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.

By: Nolan R. Theurer, Ryan McCoy, and Kyle Petersen

Seyfarth Synopsis: Effective April 8, 2020, the Federal Motor Carrier Safety Administration (“FMCSA”) extended an emergency rule suspending “Hours of Service” rules that generally limit the number of hours certain truck drivers can stay on the road.  This marks the first time that the Hours of Service rules, in place since 1938, have been suspended on a national level, reflecting the need to keep interstate commerce moving so that essential home and health care supplies are replenished in the midst of the COVID-19 pandemic.

The FMCSA Hours of Service rules require truck drivers to drive only 11 hours within a 14-hour work period. They must then log at least 10 hours of “off-duty” time before getting behind the wheel again. The rules have an important safety purpose: they minimize the chance of exhausted truck drivers on the nation’s highways.  But these rules also allow federal and state governments to suspend their mandates in response to emergency situations.  The FMCSA’s Emergency Declaration marks the first time Hours of Service rules have been suspended nationally since they were passed nearly a century ago.

On March 13, 2020, the FMCSA issued its Emergency Declaration stating that the current national emergency “warrants an exemption” from the Hours of Service rules of the Federal Motor Carrier Safety Regulations (FMCSRs).  The original Emergency Declaration provided some amount of relief for commercial motor vehicle operations providing “direct assistance” in support of emergency relief efforts related to the COVID-19 outbreaks so as to keep the flow of interstate commerce and necessary supplies moving across the country.

With the COVID-19 crisis continuing to grip the nation, on April 8, 2020, the FMCSA then extended its Emergency Declaration another month to May 15, 2020, or until the President revokes the declared emergency, whichever is sooner.  The FMCSA’s new declaration also expanded the list of approved transportation services under the emergency rule.  The list now includes transportation to meet immediate needs for the broad categories of: medical supplies and equipment, home and community health supplies, necessary persons, and necessary support for essential workers and critical infrastructure including supplies, equipment, raw materials and liquefied gases to be used as coolant.

The federal government’s suspension of these regulations impacting the ability of companies to quickly and efficiently get critical items across state borders is an important, and unprecedented, development. The Emergency Declaration will make it easier for trucking companies to respond to their customers’ urgent shipment needs and will help to address critical issues in the supply chain, but employers should be aware that the emergency rule is temporary and does not permit across-the-board suspension of Hours of Service rules.  The suspension applies only to truck drivers specifically responding to the COVID-19 pandemic, and not to those performing routine commercial deliveries, even when those deliveries contain some of the items listed above.  The suspension also does not impact state laws not otherwise preempted by the federal regulations, such as state-specific meal and rest break provisions (the fate of which are still pending before the Ninth Circuit).

By: Yao Li and Kevin M. Young

Seyfarth Synopsis: The U.S. Department of Labor’s Wage & Hour Division has entered the final phase of issuing a new rule concerning the fluctuating workweek (FWW) method of compensation under the FLSA. The new rule represents the culmination of a regulatory seesaw that began with a Bush Administration proposal in 2008 that was abandoned by the Obama Administration in 2011. It was revived as a proposed rule in 2019 and is now on the precipice of finality.

On April 14, 2019, the White House’s Office of Information and Regulatory Affairs received the DOL’s new final rule regarding the fluctuating workweek method of calculating overtime pay. This is expected to be the last step before publication of the new rule.

Under the FWW method, an employer pays a non-exempt employee a salary intended to compensate them for 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. This difference from the conventional time and a half (1½) overtime rate is due to the fact that the employee’s salary is intended to compensate them for all hours worked in the week, including any hours in excess of 40. (Importantly, however, this is not allowed in states like California and Pennsylvania, where the FWW approach is not compatible with state overtime laws.)

