeople “process the payment directly and no third-party retailer is involved.”  The DOL concluded that the OSE readily applied to the salespeople at issue while working at such public events.

As to the big-box store locations, the DOL found the analysis to be more complex and certain important facts to be lacking.  In those locations, “[c]ustomers generally make purchases through the retail operations where the shows are conducted, under an arrangement whereby the retailer passes to the employer an agreed-upon portion of all sales of the employer’s products.”  The employees conduct their sales at a given location for 10 to 21 days, before moving to a new location.

Noting the lack of specific information from the employer about the working circumstances of these employees, the DOL opined that the employees would qualify for the exemption when working in big box stores if they “obtain a commitment to buy” from the customer and are “credited with the sale.”  Thus, FLSA2020-8 left open the important questions of what constitutes a “commitment to buy” a product in the big box retail context, and what standard determines whether employees sufficiently receive credit for their individual sales to meet the exemption.

The current case law also provides very little guidance on these issues.  However, a few days after FLSA2020-8 was issued, one District Court picked up where FLSA2020-8 left off and concluded that employees conducting road show presentations in big box stores were properly subject to the OSE. The court reached this conclusion based on a factual record demonstrating that the employees were credited for their individual sales and obtained informal, non-binding commitments to buy when prospective customers took products from their display with an apparent intent to buy them at the store’s cash registers.

These Opinion Letters extend a trend toward the flexible application of the OSE that accords with the Supreme Court’s analysis in Christopher v. Smith-Klein Beecham and rejects unduly technical or narrow readings of the exemption.

By: Louisa Johnson and Kerry Friedrichs

Seyfarth Synopsis: In its first published ruling on such issues, the U.S. Court of Appeals for the Second Circuit disagreed with some earlier court rulings and, in keeping with the U.S. Department of Labor’s new interpretive rule (taking effect on August 7, 2020), held that the fluctuating workweek (FWW) method for paying overtime pay does not require an employee’s actual hours worked or scheduled work hours to fluctuate both below and above 40 hours. It also held that permitting employees to take PTO in another week if they had to work on a holiday or scheduled day off does not invalidate the FWW pay method. Further, the Second Circuit found that a few instances of employees receiving less than their full guaranteed salary were insufficient to show that the base weekly salary was not truly fixed or guaranteed.

As we wrote about previously here, one method of calculating overtime pay owed to non-exempt employees under the FLSA is the FWW method, which the DOL has described in its interpretive rule at 29 C.F.R. § 778.114.  Under the FWW method, with the clear mutual understanding of the employer and employee, an employer can pay a non-exempt employee whose work hours fluctuate a fixed, guaranteed salary that is intended to compensate the employee for all worktime in each week, regardless of how few or many hours are worked. In other words, the salary provides the “time” of “time and one-half” pay even for overtime hours worked.

In weeks in which the employee works 40 hours or fewer, the employee is owed the fixed, weekly salary but nothing more. In weeks in which the employee works more than 40 hours, the overtime pay (i.e., the additional “one-half” on “time and one-half” pay) is calculated by dividing the weekly salary (and other compensation earned by the employee in that workweek, except for excludable payments) by the hours worked in that workweek, dividing the resulting hourly rate in half, and multiplying the half-time rate by the overtime hours worked.

Because the FWW method of pay disincentivizes inefficient overtime work by compensating employees who work overtime at a decreasing rate of pay for each additional overtime hour worked, it can be both confusing to and unpopular with employees. Adding to these issues, some courts have read even greater rigidity into the requirements for use of the FWW method than was initially intended by the DOL. For these reasons, lawsuits challenging use of the FWW method of pay are popular among the plaintiffs’ bar.

The Second Circuit’s decision in Thomas, et al. v. Bed Bath & Beyond Inc., however, reinforces the propriety of the FWW method and rejects efforts to read more into the FWW’s requirements than was intended by the DOL’s rule and by U.S. Supreme Court’s decisions that gave rise to the DOL’s rule on the FWW method of pay. The Second Circuit’s decision includes three key findings.

