By Loren Gesinsky and Jacob Oslick

Seyfarth Synopsis: The DOL has reissued 17 opinion letters it withdrew in 2009.  It has also issued two new field assistance bulletins.  The DOL’s new openness to answering employer questions, and providing written guidance, harbors good things for both employers and employees.

Hey-la, hey-la, opinion letters and field assistance bulletins are back!  They’ve been gone for such a long time.  But they’re back, and they’re coming to provide needed clarity on how employers can comply with wage and hour laws.  That’s the message the U.S. Department of Labor’s Wage and Hour Division sent last Friday, January 5th, when it reissued 17 opinion letters that it withdrew in March 2009.

The reissued letters include 15 drafted by former DOL Acting Administrator Alex Passantino, now a Seyfarth Partner.  They cover topics such as whether athletic coaches qualify as “teachers” for purposes of the administrative exemption (generally yes, if coaching is their “primary duty”), and whether a per diem “job bonus” could be excluded from a non-exempt employee’s regular rate (in short, “no”).   The reissuances follow on the heels of the DOL’s decision, in June 2017, to once again respond to employer questions regarding wage and hour laws by issuing formal guidance in the form of an opinion letter.  [We previously covered the DOL’s announcement here].   And it was accompanied by the issuance, also on January 5th, of two new field assistance bulletins, with one concerning interns at for-profit employers [see our blog post here].

For employers, the benefits of DOL opinion letters and field assistance bulletins are obvious.  The Fair Labor Standards Act contains a “good faith” defense that allows employers to avoid liability if they can prove the challenged pay practice aligns with the DOL’s written guidance.  Thus, if an employer requests and receives an opinion letter stating that a particular pay practice is compliant, that can protect employers from lawsuits — effectively telling overly zealous plaintiffs’ attorneys to take a permanent vacation from challenging the practice.

What is less well known is how employees also stand to benefit from the DOL’s decision to again issue opinion letters.  To this end, it’s important to remember that the DOL’s job isn’t to give employers a legal beating or make them sorry they were ever born..  It’s to ensure that employers pay their workers properly, and otherwise comply with the law.  And, just as a “positive” opinion letter can help an employer defend a policy in court, a “negative” opinion letter sends an awfully strong warning to the requesting employer and similarly situated employers to change their policies fast.

For employees — although not necessarily plaintiffs’ attorneys — this seems far preferable to simply letting a potentially unlawful pay practice continue indefinitely.  True, at some point, a disgruntled employee may file suit and claim that the employer is cheating him or her.  And, ultimately, that may lead to a jackpot verdict with liquidated damages for the employee or a collective.  But lawsuits are comparatively rare and, when successful, often result in the plaintiffs’ attorneys receiving far more money than the affected employees.  By the time a lawsuit may happen to get filed and a collective is conditionally certified (if conditional certification is granted), employees may have worked for many years under an improper practice — and thus be time-barred from recovering damages for the entire period.   Then the lawsuit may not succeed, or it may take years to recover anything.   Most likely, it will lead to a settlement that will offer employees a fraction of their allegedly lost pay.   Conversely, if an employer changes its pay practices in response to “negative” guidance from the DOL, employees obtain relief immediately.

All that said, the impact of the DOL’s new openness to opinion letters is not yet known.  Opinion letters will take some wage and hour disputes and cut them down to size.  But, historically, the DOL was not able to answer all employer inquiries. Those to which the DOL did respond generally involved highly-detailed, specific fact patterns that did not necessarily afford comfort to anyone other than the employers who posed the questions.  Indeed, although the DOL began accepting requests for opinion letters back in June, and reissued the withdrawn letters from 2009, it has not yet issued a new opinion letter.  Is that a harbinger of little to come?  We hope not.  Now that opinion letters are back, there’s reason to hope that things will be fine. [Cue to “My Boyfriend’s Back”, by the Angels.]

Authored by Robert Whitman

Seyfarth Synopsis: The Department of Labor has scrapped its 2010 Fact Sheet on internship status and adopted the more flexible and employer-friendly test devised by Second Circuit.