In addition to the advantage that the half-time rate offers, the FWW method incentivizes efficiency—or at least disincentivizes inefficiency—by causing the “regular rate,” upon which the overtime rate is based, to decrease with each hour worked. This is due to the fact that the regular rate is calculated by dividing remuneration for the week by the hours it is intended to cover. Because a FWW employee’s salary is intended to cover all hours worked, the denominator in the regular rate formula (i.e., the hours covered by the salary) gets bigger as the employee works more, thus driving the regular rate of pay down.

Notwithstanding the flexibility it provides, the FWW rule has been read by some courts to contain an important restriction—namely that if an employer provides an employee with any extra compensation, that would violate the “fixed amount” requirement and render the FWW method unavailable. Other courts have taken a more nuanced approach, concluding that “productivity-based” bonuses are allowed, but not “hours-based” bonuses. The DOL’s view of the issue has shifted over time.

Last year, the DOL sought public comment on proposed revisions to the FWW regulation. Assuming the final rule resembles what the DOL proposed, it will clarify that bonus payments, premium payments, and other forms of incentive compensation (e.g., a night-shift premium or a productivity bonus) are consistent with the FWW method, and that such payments should be included when calculating the regular rate (unless an exclusion applies under the FLSA). As the proposed rule states, the DOL has never drawn a distinction between “productivity-based” and “hours-based” bonuses, and thus any supplemental pay should still allow use of the FWW method, provided its other requirements are satisfied.

This is an important development. The final rule, assuming it resembles the proposed version, will offer employers greater freedom to provide non-exempt employees with the certainty of a predetermined salary, and incentives if they so choose, in exchange for the benefit of a more favorable approach to overtime compensation. At a moment when many employers are looking for new ways to incentivize employees and manage costs, the timing of the new rule could hardly be better.

By: Barry J. Miller, Molly C. Mooney, and Alison H. Silveira

In an attempt to extend the reach of state wage/hour laws to reach more defendants, Plaintiffs’ lawyers have sought to expand the employment relationship in a variety of ways.  One powerful tool in their arsenal is the concept of joint employment, which can saddle an organization with obligations toward workers whom it did not hire and does not supervise.  The most expansive version of this argument leverages the ABC test, familiar from the test for employee vs. independent contractor status in Massachusetts, California, and a seemingly expanding list of jurisdictions.  The ABC test is uniquely stringent because it requires an ostensible employer to prove, among other things, that a given worker was outside of its “usual course of business,” which tends to sweep more workers into employee status than any other standard presently in use.

Fortunately, the courts have begun to recognize that the ABC test is a clumsy fit for the joint employer inquiry.   One of the clearest rebukes of this theory under Massachusetts law so far came from the state’s Business Litigation Session on March 31, 2020, in Jinks v. Credico (USA) LLC, et al..  The Jinks plaintiffs worked as door-to-door sales people for an independent sales office, DFW Consultants.  They argued that they were jointly employed not only by DFW, but also by Credico, the broker that arranged for DFW to provide sales and marketing services to large, national companies selling phones, utilities contracts, and other goods and services.  Despite having no communications or material contact with Credico, Plaintiffs argued that Credico was their joint employer because their door-to-door sales work was within Credico’s usual course of business.  In rejecting that argument, the court found that “[t]he test adopted in the independent contractor statute does not determine whether someone who is the employee of one company is also the joint employee of another.”  The court concluded that the proper test for joint employment is the common law “right to control” test, finding “[w]here a business arranges for a particular person to provide services to it and to no one else, the business may be liable under the wage statues as an employer even if it contracts with an intermediary corporate entity that in turn contracts with the employee.”  This result, which the court found was foreshowed by an earlier Massachusetts high court decision known as DePianti v. Jan Pro Franchising, provides much more latitude to organizations in structuring their relationships with corporate vendors and other business partners, without exposing themselves to legal claims from the vendors’ employees.

In applying this right to control test, the Jinks court found that Credico “had no power to hire or fire DFW’s workers, did not supervise or control their work schedules or other conditions of employment, did not and had no power to establish the rate or method for paying DFW’s workers, and did not maintain employment records for those workers.”  Because Credico did not jointly employ the Plaintiffs, it could not be liable to them for any alleged unpaid wages under the Massachusetts wage and hour laws, and Credico escaped the lawsuit entirely.

