By: Louisa J. Johnson

Today marks two additional efforts by President Biden’s Administration to reverse the Trump Administration’s rulemaking. This time, two U.S. Department of Labor rules that were both published in the Federal Register as final rules before President Biden’s inauguration are in the crosshairs. One of the rules concerns when a company might be deemed a joint employer of another company’s employees. The other concerns when a worker can be deemed an independent contractor, rather than an employee. Each is discussed in turn below.

The Joint Employer Rule

In January 2020, the DOL under President Trump issued a joint employer rule. It took effect March 16, 2020. But as we wrote about here, a number of states’ attorneys general filed suit to peremptorily challenge the rule, and the U.S. District Court for the Southern District of New York largely invalidated the rule on September 8, 2020. The District Court’s decision is currently on appeal before the Second Circuit Court of Appeals, with the DOL having already announced in its briefing in early January 2021 before the Second Circuit its support of the challenged rule.

Despite this recently-professed support for the rule (while President Trump was still in office), today the DOL under President Biden has published a Notice of Proposed Rulemaking and Request for Comments in which it proposes rescinding the joint employer rule based on the opposing views of the District Court and the states’ attorneys general that the rule is contrary to the Fair Labor Standards Act and prior DOL guidance. How it plans to explain its about face in light of the DOL’s briefing before the District Court and the Second Circuit remains to be seen. The period for commenting on the proposal to rescind the joint employer rule will close on April 12.

The Independent Contractor Rule

On January 6, 2021, Trump’s DOL also issued an independent contractor rule, which was scheduled to take effect on March 8, 2021. But as we anticipated in our January 6 blog would occur, the rule did not take effect on March 8. Instead, on January 20, 2021, within hours after Biden’s inauguration, the White House Chief of Staff issued a memorandum entitled “Regulatory Freeze Pending Review” that delayed the effective date of the independent contractor rule until March 21. A few weeks later, the DOL issued a notice proposing further delay of the rule’s effective date to May 7, 2021 and inviting public comment about that proposal of delay.

Many strenuous objections were made in comments submitted by the business community regarding the untimely nature of the proposed rule of delay and regarding the DOL’s failure to follow procedural requirements. And as the comments submitted by Seyfarth Shaw and others explained, the independent contractor rule provided straightforward, balanced guidance to independent workers and businesses to distinguish between employees and independent contractors under the economic realities legal standard that has governed such relationships for over 70 years.

Over such objections, on March 4, 2021, Biden’s DOL published as a final rule its decision to delay the effective date of the independent contractor rule until May 7. Today, it has taken the next step by publishing a Notice of Proposed Rulemaking and Request for Comments in which it proposes withdrawing the independent contractor rule, which it describes in an announcement as purportedly creating “a new” economic reality test that it claims is not supported by prior court decisions.

The period for commenting on the proposal to withdraw the independent contractor rule also will close on April 12. It is possible, however, that litigation may ensue regarding the propriety of delaying the rule’s effective date and of seeking to withdraw it.

What Does This Mean For Companies?

While we await the issuance of final rules by the DOL and the resolution of any litigation challenging the DOL’s actions, the best that companies can do is (1) continue to look to federal court decisions in applicable jurisdictions (and, yes, decisions do vary by jurisdiction concerning the relevant factors for independent contractor and joint employer status), and (2) consider applicable state laws that might be different. Prepare also for the future possibility that the Biden Administration will, through legislation, rulemaking, or non-binding guidance, seek to substantially narrow the situations in which a company would not be deemed a joint employer and the situations in which a worker could be classified as an independent contractor.

If you would like to discuss any of these development further, please feel free to contact the author or your typical Seyfarth contact.

The Biden Administration: Enforcement Actions Affecting Labor & Employment
Tuesday, March 23, 2021 – 2:00-3:00 p.m. EST

The Biden Administration has gotten off to a busy start with a wide array of executive actions and policy directives. In this webinar, Seyfarth subject matter experts will discuss what employers can expect regarding the enforcement in the areas covered by these directives and how that will effect business moving forward.

Register today!

By: Jennifer R. Nunez and David D. Kadue

Seyfarth Synopsis: In Donohue v. AMN Services, LLC, a class action seeking meal period premium pay, the California Supreme Court reversed the Court of Appeal and held that employers cannot engage in the practice of rounding time punches in the meal period context, and that time records showing noncompliant meal periods raise a rebuttable presumption of meal period violations.

The Facts

Kennedy Donohue was a nurse recruiter for AMN Services in its San Diego office from September 2012 to February 2014. AMN used a timekeeping system called Team Time, which rounded punch-in and punch-out times to the nearest 10-minute increment. Punch times between 7:55 a.m. and 8:04 a.m. would thus be recorded as 8:00 a.m. Donohue alleged she was discouraged from taking meal and rest breaks, and often had to take short breaks.