First, contrary to efforts of some other courts to read more into the FWW method’s requirements, the Second Circuit found that the fluctuating hours factor of the FWW method necessitates only that the actual hours worked fluctuate to some degree from one week to the next. Nothing in the Supreme Court’s rulings or the DOL’s FWW rule requires that that fluctuation in work time be both below and above the 40-hours-per-week mark. In addition, there is no requirement that employees paid on a FWW basis have an irregular work schedule. As the Second Circuit noted, even the text of the DOL’s FWW rule does not list among the FWW’s requirements a need for the employee to have weeks with less than 40 scheduled hours.  Instead, the regulation merely provides that “typically,” the payment of a fixed salary and use of the FWW method occurs with “employees who do not customarily work a regular schedule of hours.” In other words, even when the scheduled hours lack fluctuation, the FWW’s fluctuation requirement is met where the employee’s actual hours worked fluctuate some from week to week.

Second, the Second Circuit rejected the employees’ argument that the FWW method was invalidated by the employer’s policy of permitting employees who had to work on a holiday or previously-scheduled day off to take PTO in a later week. As the DOL has long recognized, employers have broad discretion in how and when to permit employees to use PTO as long as they do not compensate FWW-paid employees less than their full fixed salary (or “dock” that salary) in weeks with time off or fewer than 40 work hours.

Third and finally, the Second Circuit made some allowance for isolated incidents in which an employee was paid less than their full fixed salary. The plaintiffs had identified a total of six instances out of 1500 weeks’ worth of pay records in which this occurred for one of several reasons. In three cases, a payroll error resulted in an underpayment that had since been corrected, and the Second Circuit found that the correction negated any argument that the fixed salary requirement had not been met in these weeks. In another week, the employer prorated an employee’s salary in their final week of employment because the employee worked only a partial week. The Second Circuit noted that this was “of no concern” because the employer “had no obligation to pay appellants their wages for days after their employment ended.” In the other two weeks of an underpayment, the facts suggested a possible lack of full compliance with the fixed salary requirement. The Second Circuit found that when these incidents were viewed in the totality of the evidence, there was no proof of an effort by the employer to undercut the fixed weekly wage requirement, and thus no basis for finding the FWW method to be an invalid means of paying the employees. The court noted that the instances of underpayment were exceedingly rare, and the employer had many times distributed documents to the employees that clearly explained the FWW method and the intent to pay a fixed salary to employees each week.

For employers that currently use or are interested in adopting a FWW method of pay for non-exempt employees, the best practices that can be extracted from the Second Circuit’s decision and prior cases and guidance are as follows:

(1) explain to FWW-paid employees in writing, at the time of hire and regularly throughout their employment, that they are receiving a fixed salary that is intended to compensate them for all hours worked in any week and that their overtime premium rate will be at half the effective hourly rate of their salary that week based on their actual hours worked;

(2) have a policy for FWW-paid employees to report payroll errors and have a procedure in place for investigating such pay complaints and addressing them in a timely manner;

(3) make clear to FWW-paid employees that even if their scheduled hours do not change much from week to week, their actual work hours will fluctuate based on the needs of the business; and

(4) keep in mind that in a few states, including Alaska, California, New Mexico, and Pennsylvania, the FWW method of pay is not permitted under state laws.  For example, California law requires that a non-exempt salaried employee’s salary can cover no more than 40 hours – the salary cannot “build in” the base portion of any overtime hours.  Accordingly, salaried non-exempt employees must be paid a full time and one half rate for all overtime hours (and double time rate for all double time hours).

By: Sara E. Fowler and Kevin M. Young

Seyfarth Synopsis: Chicago’s Fair Workweek Ordinance goes into effect on July 1. The law will require covered employers to provide covered employees ten days’ notice of their work schedule. Save for certain exceptions, schedule changes after that time will require payment of “Predictability Pay” to the impacted employee. The City recently published additional guidance on the law, which includes, among other things, clarification on the impact of COVID-19-related schedule changes and the calculation of Predictability Pay for covered salaried-exempt employees.