In addressing the Plaintiffs’ claims against DFW, the trial court also resolved a lingering question about the scope of the outside sales exemptions to Massachusetts’ minimum wage and overtime statutes.  One exemption, found in Mass. Gen. Laws ch. 151, § 2, applies to both minimum wage and overtime requirements, but reaches only outside sales employees who do not make daily visits to the office or plant of their employer.  The Plaintiffs argued that this “daily visits” criterion also applied to the overtime exemption found at Mass. Gen. Laws ch. 151, § 1A, which contains no similar language.  The court rejected this argument as a matter of statutory interpretation and held the Plaintiffs to be exempt from overtime requirements, even if they made daily visits to DFW’s offices.

Together, these two holdings from the Jinks case provide some welcome relief to companies doing business in the Bay State weary from ever expanding wage/hour laws and pockets of unexpected liability.

By Zheyao Li and Kevin Young

Seyfarth Synopsis: The U.S. DOL has suspended its “continuous workday” rule for employees working from home as a result of COVID-19. This development has important implications for how small businesses may schedule and compensate non-exempt employees working from home due to the pandemic.

The wave of new law, new guidance on that law, and new guidance on that guidance continued rolling on April 1, 2020, when the U.S. Department of Labor issued a “temporary rule” providing further guidance on COVID-19-related issues under authority of the Families First Coronavirus Response Act (“FFCRA”). As part of the new guidance, which will remain in effect until year-end, the DOL declared its “continuous workday rule” to be “inconsistent with the objectives of the FFCRA and CARES Act” with respect to employees who are teleworking during the crisis. Because it was issued under the FFCRA, this new guidance applies to employers with fewer than 500 employees.

Under the DOL’s prior continuous workday guidance, all time between the first and last principal activity of the day is generally considered compensable work time. The continuous workday rule has been relied upon in the past to argue, for example, that otherwise non-compensable commuting time or walking time that occurs after the beginning of the employee’s first principal activity, and before the end of the employee’s last principal activity, is covered under the FLSA.

With its new temporary rule, the DOL has determined that adherence to the continuous workday rule for employees teleworking due to COVID-19 would “undermine the very flexibility in teleworking arrangements that are critical to the FFCRA framework Congress created within the broader national response to COVID-19.”

So what does this mean? Employers who, as a result of COVID-19, allow non-exempt employees to WFH and break their day into chunks of working time, with personal business in between, need not necessarily treat the entire day as compensable under the FLSA. As an example, the DOL describes an employee who, because of COVID-19, is scheduled to work from home 7-9 a.m., 12:30-3 p.m., and 7-9 p.m. That employee would need to be paid for the 7.5 hours actually worked, not the 14 hours between 7 a.m. and 9 p.m.

Beyond the DOL’s example, the temporary suspension of the continuous workday rule also has implications for unscheduled WFH. For example, if that same employee is interrupted at 8:30 p.m. to care for a child, and then returns to finish work from 9 to 9:30 p.m. (while technically off-shift), the employee should still be paid for 7.5 hours, not 8 hours.

One cautionary note: while courts confronted with a continuous workday claim in these sorts of situations should defer to this new DOL guidance, particularly given the exigent circumstances, it is not a certainty that they will. Nevertheless, the new guidance is persuasive and makes good practical sense in the shadow of COVID-19.

Further, although the DOL’s new guidance allows greater flexibility for small businesses in managing WFH arrangements, it also underscores the importance of accurate timekeeping. Employees should continue to stick to a schedule to the extent possible, aided by the option to flexibly schedule as described above. And as before, employees should be expected to accurately record the times they start and stop work. Managers must remain vigilant as greater flexibility may make it easier for employees to work more than intended and at odd hours, or to become lax with timekeeping.