AMN’s written policy stated that recruiters were provided meal and rest breaks in accordance with California law, and were to accurately report their meal breaks. The policy also stated that recruiters were paid premium meal period wages whenever their time records indicated that they had not taken a 30-minute meal within the time frames established by the California Wage Order. When Donohue joined AMN in September 2012, AMN had a policy of automatically paying a premium for meals that were not taken within these time frames. AMN later changed its practice: whenever a recruiter had a meal period that appeared to be late or short based on the time that the employee reported for the meal period, a drop-down menu would appear and ask the recruiter to indicate whether there had been an opportunity to take a timely meal period. The recruiter would get premium pay if the recruiter had not received that opportunity.

The Trial Court Decision

Donohue asserted claims against AMN for meal and rest period violations, unpaid overtime, inadequate wage statements, unreimbursed business expenses, unpaid waiting-time penalties, and unfair business practices. Donohue also sued under the Private Attorneys General Act. In October 2015, the trial court certified five classes of non-exempt employees. Thereafter, the parties filed cross-motions for summary judgment or adjudication. The trial court granted AMN’s motion and denied Donohue’s. Donohue appealed.

The Appellate Court Decision

The Court of Appeal affirmed the judgment for AMN. As to rounding, the Court of Appeal relied on See’s Candy Shops, Inc. v. Superior Court in holding that AMN’s practice did not result in a failure to pay employees over time. The Court of Appeal relied on AMN’s expert, who analyzed time records and concluded that AMN’s rounding resulted in a net surplus of paid work hours. Although Donohue’s expert had found that AMN’s rounding policy led to a failure to pay employees for hours worked, the expert had failed to consider evidence that class members may have gained more compensated work time under the rounding policy than they had lost.

As to meal periods, the Court of Appeal rejected Donohue’s argument that rounding could not be applied to meal period punches. The Court of Appeal reasoned that the standard set forth in See’s Candy should extend to meal periods, and that a trial court need only consider how often a policy results in rounding up and rounding down, not the number of meal-period violations that are assessed or avoided. Finally, relying on the signed attestations of meal period compliance that accompanied every timesheet reflecting what appeared to be a late or short meal period, the Court of Appeal rejected Donohue’s argument that she was often provided with short meal breaks and was generally discouraged from taking meal breaks.

The Supreme Court Decision

The Supreme Court reversed the Court of Appeal. As to rounding, the Supreme Court held that employers cannot round meal period time punches, even if the rounding results in the employee being overpaid. The Supreme Court reasoned that “even relatively minor infringements on meal periods can cause substantial burdens to the employee” and “rounding is incompatible with promoting strict adherence to the safeguards for workers’ health, safety, and well-being that meal periods are intended to provide.”

The Supreme Court also held that time records showing noncompliant meal periods raise a rebuttable presumption of meal period violations. Thus, the Supreme Court held that an employer’s assertion that an employee waived the opportunity to have a compliant work-free break is an affirmative defense and the burden is on the employer to plead and prove it. The Supreme Court also clarified that this presumption does not apply only to records showing missed meal periods; rather, the presumption also applies to records showing short and delayed meal periods.

Thus, the Supreme Court reversed the Court of Appeal and remanded the matter to the trial court, allowing either party to file a new summary adjudication motion as to the meal period claim.

What Donohue Means For Employers

The reversal by the Supreme Court cautions employers against the use of rounding and emphasizes the importance of maintaining accurate time records. It also emphasizes the need to develop a procedure that permits the employer to prove that a meal period that was short, delayed, or not taken, was timely “provided” and that the employee voluntarily chose not to take a 30-minute meal period beginning prior to the end of the fifth hour of work. Many employers have adopted electronic means of doing this that do not contain the infirmities that the Court found in the Team Time system.

By: Robert S. Whitman and John P. Phillips

Seyfarth Synopsis:  Arbitration agreements with class and collective action waivers can help employers limit litigation exposure, especially to wage and hour claims.  In recent years, however, in light of the “Me Too” movement, state and federal lawmakers have sought to limit or prohibit employment arbitration.  Unlike in past years, the make-up of the new Congress, plus a more receptive Presidential administration, means efforts at the federal level have a greater chance of enactment than ever before.  This blog series will follow these developments as they occur.

Over the last several years, arbitration agreements in the employment context have faced increasing scrutiny.  During the last Congress (the 116th), over 100 arbitration-related bills were introduced.  The new Congress is off to a similar start.

Unlike in the recent past, the current bills have a legitimate chance of passage and are more likely to be signed into law.  Many of the bills introduced already (and those expected to be introduced) will garner overwhelming Democratic support and some Republican support; and if passed by Congress, we can expect President Biden to sign them into law.  Thus, whether any of these bills will become law likely hinges on their support in the Senate, and whether the Senate filibuster remains intact.

Background

Many employers have implemented mandatory arbitration agreements with class and collective action waivers as a means of reducing employment litigation-related risk, especially from wage and hour lawsuits.  As a condition of employment, employees and the employer agree to bring any claims they might have against each other in arbitration rather than in court, and they waive the right to bring class or collective claims.  The Supreme Court has consistently upheld the use of arbitration agreements in employment, and explicitly upheld employment-related class and collective waivers in the recent decision in Epic Systems Corp. v. Lewis.