It’s official: pandemic notwithstanding, Chicago’s Fair Workweek Ordinance is going into effect on July 1. And that means, in addition to thinking through return-to-work and reopening plans, covered employers must also account for the new law as they endeavor to set and manage employee work schedules amidst a turbulent business environment.

As we detailed in an alert just after the measure was passed, Chicago joins several other cities to have enacted so-called “fair workweek” or “predictive scheduling” legislation. Chicago, however, goes further than its predecessors by expanding its law beyond the retail, hospitality, and fast food industries. Under Chicago’s law, “Covered Industries” will include: (1) building services; (2) healthcare; (3) hotels; (4) manufacturing; (5) restaurants; (6) retail; and (7) warehouse services. The law will cover employers in these industries with over 100 employees globally, so long as they employ at least 50 “Covered Employees.” “Covered Employees” are generally those who earn less than $26 per hour or $50,000 annually, who perform the majority of their work in Chicago, and who perform most of their work in a Covered Industry.

In a nutshell, the Fair Workweek Ordinance has the following key requirements:

  • Employers must provide employees with a “good faith estimate” of their work schedule upon hire.
  • Employers must schedule employees with 10 days’ advance notice (14 days after July 1, 2022).
  • Employers must pay employees “predictability pay” for schedule changes made within the 10-day (or eventually, 14-day) notice period, subject to certain exceptions.
  • Employees are entitled to premium pay if they agree to work within 10 hours of a prior day’s shift (and cannot be forced to do so).
  • Before hiring new employees, employers must first offer shifts to existing, qualified Covered Employees, then temporary or seasonal workers, subject to certain exceptions.

To aid businesses in complying with the law, the City recently published its Final Rules, “Fair Workweek FAQs,” and a Notice that must be posted in a conspicuous place.

The Final Rules provide helpful clarification on a handful of points. For example, the guidance provides that schedule changes of 15 minutes or less do not require predictability pay. Also, predictability pay and advanced scheduling requirements do not apply when an employee is returning to work from an agreed leave of absence.

Through its guidance, the City also confirms that predictability pay requirements will apply to salaried-exempt employees in a Covered Industry who earn less than $50,000 per year. Their predictability pay, when required, is to be “calculated on an hourly basis based on the regular rate of pay” which the City instructs “means dividing the salary by 52 weeks and then by 40 hours (assuming a full time schedule).”

In addition, the City sheds light on the new law’s predictability pay exception for schedule changes that are “because of” a pandemic. Notably a schedule change will be considered “because of” the current pandemic—and thus predictability pay will not be required—if COVID-19 causes a business to “materially change its operating hours, operating plan, or the goods or services provided … which results in the Work Schedule change.” This exception applies to the schedule for the week in which the material change occurs, as well as the following week’s schedule. This clarification should provide some relief to employers concerned about forecasting schedules with the threat of continued COVID-19 impacts lurking in the background.

The right to file a private lawsuit for violations of the Ordinance has also been pushed back until January 1, 2021. That does not impact, however, the City’s ability to enforce the Ordinance once it goes into effect on July 1, 2020.

Chicago employers in a “Covered Industry” must act now to ensure their compliance with the new law starting on July 1. This may include, for example, posting and disseminating the required notices (both the City’s poster and a notice accompanying the first paycheck on or after July 1), preparing a protocol and associated forms to help promote compliance with the law’s various requirements, and training managers, payroll personnel, and other key stakeholders to ensure they are well equipped to promote compliance with the law.

As always, please feel free to reach out to us or to your favorite Seyfarth attorney if you would like to discuss this important topic.