Finally, employers should remain cognizant of state laws regulating compensable time, including state laws with their own continuous workday rule as well as state laws mandating certain meal and rest breaks. The new DOL guidance pertains to the FLSA only and does not override more restrictive state law requirements.

We will continue to monitor and report on significant developments in this period of uncertainty and change. If you have any questions in the meantime, we are here to help.

By: Robert S. Whitman

Seyfarth Synopsis: The Second Circuit has held that the standard for final FLSA collective action certification is less stringent than the standard for class action certification under Rule 23.

Wage-hour litigators have long been familiar with the proposition that a plaintiff’s burden to obtain initial collective action certification under the Fair Labor Standards Act is “lenient,” “minimal,” or some similar label conveying an easygoing level of court review.  Defense lawyers, who don’t typically relish briefing motions when the plaintiff’s burden is so low, have taken comfort in knowing that, once discovery is complete, the plaintiff will be held to a much higher burden at the “final” certification stage.

Unfortunately, while everyone acknowledged that the burden at the second stage was higher, courts have not been crystal clear about precisely what the plaintiff had to prove.  In the absence of clarity, many courts have relied on the standards of Rule 23 by analogy, importing class certification standards into the collective action question.

The Second Circuit has now declared that this approach is improper.  In a 2-1 decision, it held that “the requirements for certifying a class under Rule 23 are unrelated to and more stringent than the requirements for ‘similarly situated’ employees to proceed in a collective action” under the FLSA.

As we previously reported, the case, Scott v. Chipotle, involved Apprentices at Chipotle restaurants around the country.  The plaintiffs alleged that these employees, whose roles appeared to be somewhat comparable to assistant managers, were improperly classified as exempt under the FLSA and several states’ laws.  After conditional FLSA certification was granted, 516 individuals opted in, joining the seven named plaintiffs.

After years of discovery, including over 80 depositions, Chipotle moved to decertify the collective action on the grounds that the named plaintiffs are not similarly situated to the opt-in plaintiffs. The plaintiffs simultaneously moved for class certification of their state law claims under Rule 23.  The district court granted Chipotle’s motion to decertify and denied the plaintiffs’ motion to certify.  The plaintiffs took an interlocutory appeal of both rulings.

The appellate decision was a mixed burrito for the employer.  On Rule 23, the Second Circuit affirmed the lower court’s denial of class certification, upholding its findings that there was insufficient cohesion in the testimony about the Apprentices’ primary duty and that these differences “proved fatal” to certification.

But the court flipped the tortilla when it turned to the FLSA inquiry.  That inquiry, which focuses on whether the opt-in plaintiffs are “similarly situated,” was an issue of first impression for the Circuit, and in light of prior case law was about as clear as a bowl of guacamole for FLSA litigators.  The court sought to cut through the uncertainty by holding:  “[To] be ‘similarly situated’ means that named plaintiffs and opt-in plaintiffs are alike with regard to some material aspect of their litigation. . . . If the opt-in plaintiffs are similar to the named plaintiffs in some respects material to the disposition of their claims, collective treatment may be to that extent appropriate, as it may to that extent facilitate the collective litigation of the party plaintiffs’ claims.”

The double italics of “to that extent” in the above quotation were in the original.  They underscored the court’s holding that final collective certification need not pertain to the entirety of the opt-ins’ claims, or even a majority, but only as to the material respects on which their claims are similar.

The dissenting judge took the majority to task for this portion of the decision, arguing that they were slicing the avocado too thin by allowing final certification when the opt-ins “share a single common issue” without regard to broader dissimilarities among the plaintiffs.  The majority responded:  “[W]e do not hold that the named plaintiffs and opt-in plaintiffs are ‘similarly situated’ for purposes of a collective action … when they share “any similarity”; rather, we hold that the standard is met when there is similarity with respect to ‘an issue of law or fact material to the disposition of their FLSA claim.’”

This analysis, the court held, need not have anything to do with the standards of Rule 23.  “[W]e hold that analogies to Rule 23 … are inconsistent with the language of [FLSA] § 216(b) and that the question of whether plaintiffs may proceed as a collective under the FLSA is to be analyzed under the separate and independent requirements of § 216(b).”