The plaintiffs’ bar has opposed arbitration agreements in the employment context for many years. That opposition strengthened with the widespread rollout of class and collective waivers, and was raised to another level with the advent of the “Me Too” movement.  Their efforts to restrict employment arbitration have borne fruit at the state level. However, those statutes are likely preempted by the Federal Arbitration Act (“FAA”), which generally favors arbitration agreements and preempts state laws that would limit arbitration.  Here are three examples:

  • California. Under Assembly Bill (AB) 51, enacted in 2019, employers are prohibited from requiring employees to arbitrate claims arising under the California Fair Employment and Housing Act and related employment statutes.  A coalition of business organizations filed suit in federal court, which granted their request for an injunction on the grounds that AB 51 is preempted by the FAA.  The case is currently on appeal to the Ninth Circuit.
  • New Jersey. New Jersey amended its anti-discrimination statute in 2019 to void “any provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment,” as against public policy.  The U.S. Chamber of Commerce and a New Jersey pro-business organization filed suit on the grounds that the statute is preempted by the FAA.  The case is pending.
  • New York. In 2018, New York prohibited employers from requiring employees to arbitrate sexual harassment claims.  The state amended the law in 2019 to prohibit mandatory arbitration agreements for all discrimination claims.  The statute is being challenged on preemption grounds in several lawsuits.  Most recently, a federal district court held in February 2021 that the statute is preempted.

Congressional Bills Under Consideration

Unlike state laws, the FAA does not preempt other federal statutes. Thus, an enactment at the federal level to restrict employment arbitration—by an amendment to the FAA or through another statute—would not face the same procedural hurdles as laws like those in California, New Jersey, and New York.

Two of the more comprehensive and high-profile bills to be considered this year are the FAIR Act and the PRO Act.

  • Forced Arbitration Injustice Repeal (FAIR Act) (H.R. 963). On February 11, 2021, Representative Hank Johnson (D-GA) reintroduced the FAIR Act.  The bill had previously passed the 116th Congress on September 20, 2019 by 225 to 186, and included the support of a number of Republicans.  The current bill has 155 cosponsors in the House.  If passed, the FAIR Act would preclude mandatory arbitration agreements for disputes involving consumer, investor, civil rights, employment, and antitrust matters; it would also prohibit all class and collective action waivers.  Moreover, it would ban delegation clauses in arbitration agreements, under which arbitrability questions are decided by the arbitrator rather than the court.
  • Protecting the Right to Organize Act (PRO Act) (H.R. 842). The PRO Act was reintroduced in the new Congress on February 4, 2021.  The PRO Act has strong support from Democrats and the Biden administration, and it would completely upend current labor relations law.  Among its many pro-union and pro-employee provisions, the PRO Act would overturn the Supreme Court’s decision in Epic Systems and would make it an unfair labor practice for any employer to use class action waivers (not just unionized employers).

The PRO Act is expected to be opposed by virtually all Republicans; accordingly, its passage hinges on certain Democratic senators and whether the Senate retains the filibuster.  In contrast, the FAIR Act is likely to receive some bipartisan support.  Not only did the prior version of the FAIR Act receive some bipartisan support in the House, but some Republican senators may also support the bill—or at least a watered down version of it.  For example, Senator Lindsay Graham (R-SC) has supported limiting mandatory arbitration agreements under the right circumstances. As drafted, the FAIR Act is unlikely to garner sufficient votes in the Senate to overcome a filibuster, but a compromise bill might.

Takeaways

Although state efforts to outlaw arbitration agreements and class and collective action waivers will likely fail under federal law, the efforts will continue—with the attendant legal risks for employers who implement arbitration agreements in those states.  Moreover, the ongoing state and federal activity demonstrates a concerted effort to limit the use of arbitration agreements and class waivers in the employment context.  Unlike in recent years, the composition of Congress is more conducive to sweeping change.  And the prospects for passage will increase if the Democrats negotiate with Republicans, a number of whom are likely to support a middle ground-type bill, such as one limited to certain types of employment-based claims or that bans class and collective action waivers but not arbitration generally.  As such, employers with arbitration programs, and those contemplating implementing such programs, should continue to monitor events in Washington and state houses.  We will also provide updates as events unfold this year.

 

By: Amanda Mazin and David D. Kadue

Seyfarth Synopsis: The Ninth Circuit has held that a weekly per diem benefit paid by a healthcare staffing agency to its traveling clinicians is a wage that increases the employee’s regular rate used to calculate overtime pay. Clarke v. AMN Services, LLC.