In a decision that surprised no one who has followed the litigation of wage hour claims by interns, the US Department of Labor has abandoned its ill-fated six-part test for intern status in for-profit companies and replaced it with a more nuanced set of factors first articulated by the Second Circuit in 2015. The move officially eliminates agency guidance that several appellate courts had explicitly rejected as inconsistent with the FLSA.

The DOL announced the move with little fanfare. In a brief statement posted on its website on January 5, it said:

On Dec. 19, 2017, the U.S. Court of Appeals for the Ninth Circuit became the fourth federal appellate court to expressly reject the U.S. Department of Labor’s six-part test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA).

The Department of Labor today clarified that going forward, the Department will conform to these appellate court rulings by using the same “primary beneficiary” test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.

The DOL rolled out the six-part test in 2010 in a Fact Sheet issued by the Wage and Hour Division. The test provided that an unpaid intern at a for-profit company would be deemed an employee under the FLSA unless all six factors—requiring in essence that the internship mirror the type of instruction received in a classroom setting and that the employer “derive[] no immediate advantage from the activities of the intern”—were met. The upshot of the test was that if the company received any economic benefit from the intern’s services, the intern was an employee and therefore entitled to minimum wage, overtime, and other protections of the FLSA.

Spurred by the DOL’s guidance, plaintiffs filed a flurry of lawsuits, especially in the Southern and Eastern Districts of New York. But despite some initial success, their claims were not well received. The critical blow came in 2015 from the Second Circuit, which in Glatt v. Fox Searchlight Picture Searchlight emphatically rejected the DOL’s test, stating, “[W]e do not find it persuasive, and we will not defer to it.” Instead, it said, courts should examine the internship relationship as a whole and determine the “primary beneficiary.” It crafted its own list of seven non-exhaustive factors designed to answer that question. Other courts soon followed the Second Circuit’s lead, capped off by the Ninth Circuit’s ruling in late December.

For the new leadership at the DOL, that was the final blow. In the wake of the Ninth Circuit’s decision, the agency not only scrapped the six-factor test entirely, but adopted the seven-factor Glatt test verbatim in a new Fact Sheet.

While the DOL’s action marks the official end of the short-lived six factors, the history books will note that the Glatt decision itself was the more significant event in the brief shelf-life of internship litigation. As we have noted previously in this space, the Glatt court not only adopted a more employer-friendly test than the DOL and the plaintiffs’ bar had advocated; it also expressed grave doubts about whether lawsuits by interns would be suitable for class or collective action treatment. The DOL’s new Fact Sheet reiterates those doubts, stating, “Courts have described the ‘primary beneficiary test’ as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”

That aspect of the ruling, more than its resolution of the merits, was likely the beginning of the end for internship lawsuits. In the months and years since Glatt was decided, the number of internship lawsuits has dropped precipitously.

At this point, only the college student depicted recently in The Onion  seems to be holding out hope. But as we’ve advised many times, employers should not get complacent. Unpaid interns, no matter how willing they are to work for free, are not a substitute for paid employees and should not be treated as glorified volunteer coffee-fetchers. As the new DOL factors make clear, internship experiences still must be predominantly educational in character. If not, it will be the interns (and their lawyers) giving employers a harsh lesson in wage and hour compliance.

By Robert A. Fisher and Molly C. Mooney

Seyfarth Synopsis: In an important decision, the Massachusetts Supreme Judicial Court clarified the scope of personal liability for unpaid wages under the Massachusetts Wage Act.  The SJC held that board members and directors of a company generally cannot be held personally liable for unpaid wages, unless they take on significant management duties of the company. 

On December 28, 2017, the Massachusetts Supreme Judicial Court clarified the scope of individual liability under the Massachusetts Wage Act (Massachusetts General Laws Ch. 149, §§ 148 and 150). While the statute specifies that the president and treasurer of a corporation may be liable for unpaid wages, “agents having the management” of a company may be liable, as well.  The SJC has now clarified exactly who those “agents” are not.  In Segal v. Genitrix, the SJC held that investors and board members, when acting solely in those capacities, do not fall within the purview of the Wage Act and may not be held personally liable for unpaid wages.