By: John G. Yslas and Phillip J. Ebsworth 

Seyfarth Synopsis: In acquiring a company in bankruptcy, there is often a tendency to think this guarantees the purchaser will be “free and clear” of any liability (including so-called “successor liability”).  This is not necessarily so with wage and hour liability, particularly if the purchaser merely continues to operate virtually the same business that was acquired.

Ordinarily, a bankruptcy debtor’s sale of property ‘free and clear’ of interests under Bankruptcy Code section 363(f) excises from the sold assets any claims made on a theory of successor liability.  The purchaser is shielded from successor liability claims in accord with public policy underlying the Bankruptcy Code, including the inequality of allowing one creditor to pursue a purchaser of assets for successor liability while other creditors’ recourse is limited to the proceeds of the asset sale.  However, although rarely applied, some bankruptcy courts have found exceptions to this ‘free and clear’ transfer where: (1) the successor expressly or impliedly assumes the liabilities; (2) there is an actual or de facto consolidation or merger of the two companies; (3) the purchaser is a mere continuation of the seller; or (4) the transaction was entered into fraudulently to escape liability.  This not-often-discussed and rarely-applied exception is similar to that which has developed in connection with asset purchase sales (which was first recognized under the FLSA and has recently continued to develop in state statutes), as we previously wrote about here.

Moreover, in a post-COVID-19 world, it is foreseeable that public policy concerns may continue to further shift away from protecting the purchaser or employer and in favor of protecting the creditor or employee—making the application of such exceptions more common.  Although some of the COVID-19 legislation passed has benefited employers—for example, California’s relaxation of Cal-WARN notification requirements—much of the legislation and the public policy discussion has focused on protection of employees and even independent contractors.  As one example, legislators have enacted additional paid sick leave requirements at the federal, state, and local level and job protection for employees who could not, or did not, work for COVID-19-related reasons.  And uncertainty remains on significant issues such as California’s final pay requirements for employers in the context of furloughs.

The COVID-19 pandemic will likely lead to more distressed businesses and bankruptcies in the near future.  COVID-19‑related legislative efforts may then pivot to focus on the bankruptcy arena.  For example, the City of Los Angeles has implemented a citywide worker retention ordinance which requires any purchaser of a business to give priority in hiring to the seller’s employees for the first six months and prohibits discharge of the seller’s employees without cause for the first 90 days.  It is unclear whether this ordinance would apply to a bankruptcy sale, but arguably, Bankruptcy Code section 363(f) would preempt any such municipal or state legislation and relieve a purchaser in bankruptcy of these obligations.  The pandemic has also greatly increased legal compliance risks to businesses.  The seemingly constant modifications to federal, state, and local laws and executive orders regarding everything from requirements for businesses to remain open to sick leave for employees has created a dizzying maze of regulations complete with the bear traps and trip wires of steep monetary penalties and class action litigation exposure.  With the primary focus seemingly on employee protection, it is foreseeable that courts may more frequently utilize the previously rare “exceptions” allowing successor liability in the bankruptcy context.

Thus, inheriting successor liability should be kept in mind when considering distressed asset purchases.  The risk that the purchased asset will not be ‘free and clear’ of such claims should be factored into the purchase price, making due diligence for labor and employment compliance (and considering putting aside monies for potential liability including potential litigation) all the more important.  Further, representations and warranties insurance should be considered, as we previously explained at length here.  That said, section 363 purchasers also should be aware that some insurers have implemented exclusions for COVID-19-related exposure.

The Labor and Employment department of Seyfarth Shaw, along with Seyfarth Shaw’s Bankruptcy Group, continues to provide guidance on all issues, including:

  • Paid and unpaid sick leave, including the provisions of the FFCRA and its interaction with FMLA and state and local jurisdiction sick leave laws, and health benefits related to COVID-19;
  • Furloughs and layoffs, including compliance with WARN and state WARN statutes, required notice, and unemployment issues;
  • Wage and hour issues, including components of final pay, misclassification issues associated with reductions in pay, and furloughs/layoffs of exempt and non-exempt employees;
  • Worker health and safety, including COVID-19 protective measures, OSHA guidance and regulations, disability, and medical privacy issues;
  • Traditional labor issues including the interaction of all the above with collective bargaining agreements and labor rights;
  • The impact of bankruptcy on all of the foregoing; and
  • Purchases of distressed assets before and during bankruptcy and related successor liability risks.