The majority also sharply rejected the dissenter’s critique that they were announcing a “newly minted” standard:  “[P]roviding clarity is not making something new. The standard we adopt here is plainly compelled by the statutory text and Supreme Court precedent and has been endorsed by courts outside of this circuit along with lower courts within this Circuit.”  The “courts outside of this circuit” include the Ninth and Third Circuits, which reached similar holdings, but not the Seventh, which has held that Rule 23 standards “are as relevant to collective actions as to class actions.”

What’s next?  Since the decision gave a partial win to each side, either or both may seek en banc review by the full Second Circuit or review by the Supreme Court, which has never opined on the similarities or differences in certification standards under Rule 23 and the FLSA.  Or perhaps the case will go back to the district court for trial — surely an extra-spicy prospect for both sides in a case with more than 500 opt-in plaintiffs.

The effect of the decision on FLSA collective action litigation in the longer run will be harder to discern.  Read in conjunction with the relatively low bar for initial certification, the decision will seem to plaintiffs’ lawyers like a 2-for-1 taco special with free sour cream.  But the court’s refusal to allow class certification was a strong positive for the defense side, especially since opt-out classes usually involve far greater numbers of employees than opt-in collectives.  So, for both sides, half a burrito is better than none at all.

By: Pamela L. Vartabedian and Eric M. Lloyd

Many independent contractors unable to work because of the COVID-19 pandemic could soon receive unprecedented relief from the U.S. Government as a result of the roughly $2 trillion coronavirus aid package that President Trump just signed into law.  The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) is a sweeping piece of legislation intended to provide emergency assistance to individuals, families and businesses affected by the COVID-19 outbreak.  It is not an understatement to say that the unprecedented circumstances gripping the economy prompted the government to venture into uncharted territory in order to help mitigate the impact of the pandemic on independent contractors.

For instance, unemployment benefits are now extended to independent contractors under the CARES Act.  Contractors unable to work due to COVID-19 may be eligible to collect these unemployment benefits, which are essentially federal disaster benefits, for up to 39 weeks or until December 31, 2020.  In addition to independent contractors, this benefit applies to self-employed workers, business owners, as well as employees who do not satisfy work history or other eligibility requirements for state unemployment, or those who have exhausted regular unemployment benefits.  The benefits are calculated the same way as a state’s unemployment insurance benefit, but consistent with federal disaster benefit calculations, have a higher minimum benefit or floor, which is one-half of the state’s average weekly employment insurance benefit.  Workers who receive this benefit will also receive an additional $600 payment, but only through July 31, 2020.

This is a major deviation from state laws concerning unemployment benefits, which exclude independent contractors from coverage.  It remains to be seen whether companies that engage independent contractors will now face increased scrutiny of their contractor classifications from state employment agencies as a result of the anticipated flood of unemployment claims. Companies that engage independent contractors should be mindful of this possibility.

In addition, independent contractors may be eligible to apply for small business and disaster relief loans under the CARES Act, loans which under usual circumstances are typically available only to certain types of businesses.  While this does not directly impact businesses that engage with independent contractors in the short term, the receipt of such loans could be construed as evidence that a contractor pursuing a misclassification claim is, in fact, an independent businessperson rather than an employee, as the funding is suggestive of the contractor’s efforts to maintain profitability.

We will continue monitoring these developments and report back on any updates.

By Kevin Young and Zheyao Li

Seyfarth Synopsis: What a difference a couple of weeks make. The COVID-19 outbreak has forced change upon all aspects of society, and the workplace is no exception. Many workers who escaped layoffs or furloughs are now adjusting to a new normal: working from home. In this post, we explore best practices for mitigating the risk that these so-called “WFH” arrangements present.