In Segal, the plaintiff Andrew Segal was the president and chief executive officer of Genitrix LLC, a biotechnology startup. Defendants H. Fisk Johnson, III and Stephen Rose were former board members and investors in the company. Under the terms of his employment agreement, Segal was responsible for conducting the company’s business and managing its finances, subject to the overall direction and authority of the board. Consistent with the terms of his agreement, Segal was responsible for all day-to-day operations and was the only person authorized to sign checks from the company’s bank accounts, including payroll checks for employees’ wages.

In 2006, Segal informed the board that the company was running out of money to pay its employees. Despite this, Rose limited further investments into the company, and those that were made were earmarked for specific purposes. In 2007, Segal stopped taking his salary so that he could continue paying the one remaining employee. Segal proposed a cost-cutting plan, but that proposal was not authorized by the board. By the middle of 2007, the company had run out of money, and the board was deadlocked.

In 2009, Segal sued Fisk and Rose in Massachusetts Superior Court for unpaid wages under the Massachusetts Wage Act. The case ultimately went to trial and the jury concluded that both Johnson and Rose were individually liable under the Wage Act.

On appeal, the Supreme Judicial Court held that Johnson and Rose could not be liable under the Wage Act. Because the parties agreed that neither Johnson nor Rose were officers of the company, they could only be liable if they were “agents having the management” of Genitrix. The Court found it significant that the statute does not include board directors or investors in its definition of employer. Further reviewing the statutory language and the legislative history, the Court determined that only individuals who have assumed significant management responsibilities over a corporation, in their individual capacities, similar to those performed by a president or treasurer, should be liable under the Wage Act.

The Court held that investors and board members are ordinarily not considered agents of a company. With respect to Johnson and Rose, because management powers, particularly over the payment of wages, were expressly delegated to Segal as president and CEO, the Court found that they had limited agency authority. Similarly, the Court explained that individual board members exercising normal corporate oversight, and acting collectively with other board members, do not have the management of the company. Segal argued that the board’s rejection of his cost-cutting plan established that Rose and Johnson had authority.  The Court disagreed, explaining that “corporate boards are regularly required to make difficult decisions that have an impact on the company’s finances.” The Court concluded that such decisions are not the acts of individual board members as agents and do not impose Wage Act liability. Segal also argued that Rose’s restrictions on additional investments constituted management of Genitrix.  Again, the Court disagreed, explaining that investors invariably exercise some control over the businesses in which they invest, including when the business seeks new funds. The Court concluded this is separate and distinct from having the management of the company.

Segal is significant because it limits the circumstances that corporate directors and investors can be on the hook for unpaid wages, particularly when the company itself is defunct. So long as investors and board members act solely in those capacities and do not take on the day-to-day management of the business, they should not be personally liable for the company’s failure to pay wages.

 

‘Twas the week before Christmas, and the WH-L-PG

Contemplated the wage-hour year lyrically;

We considered the issues our readers would most like to savor

And decided the tastiest one was class waiver.

 

“Employers and employees,” begins the debate,

“Are free to agree that they shall arbitrate.”

But a critical question remains–it is whether

Employees can be stopped from proceeding together.

 

Will class waivers be cool?  Can’t we be more prophetic,

Than continuously repeating that the case will be Epic?

Well, we expect that class waivers will finally be decided,

More likely than not, from a Court that’s divided.

 

But which way it breaks, we’ll have to just see

On which side of the case we find Justice Kennedy.

So for now, just sit tight and await the decision

(Unless Congress intervenes with a “minor” revision.)

 

Where shall we go next?  It’s a place we know well.

As we take a close look at this year’s DOL.

They started out slowly, yes a slight hesitation.

As the Senate could not seem to provide confirmation.

 

But the overtime reg case could simply not wait,

Until it did, then the new guys pronounced the reg’s fate:

“That double-high salary, we firmly reject.

But our authority to set it at all, please respect.”

 

Then in an effort to avoid an adverse citation,

DOL told the court “We need more information.”

Now we’ll wait and we’ll see what the Department will do,

And we’ll see a new level in a year (prob’ly two).

 

WHD also announced the opinion letter’s return,

And the guidance on J/E and I/C got burned.