Conclusion

Along with the increased number of bankruptcies and distressed asset sales on the horizon comes the possibility that asset sales may carry hidden risk.  As such, it is now more important than ever that purchasers conduct thorough and competent labor and employment due diligence that contemplates COVID-19‑related developments and previously remote possibilities, such as successor liability following a ‘free and clear’ bankruptcy purchase.

By: Yao Li and Noah Finkel

Seyfarth Synopsis: More than a decade after it was originally proposed, the U.S. Department of Labor’s Wage & Hour Division has finally promulgated a new rule concerning the fluctuating workweek (FWW) method of computing overtime under the FLSA. The rule now makes clear that the payment of bonuses, in addition to a salary, does not invalidate the FWW method.

Washington DC USA , Sep 03 2019 : Labor sign and building.

The U.S. Department of Labor has released its Final Rule clarifying that the FWW method of calculating overtime pay is consistent with the payment of bonuses, premiums, hazard pay, and other incentive compensation.

Under the FWW method, an employer pays a non-exempt employee a salary intended to cover all hours worked each week. If the employee works overtime, the employer may compensate the employee at a rate of one-half (½) the employee’s “regular rate” of pay for the overtime hours (not 1½ times). That is because the “straight time” pay for such overtime hours has already been included in the regular salary. Notably, the regular rate varies each week as hours vary, decreasing with each additional hour worked that week. This is because the regular rate is calculated by dividing remuneration for the week by the hours it is intended to cover, i.e., the number of hours actually worked that week. As a result, the FWW method disincentivizes inefficiency. Employers must remember, however, that the FWW is not available under the laws of certain states, including Alaska, California, New Mexico, and Pennsylvania.

The DOL first proposed to clarify that the FWW method was fully compatible with bonuses, premiums, and other incentive pay in 2008. But that proposal was shelved in 2011. In the meantime, courts have taken divergent approaches to whether incentive compensation restricted use of the FWW method. Some courts held that if an employer provides an employee with any bonus compensation, that would render the FWW method unavailable. Other courts concluded that “productivity-based” bonuses were allowed, but “hours-based” bonuses were not, a distinction that the DOL never drew. The Final Rule continues to reject such a distinction.

With the Final Rule, the DOL has included a few new clarifications prompted by public comments, six of which are discussed below:

First, the Final Rule clarifies that the FWW method is merely one example of how to properly compute the regular rate and overtime compensation; it is not an “exception.”

Second, the Final Rule clarifies that use of the FWW method does not require an employee’s hours to ever fluctuate below 40 hours per week. This clarification rejects the view of a few courts that had held that the FWW method is available only if an employee’s hours sometimes fluctuate below 40 hours per week.

Third, the Final Rule incorporates into the regulation the DOL’s longstanding interpretation that occasional disciplinary salary deductions for willful absences or tardiness, or infractions of major work rules, are compatible with the FWW method. An employer must still make certain that such disciplinary deductions do not cut into the required minimum wage or overtime compensation.

Fourth, the Final Rule clarifies that the occasional need for an employer to supplement an employee’s salary to meet the minimum wage does not invalidate use of the FWW method. (The DOL cautions, however, that the FWW method is not available if the employer could have foreseen that the employee’s salary would not meet the minimum wage in all workweeks, or if the salary turns out to in fact not meet the minimum wage “with some degree of frequency.”)

Fifth, the Final Rule adds clarifying text to emphasize that, although the employer and employee must have a clear and mutual understanding that the employee’s fixed salary is compensation for all hours worked, the parties do not need to have such an understanding as to the specific manner in which overtime pay is calculated.