Facts

Plaintiffs worked as traveling clinicians for a healthcare staffing company. They earned a designated hourly wage, as well as a weekly per diem benefit. They sued the company under the Fair Labor Standards Act (“FLSA”) for unpaid overtime wages, on the theory that the company failed to consider the per diem benefit in calculating the overtime rate. A federal district court granted summary judgment to the company, reasoning that the weekly per diem benefit was not a “wage” but instead was a reasonable reimbursement for work-related expenses such as meals, incidentals, and housing, and therefore was properly excluded from the regular rate of pay. Plaintiffs appealed.

The Ninth Circuit’s Decision

The Ninth Circuit reversed the district court’s ruling, holding that the per diem benefits here functioned as compensation for work, rather than a reimbursement for work-related expenses, and therefore should have been included in the regular rate used to calculate overtime pay.

The Ninth Circuit reasoned that the relevant test, the “function” test, requires a case-specific inquiry based on the particular formula used to determine the amount of the per diem benefits. Other relevant, but not dispositive, factors to consider whether per diem benefits affect the regular rate include whether (i) the payments increase or decrease based on the time worked, (ii) payments occur irrespective of incurring any actual costs, (iii) the employer requires any attestation that costs were incurred, and (iv) payments are tethered to days or periods spent away from home or instead occur without regard to whether the employee is away from home.

The Ninth Circuit analyzed the company’s policies regarding per diem benefits to determine whether the payments served as compensation for work performed. The Ninth Circuit held that the strongest indicator that the payments were in fact compensation for hours worked was that the company paid local clinicians and traveling clinicians the same per diem payments and considered the local clinician’s per diem payments as wages. The Ninth Circuit also cited other factors to conclude that the weekly per diem payment was to compensate the employees for total hours worked, rather than work-related expenses: the company paid a daily per diem rate for seven days of the week, regardless of how many days a clinician worked or the clinician’s reasons for missing a shift; and the clinicians could offset missed or incomplete shifts with hours they had “banked” on days or weeks they worked more than the minimum required hours.

What This Case Means to Employers

Companies who implement per diem benefits should carefully analyze whether such benefits should be included when calculating an employee’s regular rate of pay. If the employer believes that the per diem payments fall under an FLSA exemption, the employer should make sure that its policies and practices are in line with the exemption. Note that historically California law has followed the FLSA with respect to issues concerning the regular rate.

By Kevin M. Young and Scott P. Mallery

Seyfarth Synopsis. Democrats in the U.S. House and Senate have reintroduced a bill to increase the federal minimum wage to $15 for virtually all non-exempt workers. While the “Fight For Fifteen” has made several trips to Congress before, the circumstances are much different this time around. While the proposed law likely won’t pass quickly, its enormous potential impacts command attention from the business community.

On January 26, 2021, Democrats in Congress reintroduced the Raise the Wage Act, H.R. 601 (the “Act”), a bill to amend the Fair Labor Standards Act to gradually increase federal minimum wage to $15, in addition to peeling back relaxed wage requirements for tipped and youth workers. Developments on the Hill late last week make it increasingly likely that the Act could be seriously considered this year. In this post, we review the Act’s key features, its potential impacts, and its path forward.

Overview of the Raise the Wage Act

The Act’s core features are as follows: (i) the minimum wage would increase to $15 by 2025, beginning with an increase to $9.50 in 2021 and annual increases thereafter; (ii) the minimum wage would be indexed to median wage growth after 2025; and (iii) the FLSA’s relaxed wage thresholds for tipped employees, youth workers, and certain other workers would be gradually eliminated.

The following table provides an overview of the scheduled minimum wage increases under the Raise the Wage Act, beginning with current minimum wage thresholds and continuing through 2027:

chart reflecting graduated minimum wage increase to $15.00

 

 

 

 

 

*The FLSA allows employers to pay employees under 20 years old a sub-minimum wage during the first 90 calendar days of their employment.

**Section 14(c) of the FLSA authorizes employers, after receiving a certificate from the U.S. DOL’s Wage and Hour Division, to pay subminimum wages to workers with disabilities that impair their earning or productive capacity for the work being performed.

The Act’s Potential Impacts

While a graduated increase to a $15 minimum wage is a familiar proposal, it would nevertheless present a drastic change for employers in numerous states, as well as for employers throughout the restaurant industry.

The Fight for $15 has visited most parts of the country and prevailed in many. In 2016, California and New York passed laws to gradually pull the minimum wage within their borders up to $15. Massachusetts followed suit in 2018. Other states, like Illinois, Florida, and New Jersey, have since done so as well, and so too have many cities, such as San Francisco, Seattle, and Los Angeles. A $15 wage floor is already in place in Washington, D.C.

But the proposed increase to $15, familiar as it may be, will still have massive implications in many parts of the country. Though many states have pushed their wage floors above the current federal threshold of $7.25, more than 20 states—primarily those with lower costs of living, such as Georgia, Louisiana, and Texas—have not. Employers in these jurisdictions are, as a result, currently bound by a minimum wage threshold that the Raise the Wage Act would more than double over the next four years.