And when the tip pooling reg lost in the Ninth Circuit,

DOL finally gave up and declared “We’ll rework it.”

 

Tipped employees and janitors and bankers grew frustrated

As increasingly courts determined they were not situated

Similarly to those for whom they wanted to proceed.

It may be a low hurdle, but it still can impede.

 

Maybe that is why cases are down . . . although slightly

They’re still filed at a rate of 320, fortnightly.

They crowd up the dockets, they test judges’ mettle,

Yet it seems like they’re making it harder to settle.

 

But the cases get filed, regardless of position,

From the lowest-paid worker to half a mil in commission.

And up to this point, we’ve neglected to warn ya

About salary increases — New York, California.

 

Just a couple of points that are worth a short mention,

The debate on the reading of narrow exemptions,

Bag checks, franchises, and PAGA, so zany!

Up to our eyeballs in wagehour miscellany.

 

From calculating rates (which requires division)

To ordinances that require scheduling with precision.

Franchise liability, meal breaks, and more,

Who knows what 2018 has in store?

 

But before we proceed to the next year apace,

Let us make sure our commas are properly placed,

And let’s get one last thing off our chests:

We thank you, dear readers, you guys are the best!

 

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

Co-authored by Howard M. Wexler and Robert S. Whitman

Seyfarth Synopsis: Governor Andrew Cuomo has directed the Commissioner of Labor to schedule public hearings to address the possibility of eliminating the tip credit. A tip credit allows an employer to pay less than minimum wage to employees who receive the bulk of their pay in customer tips.

As we say goodbye to 2017, New York employers should also start preparing to say goodbye to minimum wage tip credits.

Governor Andrew Cuomo has directed the Commissioner of Labor to schedule public hearings to address the possibility of eliminating the tip credit. A tip credit allows an employer to pay less than minimum wage to employees who receive the bulk of their pay in customer tips.

As we reported in 2015, the then-Commissioner issued a report questioning the continuation of the minimum wage tip credit. Governor Cuomo appears to be in favor of the elimination of tip credits; he called for the public hearings “to ensure that no workers are more susceptible to exploitation because they rely on tips to survive.” While the Governor has not made any specific proposal, it is likely that, even if the tip credit goes away, employees could still be tipped, and participate in tip pooling/sharing arrangements, but they would have to be paid at least the standard minimum wage that non-tipped employees receive.

As with the minimum wage for all employees across the state, the minimum wage for tipped employees across the state is set to increase on December 31. The Department of Labor has summarized the revisions applicable to the tipped minimum wage for hospitality employers, employers in “miscellaneous industries,” and employers in the “building service industry.” Employers should consult these summaries to determine how much they can deduct for the appropriate minimum wage tip credit as the amount varies based on the industry, job classification, location of the employee and size of the employer.

Seyfarth Synopsis: The New York Court of Appeals holds that the state’s class action rules require notice of settlements to be sent to putative class members – even though no class has been certified.

In a decision sure to send shivers up the spines of wage and hour practitioners in New York, the State’s highest court has held that notice of a class action settlement must be distributed to all members of the putative class, even when the settlement comes before a class has been certified.  Together with Cheeks v. Freeport Pancake House, a Second Circuit ruling that pertains to FLSA settlements, the decision erects some very high hurdles for parties seeking early settlements in wage and hour cases in New York.

The case involved appeals in two separate wage and hour cases:  Desrosiers v. Perry Ellis Menswear, brought by an unpaid intern seeking wages, and Vasquez v. National Securities Corporation, in which a financial products salesperson alleged that his pay fell below minimum wage.  Both cases were brought in state court as putative class actions under the New York Labor Law.  Both were settled early – before class certification – but the plaintiffs filed motions seeking leave to send notice of the settlement to members of the putative classes.

In a 4-3 decision, the Court of Appeals (New York’s highest court) held that notice is required, even though the classes had not been certified in either case.

At issue was the language of CPLR 908, which states that a class action “shall not be dismissed, discontinued, or compromised without the approval of the court,” and that “[n]otice of the proposed dismissal, discontinuance, or compromise shall be given to all members of the class in such manner as the court directs.”  The defendants argued that the statute’s reference to a “class action” means a certified class action, while the plaintiffs contended “that an action is a ‘class action’ within the meaning of the statute from the moment the complaint containing class allegations is filed.”