As we end a tumultuous March, many employees are settling into a novel work environment: their home. Though plenty of businesses were accustomed to work-from-home arrangements before the COVID-19 outbreak, many more are allowing WFH for the first time or extending WFH arrangements to segments of their workforce that never enjoyed them before.

Notwithstanding the flexibility they provide, WFH arrangements also present distinct wage-hour risks. The risks seem particularly great when WFH is rushed into action as a result of outside forces, with minimal notice or planning. Employers who fail to carefully monitor these arrangements risk facing costly claims years into the future for time that individuals thrust into WFH roles claim they worked without pay.

WFH arrangements are not “one size fits all”—the benchmark for appropriateness can vary by industry, company, and job function. There are, however, general best practices that employers can consider to help mitigate and manage WFH-related wage-hour risks. Here are ten that come to mind:

  1. Reiterate Timekeeping Policies. Remind non-exempt employees, in writing, that timekeeping policies apply with the same force as before. Managers should be crystal clear with their employees that they must record, and will be paid, for all hours worked, without exception.
  2. Set Schedules. Employees who abided by a set schedule before should be expected to do so at home, too. Where possible, involve employees in assessing whether their WFH schedule needs to change due to their new setting or circumstances. Once the schedule is set, hold them accountable. The circumstance to avoid is one in which an employee claims that the WFH setup meant that their workday became more nebulous and they were essentially working, or on-call, at all hours.
  3. Establish Boundaries. Closely related to setting and enforcing schedules, it’s important to have boundaries, particularly with non-exempt workers. Working from home can make it easier to fall into a habit of informally communicating with an employee, for instance through “this will only take a minute” calls or “feel free to respond whenever you have a minute” texts. These sorts of communications, if sent outside of an employee’s working hours, can fuel an off-the-clock claim.
  4. Identify and Address Any Gaps in Your Timekeeping System. Your timekeeping function must be configured to reasonably accommodate the WFH arrangement. If it’s not, work quickly to address any gaps, whether via software enhancements, new procedures/protocols for reporting time (e.g., sending an email to the supervisor each day confirming work time for the day before), or something else that makes sense for your business.
  5. Require Employees to Certify Their Time. While it’s an employer’s obligation to keep accurate time records, it’s sound business to make the employee part of that process. To that end, you should require WFH employees to record their time each day and to certify—whether on their timesheet, in the timekeeping system, or some other means—that their submission is accurate and reflects all hours worked. A verified or signed certification is a great exhibit in the event of a future lawsuit alleging off-the-clock work.
  6. Train Supervisors to Be Vigilant. Supervisors must be clear in their understanding of, and in their communications about, the company’s timekeeping expectations. Moreover, they must be vigilant in enforcing those expectations. A supervisor who regularly receives work-related communications at 10 pm from an employee’s whose schedule ends at 7 pm should be equipped to notice and address the potential issue.
  7. Remember Meal and Rest Requirements. California and various other states require employers to provide non-exempt employees with meal and rest breaks. Such laws apply equally in the WFH context. As a result, employers should instruct employees to abide by meal and rest period policies even while working from home.
  8. Avoid Salary Basis Issues. While the bulk of WFH concerns center around non-exempt employees, it’s also important to watch out for salary basis issues for exempt workers. If an exempt employee is on unpaid leave, the employer must communicate clearly to the employee that she should not be working, even at home. If she works during the week, she should be paid her full salary.
  9. Pay Attention to Expenses. If non-exempt employees incur costs as a result of the WFH arrangement—for example, having to buy a particular printer or add a phone line—it’s important to ensure that it does not reduce their pay below minimum wage or cut into any overtime compensation. This potential issue looms especially large for employees paid at, or very close to, the applicable minimum wage. The U.S. Department of Labor’s Wage & Hour Division reiterated the point in its recent FAQ addressing COVID-19 issues. Beyond potential minimum wage issues, note that some states (e.g., California, Illinois) require reimbursement of business expenses irrespective of classification or the impact on minimum wage.
  10. Listen. This is a difficult and uncertain time for employees and employers alike. Now more than ever, we advise inviting open communication with employees about work-related issues—including about any challenges that WFH presents—and being prepared to act quickly to address issues or assuage concerns.