Additionally, the Act could have a seismic impact on the restaurant industry. Currently, the FLSA allows employers to pay tipped employees a direct wage of $2.13 per hour, with the remaining portion of minimum wage—i.e., $5.12 per hour—can be paid via tips. Tipped employees are still guaranteed at least $7.25 per hour, the only difference is that it may be paid in the form of tips.

The Act would eliminate this so-called “tip credit.” Restaurants would be required to directly pay tipped employees the full minimum wage, irrespective of tips they receive. Restaurants accustomed to paying tipped workers a direct wage of $2.13 would have to find a way to pay them more than double that amount in 2021, and more than seven times that amount by 2026. In a restaurant industry that has spent most of the last year on life support, this change has been met with heavy resistance.

The Path Forward for Raise the Wage—Reconciliation or Bust

While the Raise the Wage Act is not particularly complex, its path to enactment is fairly muddled. As such, a brief trip through the very recent history of the minimum wage policy debate is helpful.

As noted above, dozens of states, cities, and counties have raised their minimum wage thresholds over the past few years. Heated debate over the minimum wage, and the cascading consequences of the same, has moved from city council halls, to the floors of state legislatures, to the forefront of the national discourse.

Even casual followers of the news likely heard about the controversy surrounding President Biden’s proposal to include a massive minimum wage hike in a legislative package aimed at addressing the pandemic. Last Friday, however, Biden for the first time conceded that he does not foresee a path forward for raising the wage floor via an immediate COVID-19 package.

This statement came after Senator Joni Ernst (R-IA) introduced, and the Senate passed—with a surprising vote from the foremost proponent of a wage hike, Senator Bernie Sanders (I-VT)—a nonbinding amendment authorizing the Senate Budget Committee chairman to remove any $15-minimum-wage provision from the reconciliation bill.

Democrats’ willingness to budge on the wage hike in the COVID-19 stimulus appears to stem from confidence in their ability to enact a minimum wage increase through future legislation. President Biden, as part of his comment last week, said he would seek to raise the minimum wage in future legislation. And as part of his vote on the Ernst amendment, Senator Sanders referred specifically to the Raise the Wage Act. In short, the Democratic coalition seems to be coalescing around this piece of legislation.

So, what is the likelihood the Raise the Wage Act will pass? Well, Democrats are going to run into the same problem: the political dynamics in the Senate will preclude passage through normal legislative mechanisms. As a result, Democrats would still have to press such a hike without any Republican support, through either reconciliation,[1] or by doing away with the filibuster, which is not likely.

Using reconciliation comes with its own problems, not the least of which would be convincing moderate Democrats like Senator Kyrsten Sinema (AZ) to back this progressive policy. But the February 5th senatorial victories, as well as the last Congress’ failure to pass a FY 2021 reconciliation bill, gives Democrats two bites at the reconciliation apple this year. That, combined with the fact that the Democratic machine appears to be coalescing behind this measure, raises the likelihood that this stand-alone measure passes later this summer. Notably, however, the general consensus is that an increase in minimum wage is not quite as a high of a Biden priority as other initiatives, such as comprehensive immigration reform and infrastructure.

How Else Could the Administration Accomplish its Policy Goals?

As our colleagues have previously noted, the Biden Administration can and will press the policy rationale behind a minimum wage hike through federal employment agencies. To some extent, we’ve already seen the opening machinations of that agenda: President Biden immediately fired and replaced the top attorneys at the NLRB, presumably so his hand-picked replacements can move cases with the right factual predicate in front of decision-makers. By bringing the right cases in front of the board, the Biden Administration will be able to accomplish many of the policy goals underlying the exceedingly union-friendly PRO Act, which will almost assuredly not pass in its current form.

Similarly, should the Raise the Wage Act not come to fruition, employers should expect Marty Walsh, Biden’s pick to take the helm at the U.S. DOL, to move quickly through rulemaking and beefed up enforcement of wage requirements. For example, the DOL could presumably alter the tipped employee rule through rulemaking. Given the structural barriers facing the Act, employers should be prepared for enhanced movement from the DOL’s Wage & Hour Division on this front.

Conclusion

As noted, the Raise the Wage Act contains a number of provisions that could prove particularly challenging for employers in certain areas of the country, as well as certain industries. The Biden Administration’s placement of raising the minimum wage close to the top of its labor and employment policy agenda, combined with the Act’s extra shot at reconciliation and the will of the Democratic Party to get this done, all form a legislative recipe that just might just result in the President’s signature.

That said, now is not the time to be reactionary. At the end of the day, the Act currently lives in Washington D.C., a place where earth-shaking legislation has not emerged quickly or smoothly in decades. The Act will face structural, procedural, and political barriers, all of which make a quick passage of the legislation in its current form very unlikely.

In short, the message to employers is simple: watch closely and stay tuned.


[1] Simply stated, reconciliation permits, once every year, the passage of one bill with only a simple majority in the Senate, as opposed to the normal 60 votes required due to the filibuster rule. What can (and can’t) move through reconciliation is further restrained by the so-called Byrd Rule, which provides that bills are only eligible if they affect federal revenue or spending.