Finding ambiguity in the statutory text, the majority looked to the legislative history and other interpretive guidance.  It placed particular weight on the State legislature’s failure to amend CPLR 908 in the decades since a 1982 decision from an intermediate appellate court holding that it does apply to pre-certification settlements.  The court held that this failure, in the face of the “sole appellate judicial interpretation of whether notice to putative class members before certification is required,” amounts to legislative acceptance of that decision’s construction of the rule.

The majority also drew a distinction between CPLR 908 and Federal Rule of Civil Procedure 23(e), on which it was modeled.  Rule 23 was amended in 2003 to provide that a district court is required to approve settlements only in cases where there is a “certified class” and that notice must be given only to class members “who would be bound” by the settlement.  In contrast, CPLR 908 has not be so amended, despite proposals by the New York City Bar Association and scholarly criticisms of the rule.

Thus persuaded that the text of the rule requires notice before certification, the court declined to consider the practical implications of its decision on the desirability of early settlements in class actions:

Any practical difficulties and policy concerns that may arise from [the court’s] interpretation of CPLR 908 are best addressed by the legislature, especially considering that there are also policy reasons in favor of applying CPLR 908 in the pre-certification context, such as ensuring that the settlement between the named plaintiff and the defendant is free from collusion and that absent putative class members will not be prejudiced. The balancing of these concerns is for the legislature, not this Court, to resolve.

In dissent, three judges took the majority to task for what they described as an unwarranted reading of the rule in light of the overall context of the class action provisions in CPLR Article 9.  In their view, the fact that the plaintiffs had never moved for, let alone received, a ruling granting class certification meant that the case was not a class action at all.  “In each of the actions here,” they said, “plaintiffs did not comply with the requirements under article 9 of the CPLR that are necessary to transform the purported class action into an actual class action, with members of a class bound by the disposition of the litigation.”

Responding in particular to the plaintiffs contention that a case becomes a “class action” from the moment it is filed putatively as such, the dissent said:

There is nothing talismanic about styling a complaint as a class action. Indeed, any plaintiff may merely allege that a claim is being brought “on behalf of all others similarly situated.” However, under article 9 of the CPLR, the court, not a would-be class representative, has the power to determine whether an action “brought as a class action” may be maintained as such, and may do so only upon a showing that the prerequisites set forth in CPLR 901 have been satisfied.

As we have observed repeatedly in this blog, the Second Circuit’s holding in Cheeks, which requires court approval of FLSA settlements and tends to preclude various customary settlement provisions like confidentiality clauses, poses obstacles that may lessen the desirability of settlements in wage and hour cases.  And in Yu v. Hasaki Restaurant, the Second Circuit is now being asked to decide whether court approval is required even for a settlement achieved through an Offer of Judgment under FRCP 68.  Now, with Desrosiers on the books, the challenges for early settlements have been extended to wage hour settlements brought in state court under New York law.  (The case will presumably not apply to New York Labor Law claims brought in federal court, where Rule 23 rather than CPLR Article 9 would apply.)

The lesson for New York practitioners is as simple as it is daunting: if you want to settle a wage and hour case early, be prepared to jump through some significant procedural hoops.

Authored by Robert Whitman

Seyfarth Synopsis: The Second Circuit has upheld summary judgment against magazine interns seeking payment as “employees” under the FLSA.

In an end-of-semester decision that may represent the final grade for unpaid interns seeking minimum wage and overtime pay under the FLSA, the Second Circuit has firmly rejected claims by Hearst magazine interns challenging their unpaid status.

The interns served on an unpaid basis for various magazines published by Hearst Corporation, either during college or for a few months between college and graduate school. They sued, claiming they were employees because they provided work of value to Hearst and received little professional benefit in return.

Following discovery, District Judge J. Paul Oetken rejected the interns’ claim of employee status and granted summary judgment to Hearst. On appeal, the Second Circuit framed the question succinctly: “whether Hearst furnishes bona fide for‐credit internships or whether it exploits student‐interns to avoid hiring and compensating entry‐level employees.” If the former were true, the interns would be deemed trainees, who could permissibly be unpaid; if the latter were true, the interns would be entitled to minimum wage and overtime pay.