At a time when employers have so many serious concerns to balance and triage, the wage-and-hour risks presented by WFH arrangements may not seem the most critical. If left unaddressed, however, these risks may be among the most long-lived legal risks from this time period, coming back to roost years after this crisis has unfolded. If you have questions or concerns, please contact the authors of this post or the Seyfarth attorney with whom you regularly work.

By Andrew Scroggins and Kerry Friedrichs

Seyfarth Synopsis: Employers around the globe are feeling the impact of coronavirus (COVID-19). Before reducing hours or pay to address health or economic concerns, employers should take heed of federal and state wage-hour laws.

As coronavirus continues to spread around the globe, its economic effects have grown more far-reaching. Some companies are confronting a surge in demand for their goods and services. For others, supply chain disruptions have raised concerns whether they will be able to procure the raw materials they need to build their products. Employees are being asked to work from home or avoid non-essential travel. Conventions and large public events have been cancelled or scaled back.

In order to prevent the spread of the coronavirus among their workforce, or as a cost-saving measure taken in response to negative economic impacts, some employers may need to consider temporary furloughs, reductions in hours, or reduced pay. Other employers may find their products and services in greater demand, only to confront staffing challenges that increase hours worked. These changes have potential wage and hour law implications that employers should bear in mind.

Non-Exempt Employees

Reductions in Hours and Hourly Rate

Non-exempt employees need only be paid for time when they are working. Employers can reduce scheduled hours or hourly pay without implicating wage and hour laws. Any changes to pay rates must be prospective.

Federal and state minimum wage requirements must still be satisfied, of course. If you’ve decided to reduce pay due to the economic impact of the coronavirus, it is important to check state law requirements regarding notification of pay rate changes.. It is also important to continue paying workers on time.

Exempt Employees

Exempt employees are subject to the salary basis test; generally, they must be paid the same minimum weekly salary regardless of how many or few hours they work each week. (To qualify under federal law, an employee must earn a minimum salary of $35,568 per year, which works out to a weekly salary of $684.) Failure to pay an employee’s full weekly salary could jeopardize the employee’s exempt status and make them eligible for overtime pay.

Full-Week Reductions in Hours and Salary

An employer can impose a full-workweek furlough (or require an employee to take a full workweek off) and not pay the weekly salary, but with an important caveat: the exempt employees can perform no work during the week. Employers that choose this route must ensure that furloughed employees completely unplug from the workplace and abstain from responding to email, taking phone calls, or otherwise working until their return.

Exempt employees who perform any work at all generally must be paid for the full week, and it can be very difficult to completely prohibit all work by an exempt employee during a workweek. However, employers can meet the salary requirement through payment of vacation time for time that the employee does not work during the workweek. Accordingly, employers can mitigate risk by mandating that furloughed employees use accrued vacation time for non-worked time during the workweek (and paying regular salary for time actually worked), rather than treating the furlough as unpaid.

Partial-Week Reductions in Hours and Salary

As a general rule, partial-week reductions in salary are not permitted because they violate the salary basis test. For example, employers generally cannot pay exempt employees 80% of their salary for working four-day workweeks instead of five at the employer’s request.

There is a narrow exception to this rule. Employers may implement a fixed reduction in future salaries and base hours due to a bona fide reduction in the amount of work. The FLSA and federal regulations do not specifically address furloughs, but Department of Labor opinion letters and courts have (almost) unanimously concluded that employers may make prospective decreases in salary that correspond to reduced workweeks, so long as the practice is occasional and due to long-term business needs or economic slowdown. What counts as “occasional”? The question is not settled, but federal courts have held that salary reductions twice per year are infrequent enough to be bona fide.

Once the economic impacts of the coronavirus subside and employees return to work, caution is still warranted in returning furloughed employees to work. As always, when dealing with these issues, be sure to contact your wage and hour counsel.