By: Noah A. Finkel

Seyfarth Synopsis:  The Seventh Circuit Court of Appeals last week affirmed a district court’s denial of class certification of a state overtime claim on numerosity grounds, reasoning that the touchstone for that element is whether joinder of putative class members is practicable, and a factor to consider is how easily the plaintiff could contact those class members for joinder.  Because the FLSA’s collective action mechanism makes joinder easy, this ruling suggests that district courts should consider whether to reject class treatment when a collective action is available for members of a proposed class.

Outside of California, the FLSA’s collective action mechanism long has garnered the greatest amount of attention of most wage-hour practitioners because it applies nationally, contains the most developed case law, and allows for early conditional certification of a collective action based on a “lenient standard” under which a plaintiff need made only a “modest showing” to carry a “low burden.”  Indeed, as our colleagues showed us last month in Seyfarth’s annual Workplace Class Action Report, federal district courts granted 84% of conditional certification motions in 2020.

But collective actions have their limits.  While conditional certification of a collective action results in a notice of the lawsuit being sent to all of those eligible to be in the collective, participation in a collective action requires one to affirmatively file a consent to join, or opt in.  Anecdotally, we tend to see about 5 to 25 percent of those eligible actually join a collective action, thus limiting a defendant’s FLSA exposure.

Enter state overtime laws, however.  Usually very similar to the FLSA substantively, state overtime laws differ from the FLSA in one huge way: they allow for an opt-out class action, rather than an opt-in collective action.  An opt-out class action does not require a class member to do anything to participate.  Once a state overtime law class is certified, a class member is a participant unless they opt out, and opt outs are very rare.  A case that has, say, 15% participation under the FLSA often sees 100% participation under state overtime class action claim, thus inflating a defendant’s potential exposure.  This is why the plaintiff’s wage-hour bar prefers to file hybrid collective/class actions rather than just one or the other.

Last week, however, the 7th Circuit may have made hybrid cases more difficult for the plaintiff’s bar in Anderson v. Weinert Enterprises, Inc., No. 20-1030 (7th Cir. Jan. 28, 2021), by putting some teeth into Rule 23(a)(1)’s numerosity requirement.  It is rare to see class treatment denied on numerosity grounds.  Indeed, courts often have assumed that a 40-member class meets numerosity.  This approach, however, miscomprehends the numerosity requirement, reasoned the 7th Circuit.  A class plaintiff bears the burden of proving that a class is, in the language of Rule 23(a)(1), “so numerous that joinder of all members is impracticable.”  To do so, they must show that “it is extremely difficult or inconvenient to join all members of the class.”  Answering that question, the 7th Circuit reasoned, involves evaluating “the nature of the action, the size of the individual claims, and the location of the members of the class … .” In the Anderson case, the 7th Circuit held that the district court did not abuse its discretion in declining to certify a class action, given (i) the proposed class’s geographic dispersion (the class members all worked at the same facility), (ii) the overall size of the class (it numbered 37, but the 7th Circuit said that if it were larger, it probably wouldn’t have mattered), (iii) the dollar amounts involved with each individual claim (considering the availability of attorney fee shifting), and (iv) the plaintiff’s ability to easily contact the class members.

The last two factors discussed by the 7th Circuit warrant emphasis.  Wage-hour claims typically involve a relatively small dollar amount for each individual claim, which might help a plaintiff show that joinder is impracticable.  But the 7th Circuit noted that fee-shifting provisions, which are present in the FLSA and all state overtime laws, lower the barrier to joinder of these claims.

The plaintiff’s ability to easily contact the class members, which the 7th Circuit weighed against finding numerosity in this case, is present in just about every hybrid collective/class action.  If conditional certification is granted, the defendant is compelled to provide the plaintiff with the name and address or other contact information for all collective action members, and there likely is substantial overlap between the collective action and class action members.  The plaintiff is then authorized to send notice to each of them to invite them join the case.  The collective action mechanism thus is a practicable method for joinder — and one that may preclude class certification.

To be sure, and as the 7th Circuit recognized, availability of a collective action does not mean that every class action in a hybrid matter fails to establish numerosity.  But the 7th Circuit’s decision is a reminder that Rule 23 numerosity requires the plaintiff to show the impracticality of joinder, and that, the availability of the collective action device may mean the plaintiff cannot show that.

Recorded by Scott Mallery and Eric Lloyd

Often, what happens in California is a good bellwether for what could happen in the policy space on a federal level. And we believe worker classification is no different.

In this episode of Seyfarth’s Policy Matters Podcast, Counsel Scott Mallery and Partner Eric Lloyd provide an overview of where the law on misclassification at the federal level stands today, the background and impact of AB 5 and AB 2257 in California, and insight into what we might see down the road from the Department of Labor, now under the Biden Administration.

Listen to the episode here.