In support of their appeal, the interns argued that many of the tasks they performed were “menial and repetitive,” that they received “little formal training,” and that they “mastered their tasks within a couple weeks, but did the same work for the duration of the internship.” These points, they contended, outweighed their receipt of college credit and other indicia of an academic flavor to their experience.

The appeals court, in Wang v. Hearst Corp., appeared to have little trouble upholding the grant of summary judgment in favor of Hearst. Applying its test for assessing whether interns are employees or trainees, the court held that the factual record favored non-employee status on six of the seven pertinent factors, enough to sustain the judgment in the company’s favor.

Those seven factors, as loyal blog readers will recall from prior posts, first appeared in the court’s 2016 decision in Glatt v. Fox Searchlight, in which the court held that the “primary beneficiary” test governed whether interns were considered employees or trainees. The Glatt court rejected the Department of Labor’s multi-factor test and devised its own:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa;
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands‐on training provided by educational institutions;
  3. The extent to which the internship is tied to the internʹs formal education program by integrated coursework or the receipt of academic credit;
  4. The extent to which the internship accommodates the internʹs academic commitments by corresponding to the academic calendar;
  5. The extent to which the internshipʹs duration is limited to the period in which the internship provides the intern with beneficial learning;
  6. The extent to which the internʹs work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern;
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The factors are non-exhaustive, and as the Second Circuit reiterated in the current case, need not all point in the same direction to support a conclusion of non-employee status.

The “heart of the dispute on appeal” was factor two — whether the interns received “training that would be similar to that which would be given in an educational environment.” The plaintiffs argued that, in order for this factor to weigh in favor of non-employee status, the internships would have to provide “education that resembles university pedagogy to the exclusion of tasks that apply specific skills to the professional environment.”

The court was not convinced. It recognized that the Hearst internships varied in many respects from classroom learning. But as it had said earlier in Glatt, this was precisely the point. “The [plaintiffs’] tacit assumption is that professions, trades, and arts are or should be just like school; but many useful internships are designed to correct that impression…. [P]ractical skill may entail practice, and an intern gains familiarity with an industry by day to day professional experience.”

Perhaps the most significant part of the ruling comes at the end, where the court discusses the propriety of summary judgment. The interns, and various amici curiae (unions, advocacy groups, and professors) who advocated on their behalf, argued strenuously that various “mixed inferences” on the seven internship factors precluded a grant of summary judgment. While acknowledging that application of the factors required some weighing of evidence, the court nonetheless said this did not mean the case required a trial.

“Status as an ‘employee’ for the purposes of the FLSA is a matter of law,” the court said, “and under our summary judgment standard, a district court can strike a balance on the totality of the circumstances to rule for one side or the other.” It continued: “Many of our FLSA tests that are fact‐sensitive and require the judge to assign weight are routinely disposed of on summary judgment [citing cases]. The amici contend that summary judgment is inapposite in all unpaid intern cases that turn on competing factors. Such a rule would foreclose weighing of undisputed facts in this commonplace fashion.”

In many ways, the Wang decision may be the epilogue to a textbook that has already been written. After the Glatt decision in 2016, the number of lawsuits filed by interns seeking unpaid compensation dropped precipitously. That may have been due to Glatt’s highly-employer-friendly resolution, both as to the merits of the employee-or-intern question and its pronouncements on the high threshold for collective/class certification on the question. Or perhaps it was due to the decisions by employers, reacting to the onslaught of intern lawsuits seeking pay under the FLSA and state law, to curtail or limit their internship programs or to pay interns compensation at or above minimum wage. Whatever the reason, the Wang decision cannot be heartening for plaintiffs’ lawyers, and the days of widespread lawsuits by interns are likely over.

Still, companies who remain interested in sponsoring unpaid interns should not get complacent. Paying minimum wage, of course, remains a fail proof antidote to the possibility of FLSA claims by these individuals. But if that is not an option, companies should take care to ensure that their programs have primarily educational aims and coordinate wherever possible with the interns’ educational institutions to ensure they meet the factors articulated by the court. Otherwise, the interns may be the ones teaching them a lesson.