Sixth, the Final Rule revises the regulation’s examples of additional compensation that are compatible with the FWW method to specifically include commissions and hazard pay. These examples are in addition to the original examples of bonuses and premium payments, plus “other additional pay of any kind.”

As U.S. Secretary of Labor Eugene Scalia noted, the timing of this new rule is fortuitous. The new rule gives employers certainty that “they can pay workers’ bonuses in a broader range of circumstances. This rule comes at a time when millions of Americans are returning to work and will benefit from added flexibility in compensation.” Wage and Hour Division Administrator Cheryl Stanton added, “As employers navigate the challenges of the coronavirus, the rule enhances flexibility to provide hazard pay, and to promote health and safety in the workplace through flexible work schedules that stagger start and end times and implement social distancing in the workplace.” Thus, while long-awaited, the new rule may be just in time.

By: Gena Usenheimer, Victoria Vitarelli, and Noah Finkel

Seyfarth Synopsis:  By eliminating two interpretive regulations, the U.S. Department of Labor expanded the number of employers that may qualify as a “retail or service establishment” under Section 7(i)’s exemption of the Fair Labor Standards Act.  This potential expansion of coverage of Section 7(i) opens the door for more employers to classify employees as exempt.

Section 7(i) of the FLSA provides an overtime exemption to certain employees who are paid mostly on a commission basis, so long as specific conditions are met, including the employee must be one of a “retail or service establishment.”

Determining what is a “retail or service establishment” would seem straightforward. But the DOL’s regulations on the subject—all written amid a 1960s economy—consist of 35 regulations that take up more than 15 pages of single-spaced text in the Code of Federal Regulations and often leave employers, lawyers, and judges scratching their heads on how to apply them today.

Among those interpretations are those that require “a retail or service establishment” to have a “retail concept.” The DOL sought to provide guidance as to which establishments may or may not be recognized as having a “retail concept” by proffering two partial lists of establishments that purportedly served to clarify which establishments may, or may not, have a “retail concept” under Section 7(i) of the FLSA.

In 29 C.F.R. § 779.317, the DOL provided a partial list of establishments in which the DOL presumed to have “no retail concept,” which, among dozens of entities, included establishments that serve the everyday needs of the public such as banks, barber shops and beauty salons, dentists offices, insurance brokers, investment counseling firms, loan offices, tax services, and travel agencies. In contrast, 29 C.F.R. § 779.320 provided a partial list of establishments that “may be recognized as retail,” which included department stores, hotels, restaurants and sporting goods stores, to name a few.

Effective May 19, 2020, the DOL issued a final rule withdrawing these two interpretive regulations. The DOL posited that the removal of these lists promotes consistent treatment when evaluating Section 7(i) exemption claims and reduces confusion.  In its own words, the DOL “will apply one analysis—the same analysis—to all establishments, thus promoting consistent treatment for purposes of the section 7(i) exemption.” The DOL also noted that elimination of these regulations provide for a streamlined analysis that may be flexible with the developments in industries over time, and eliminates criticism and inconsistent application by the courts.

Without the lists’ restraints, establishments previously on the “no retail concept” list may assert that they have a retail concept to seek the Section 7(i) exemption.

The removal of these regulations — which are effective immediately because they are interpretations rather than notice-and-comment regulations — acknowledges that the concept of retail and service establishments has evolved from the 1960s when the lists were first introduced, and provides an avenue for the 2020 concept of retail and service establishments to apply the exemption.

Next up? Let’s hope the DOL can provide some modern clarity on its 33 other interpretations of “retail or service establishment.”

By: Ala Salameh

Employees under heightened demands to care for their health and families are using time off and sick leave in record numbers. This has left many employers, particularly those qualified as “essential businesses,” short-staffed in a phase of critical need. To fill the void, employers are contemplating a temporary reshuffle of work assignments including posting exempt employees to traditionally non-exempt work. As a result, employers must grapple with whether those employees would lose the exemption by changing the duties of exempt positions on a short-term basis.