By: Christina Jaremus, Kyle Petersen, Daniel Small, and Gena Usenheimer

Seyfarth Synopsis: The COVID-19 pandemic thrust remote working upon many employers without notice or adequate time to prepare. Now that employees are settling into longer-term remote working arrangements, employers are increasingly confronted with questions regarding their expense reimbursement obligations. Employers are therefore well advised to re-evaluate the scope of potential expenses, legal obligations for reimbursement, and the state of written policies to ensure the greatest measure of compliance with law. To assist in these efforts, below, we provide a high-level summary of relevant laws, policy considerations, and best practices. We recommend you direct state specific inquiries directly to your Seyfarth lawyer of choice.

The Legal Landscape

Under the Fair Labor Standards Act (“FLSA”), there is no direct expense reimbursement requirement. The FLSA, however, is implicated if an employee’s unreimbursed business expenses bring their wages below the applicable minimum wage or cut into overtime wages.

Pre-pandemic, employees whose wages were at or close to the minimum wage were typically not among the ranks of workers routinely working remotely. As a result, many employers may be facing the interplay of remote working expenses with the minimum wage for the first time. Under this “new normal,” employers must be mindful of the expenses these workers might be incurring; in particular, with respect to one-time higher ticket purchases that could drop them below minimum wage, such as a printer or other home office equipment that is necessary for their job (more to come on the critical modifier “necessary”).

At the state and local level, there are currently 10 jurisdictions that have statutes or case law specifically addressing an employer’s requirement to reimburse business expenses: California, Iowa, Illinois, Massachusetts, Montana, New Hampshire, North Dakota, South Dakota, District of Columbia, and Seattle, Washington. Several other states require an employer to reimburse employees in a manner consistent with its written policies.

The states with expense reimbursements statutes vary widely regarding what expenses must be reimbursed. By way of example, some of these states—notably California and Illinois—have strict reimbursement laws. As explained below, reimbursement might be required in these states for business-related use even if the employee will not incur an extra expense, such as when an employee has an unlimited amount of data and minutes on their cell phone. In that instance, even if there is no additional cost to the employee, the employer must reimburse so as not to enjoy a “windfall,” some courts have reasoned.

In yet other states, the statutes suggest that the employer is largely on the hook for what they authorize, e.g., explicitly or via a written policy. And in other states still, employers are obligated by statute only to reimburse for losses suffered that fall outside of “ordinary risks” of the business in which he is employed. Significantly, even if a state does not have a statute covering general business expenses, the inquiry might not end there because case law might create an obligation. While state law cannot be characterized as “uniform” across states, below are some key components to consider when revisiting any such obligation under these state laws.

But, Is It Really Necessary?

One of the key components of the most onerous expense reimbursement laws is the requirement to reimburse for any necessary expense, which begs many a question about what types of expenses must be reimbursed. Internet service and cell phone data are the most commonly considered, but what about printers and paper? Some employees might prefer to print out documents, but does the job actually require it? A ring light might be nice for all those Zoom meetings, but is it necessary?

While the question of necessity will turn on the specific job at issue, it is imperative that employers set clear expectations for what tools they require for an employee’s home office and what is not needed to do the job. Employers, of course, want to ensure employees working from home have a workspace that is safe and productive. But they must also be mindful that the more requirements they put in place for minimum home office standards—such as minimum WiFi bandwidth, a room with a door to ensure confidentiality of calls, locking filing cabinets—the more likely an expense incurred in complying with those standards is to be considered necessary.

Another component of assessing whether an incurred expense was necessary is whether the employee could have fulfilled the need at a lower cost. Maybe a webcam is necessary due to the manager’s expectation for regular video meetings, but does it have to be the state-of-the-art model or would a less expensive option suffice? Setting expectations in written policies with guidelines and procedures for advance approval of such purchases will allow the employer to define the universe of necessary expenses.

Employers should also consider whether it is more cost-effective to provide equipment, cell service or Wifi service, or other necessary equipment directly than to reimburse. Often, employers have bulk discounts or stock on hand at the office that can be shipped to an employee’s home at a lower cost.

Was the Expense Actually Incurred?

It seems straightforward enough that only those expenses actually incurred must be reimbursed, but this question is not always so simple. This is particularly true in certain states with respect to “mixed use” items that an employee uses for both business and personal reasons, such as a cell phone data plan or home internet. Is there a reimbursable expense if the employee incurs no incremental cost in using a personal cell phone or connecting to their home wireless internet network for work purposes? The answer likely depends on where the employee is located.

In California, for example, the statutory language requires employers to reimburse for “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of the employee’s duties” or at the direction of the employer. While that might sound like only those costs that would not have been incurred but for work, that is not how the statute has been interpreted. Quite the contrary, courts in the Golden State interpret this to require reimbursement of a “reasonable percentage” of employee’s monthly cellular data and internet costs even if the employee had unlimited data plans and home internet network for personal use and even if the employee’s monthly bills did not increase as a result of the business use.

In Illinois, although there is similar statutory language requiring reimbursement of “necessary expenditures” there is additional helpful language in the law that allows employers to set parameters on how much they will contribute toward such expenses (so long as it is not “de minimus”).