By: Noah A. Finkel and Andrew L. Scroggins

Seyfarth SynopsisPending bi-partisan legislation aimed at preventing employers from enforcing arbitration agreements of sexual harassment claims might make employers unable to enforce arbitration agreements, and class waivers included in them, as to any employment claim.

High profile stories of sexual harassment (and much worse) in the workplace and beyond have dominated headlines in recent months.  Yesterday Time magazine recognized The Silence Breakers – women who have gone public with allegations of sexual harassment and sexual assault – as the 2017 “Person of the Year,” thus becoming the latest to criticize companies and other employers who keep sexual harassment allegations and settlements secret through arbitration agreements with their employees.

Congress is now stepping in with a bill titled the “Ending Forced Arbitration of Sexual Harassment Act” that would amend the Federal Arbitration Act (FAA) by making the FAA inapplicable to claims of sex discrimination.  Without the FAA available to enforce an arbitration agreement, an employer likely would be unable to compel a claim of sex discrimination into arbitration and thus would have to litigate sex discrimination claims publicly in federal or state court.

The bill already has attracted bipartisan support.  At a press conference to announce the bill, former Fox News anchor Gretchen Carlson shared the stage with Democrats and Republicans from both houses of Congress.  In the House, its early co-sponsors include two Republicans.  In the Senate, the six original co-sponsors include two Republicans, Lisa Murkowski of Alaska and Lindsey Graham of South Carolina, the latter of whom said at the press conference that his goal is to create a better business environment where women are “able to go to work without having to put up with a bunch of crap.”

That is a goal that any employer can support, but the bill would do far more than that.  Under the version pending in the House (the version in the Senate has not yet been posted), there exists a so-called “technical and conforming amendment” that is anything but that.

Currently, Section 1 of the FAA contains an exclusion from its mandate to enforce arbitration agreements for employees involved in transportation.  The bill, however, would strike certain limiting language from Section 1 of the FAA so that Section 1 simply would read as follows:  “nothing herein contained shall apply to contracts of employment.”

This language likely would mean that employers would not be able to enforce arbitration agreements with their employees.  It would not matter whether the agreement is optional or a condition of employment.  It would not matter whether the arbitration program contained a waiver of the ability to bring a class or collective action.  Under this bill, the FAA arguably no longer could be used as the vehicle to enforce any arbitration agreement in the employment context.  And while there may be other vehicles through which to enforce an arbitration agreement (for, example state arbitration acts), the FAA has provided the foundation for recent jurisprudence allowing for enforcement of arbitration agreements, most notably class and collective action waivers, including the ones currently at issue before the U.S. Supreme Court.

It is unlikely that this is Congress’ intent, at least within the Republican majority.  And while the bill as a whole has received media attention today, none of that has focused on or even mentioned the broader limit the bill would place on arbitration agreement.

Given recent media coverage about sexual harassment, prominent stories about efforts to use private agreements to thwart complaints about harassment, and early Republican support for this bill, this bill appears it has a real chance of becoming law.  Congress should remove the amendment to Section 1 of the FAA before passing it.  Otherwise, it threatens to greatly limit the ability of companies and their employees to agree to arbitrate employment disputes on an individual basis.

Co-authored by Noah Finkel and Cheryl Luce

Seyfarth Synopsis: On Monday, the DOL issued a Notice of Proposed Rulemaking announcing rescission of a rule that regulates tip pooling by employers who do not take the tip credit.

The DOL has issued a Notice of Proposed Rulemaking regarding the tip pooling regulations of the Fair Labor Standards Act. The FLSA allows employers to take a tip credit toward their minimum wage obligations, and employee tips may be pooled together, but pooling of tips is allowed only “among employees who customarily and regularly receive tips.” 29 U.S.C. § 203(m). The DOL took the tip pooling law a step further in 2011 when it promulgated a regulation that prohibits employers from operating tip pools even when they do not take the tip credit. The regulation states: “Tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA.” 29 C.F.R. § 531.52.