Exemptions During an Emergency

A scantly cited, but increasingly relevant, FLSA provision provides insights on the recommended calculus when making emergency work assignment decisions. Under the FLSA (29 C.F.R § 541.706), an exempt employee will not lose exempt status by performing work of a normally nonexempt nature because of an emergency. Accordingly, when emergencies arise, any work performed by exempt employees in an effort to continue operations during an emergency is considered exempt work.

What Constitutes an Emergency?

Emergencies are defined as circumstances beyond an employer’s control, for which they cannot reasonably provide in the normal course of business. They are largely rare conditions that employers cannot realistically anticipate. The Department of Labor issued guidance regarding the work during emergencies indicating that the regulation is intended to provide flexibility and account for real emergencies. Classic examples of emergencies include strikes resulting in the reduced availability of labor to continue operations and a mine explosion requiring exempt employees to immediately assist in digging out trapped workers. Alternatively, heavy work periods, rush orders, and times during which necessary equipment needs routine repair do not qualify as emergencies.

How is an Emergency Measured?

The Third Circuit provides the seminal analysis for measuring exempt status during an emergency. In Marshall v. Western Union Telephone Company, Western Union experienced a prolonged strike during which managerial employees performed nonexempt work. Exempt plaintiff-employees alleged that they were covered by the FLSA’s overtime provision as a significant portion of their job duties were then non-exempt and thus entitled to overtime premiums. In response, Western Union argued that the labor strike qualified because it was beyond the employer’s control and could not have been reasonably managed in the normal course of business.

In determining that the strike qualified as an emergency, the primary question before the Court was over what period of time exempt status should be measured. The Court rejected the notion that exempt status should be measured on a weekly basis. It reasoned that Congress created exempt status for managerial employees with the power to direct, supervise, and manage operations. Exempt employees are generally not required to keep time sheets or provide reports of day-to-day tasks accomplished on the job. Therefore, using the workweek as a yardstick would not comport with how Congress intended to create exempt status. Instead, a weekly assessment would demand new recordkeeping requirements and oversight to properly inform micro-decisions regarding exempt status. Work of exempt employees can shift on a week-to-week basis. Therefore, due to the logistical burdens and intent of the emergency provision of the exempt status regulations, the Third Circuit held that exempt status should be measured over a more protracted period of time.

While Marshall v. Western Union did not provide a precise measurement period for exempt status, it provided two key take-aways: 1) even prolonged periods of unanticipated labor shortages may constitute emergencies under the FLSA, and 2) exempt status must be measured over a period of time that does not result in significantly heightened administrative burdens to the employer. In 2017, the California Court of Appeals held that each emergency determination must be grounded in the unique facts of the circumstances, asserting that a “court cannot simply presume it loses its emergency status after a set amount of time.”

Does the COVID-19 Pandemic Qualify as an Emergency?

The COVID-19 global pandemic is uncharted terrain in many ways, including the emergency regulation for exempt status. Based on precedent and corresponding guidance, the pandemic has all the hallmarks of an emergency under the FLSA—wholly beyond employers’ controls, unanticipated, not reasonably provided for in the normal course of business, and threatening employee safety and company operations. While national reopening and relaxation of restrictions appear on the horizon, it remains unclear how long the pandemic will have its grip on the labor force. Regardless, even prolonged labor shortages due to COVID-19 may underlie a proper emergency classification.

As employers endeavor to meet business needs, difficult decisions regarding work assignments will continue to prompt questions and create potential legal risks. Unfortunately, the U.S. Department of Labor has never issued guidance or regulations relative to the period of time applicable to a determination of exempt status. When considering whether to reassign exempt employees to non-exempt posts, it is best to consult your wage and hour counsel to evaluate your unique business needs and circumstances as well as state law limitations.