Managing Compliance

There are a variety of ways employers can fulfill their obligations to reimburse business expenses.

A common approach is to provide a fixed monthly stipend based on a good faith and reasonable estimate of an employee’s reimbursable expenses. This approach will usually cover the vast majority of expenses but it should nevertheless be coupled with a process by which employees can seek reimbursement of additional expenses that were not covered by the stipend. Also, we advise that employers maintain documentation to support the reasonableness of the stipend that they establish, in case the amount of the stipend is ever attacked as being too little (such that it does not cover an employer’s full reimbursement obligation) or too much (such that the excess should be treated as compensation for work rather than reimbursement).

Alternatively, employers can establish a process by which employees are only reimbursed after submitting a receipt or other documentation confirming that they indeed incurred the expense. There could also be some tools and equipment that the employer can provide in a more cost-effective manner if it purchases them directly.

Regardless of the specific avenue for ensuring the employer does not improperly shift business expenses to its employees, all employers should be aware of their obligations to reimburse and review and update their expense reimbursement policies to take into account the applicable law and the expenses their newly-expanded remote workforce might incur. The policy should clearly articulate the employer’s expectations for the tools and equipment that are necessary to do the job from home, and establish guardrails for when and how employees can purchase equipment with the expectation that the company will foot the bill.

By: Kevin Young

Seyfarth Synopsis: On January 8, the U.S. DOL’s Wage & Hour Division issued an opinion letter confirming the exempt status of Account Managers at a life sciences manufacturing company under the FLSA’s administrative exemption. The letter offers useful guidance to employers assessing this notoriously murky exemption, as well as potential ammunition for those defending the exempt status of similar roles.

While job title alone does not determine exempt status under the FLSA, certain titles tend to carry preconceived notions with them. Sometimes, these notions are associated with a clear view of exempt status, for instance in the case of a CEO (exempt) or a Janitor (not so much). More often, however, the most ubiquitous titles across industries are associated with less certainty and a greater need for inspection. It’s hard to think of a better example than a title like “Account Manager.”

Account Manager roles are a common focus for employers, their advocates, and the plaintiffs’ attorneys circling the wage and hour waters. A leading reason for this is that the exempt status of these jobs typically turns on the applicability of the FLSA’s administrative exemption. The administrative exemption is the Act’s greyest exemption—it includes phrases like “the exercise of discretion and independent judgment with respect to matters of significance”—and is thus a magnet for litigation. In addition, these roles have been attacked by some who argue that Account Managers perform “inside sales” work, which is generally not regarded as exempt work..

On January 8, 2021, the U.S. Department of Labor’s Wage & Hour Division weighed in on the exempt status of Account Managers at a life sciences manufacturing company, finding the role was properly classified under the administrative exemption despite performing sales-related work. Though fact-intensive and not binding on federal courts, the opinion letter offers useful insight, and potential ammunition, for employers seeking to defend the exempt classification of similar roles.

So what were these Account Managers doing? In short, they performed a consultative function with potential clients, working to understand and assess their needs and identifying product solutions to meet those needs. The Account Managers worked to learn about the needs of potential clients, analyze what products would meet those needs, and communicate with the potential clients about how the company’s products can fulfill those needs. They were neither closely supervised nor scripted in carrying out their work—they had discretion in deciding how to engage with potential clients.

On these facts, WHD concluded that the Account Managers met the duties requirements of the FLSA’s administrative exemption. Those requirements include that the employee’s primary, or most important duty, must: (1) be non-manual or office work generally related to the management or general business operations of the employer or its clients; and (2) include the exercise of discretion and independent judgment with respect to important matters.

With respect to the first requirement, WHD referred to the so-called “administrative-production” dichotomy, finding that Account Managers fell on the management or administrative side of the business, which is suitable for exempt status, rather than the production side, which is not. The Account Managers developed relationships with target customers—typically high-level professionals—in order to facilitate the sales process and weighed in on which products were likely to satisfy their needs. They represented the company with respect to those prospects. Likening the role to those deemed exempt by various federal circuit courts in cases involving pharmaceutical sales representatives and hotel sales managers, WHD concluded that the Account Managers’ work “promoting sales through a sophisticated consultative marketing process … is not ‘production’ work, and is instead related to the management of [the company’s] operations.”

As for the other duties-based requirement—the exercise of discretion and independent judgment with respect to significant matters—WHD observed that the Account Managers were given wide latitude in deciding how to promote products to potential customers, as well as what products to market to which prospects. Though they received training on sales techniques, it was up to them to develop account plans and strategies with minimal supervision and to develop relationships with potential customers. The Account Managers’ independence in carrying out these types of tasks sufficed, according to the Division, to demonstrate the requisite judgment and discretion.

It’s important to note that opinion letters are provided in response to fact-specific circumstances and are generally regarded as persuasive, rather than binding, authority. Moreover, with a new administration en route to Washington, D.C., a withdrawal or revision of various DOL guidance, including WHD opinion letters, is certainly possible.