The DOL’s tip pooling rule has been unpopular with courts—and for good reason, as we have previously noted. Indeed, several federal courts have found that it is overbroad and invalid, excluding the Ninth Circuit. In the Notice of Proposed Rulemaking, the DOL agrees with the holdings of most courts and, while not outright stamping the rule as “overbroad” or beyond the DOL’s authority, states that the DOL is concerned “about the scope of its current tip regulations” and “is also seriously concerned that it incorrectly construed the statute in promulgating the tip regulations that apply to” employers who do not take the tip credit. The DOL’s about-face is also motivated by policy concerns. The Notice explains that removing the rule “provides such employers and employees greater flexibility in determining the pay policies for tipped and non-tipped workers [and] allows them to reduce wage disparities among employees who all contribute to the customers’ experience and to incentivize all employees to improve that experience regardless of their position.” Finally, the DOL notes that the increase in state laws prohibiting tip credits and the volume of litigation over this issue contributed to its decision to put the rule on the chopping block.

The end of the rule does not come as a surprise as both the DOL and courts have sounded the death knell this year. On July 20, 2017, the DOL issued a nonenforcement policy to not enforce the rule with respect to employees who are paid at least minimum wage. Additionally, the National Restaurant Association filed a petition for certiorari with the Supreme Court asking for review of the Ninth Circuit’s decision, which is still pending.

The DOL announced that if the rule is finalized as proposed, the rule would qualify as an “EO 13771 deregulatory action” under the Trump administration’s “two-for-one” executive order that requires federal agencies to cut two existing regulations for every new regulation they implement. Once the proposal is published in the Federal Register, interested parties will have the opportunity to provide comments regarding the Department’s proposal within 30 days. Only after these steps is the rule made final.

Authored by Cheryl Luce

Seyfarth Synopsis: Tipped workers who didn’t receive notice of the tip credit get a win under New York state minimum wage law in a case that echoes technical traps we have seen in FLSA decisions.

Throughout the year, we have been covering cases that show how the FLSA has been construed by courts as “remedial and humanitarian” in purpose, but that its technical traps do not always serve such a purpose and do not necessarily serve to ensure a living wage for working Americans. A recent decision from a New York federal court applying New York law shows how state minimum wage laws can also provide traps for the unwary and result in big payouts to employees who were paid at least minimum wage but in a way that violates the law’s technical requirements.

This case was filed five years ago against a restaurant company operating franchises in New York. The plaintiffs moved for partial summary judgment on whether they were properly advised in writing about tip credits when they started at the company and whether their wage statements met New York state law requirements. The moving plaintiffs were paid $5.00 per hour in regular pay and $7.50 per hour in overtime in addition to tips that (at least for the purposes of summary judgment) the plaintiffs did not dispute brought their pay above New York’s minimum wage requirements, nor did they contend that they did not understand that they were paid pursuant to the tip credit. Nonetheless, because of the company’s technical tip credit notice and wage statement violations, the court concluded that the company was liable to 15,000 workers for the liability period of 2011 to present for the difference between their hourly rate and the New York minimum wage (which increased to $9.70 per hour on December 31, 2016).

According to reporting by Law360, the plaintiffs’ attorney estimates that the damages could lead to more than $100 million in payments to the workers. It is not hard to imagine that such a massive judgment could put a major strain on the company’s operations or even threaten their ability to continue doing business. All the while, the plaintiffs did not dispute that, accounting for their tips, they were actually paid at least the New York minimum wage. In the event that the court orders defendants to pay them difference in the hourly rate they were paid and the New York minimum wage, they will have received the benefit of not just tips, but also damages resulting from what can only be described as a technicality.

Although this is a state law case and thus does not make up the fabric of inconsistent and illogical rhetoric we find in FLSA decisions that we have examined earlier, we find it appropriate to draw similar conclusions here. What is remedial and humanitarian about this court’s construction of New York’s minimum wage requirements? What protection of the right to earn a living wage is afforded low wage workers in this case? And if the answer is none, then perhaps courts ought to acknowledge that they do not always construe wage-hour laws in a way that achieves their core purpose of ensuring a living wage for working Americans, but rather in a way that has no apparent connection to such a purpose.