By: Dena Moghtader

Seyfarth Synopsis: In a misclassification-to-trial case, the Fifth Circuit affirmed a defense verdict because the plaintiff failed to prove the employer had actual or constructive knowledge of alleged overtime, rejected the theory that “no timekeeping system,” standing alone, creates constructive knowledge for the employer, and upheld the Fifth Circuit pattern jury instruction that employees must notify employers when working extra hours.

In this recent decision, Merritt v. Texas Farm Bureau, 166 F.4th 490 (5th Cir. 2026), the Fifth Circuit underscored that even when a plaintiff clears the classification hurdle, the overtime claim may still turn on a separate, dispositive issue: whether the employer knew, or had reason to know, the employee was working overtime.

Jerry Merritt worked for Texas Farm Bureau (“TFB”) as an Agency Manager, where he supervised a team of insurance agents and sold and renewed insurance policies. TFB classified Merritt and other Agency Managers as independent contractors. In his role, Merritt set his own work schedule, was paid by commission rather than hourly, and had no obligation to track or disclose his hours to TFB. TFB did not supervise Merritt’s hours or completion of daily tasks.

In 2019, Merritt sued TFB alleging he was misclassified and sought unpaid overtime under the FLSA. The district court ruled on summary judgment that he should have been classified as an employee, and concluded he was owed at least 816 hours of overtime. This left one issue for trial: whether TFB had actual or constructive knowledge of Merritt’s overtime work.

At trial, the jury found TFB lacked both actual and constructive knowledge of Merritt’s overtime. Merritt filed a Rule 50 motion for judgment as a matter of law and alternative Rule 59 motion to vacate and grant a new trial. The district court denied Merritt’s motions. Merritt appealed.

Fifth Circuit: It is a plaintiff’s burden to show the employer had actual or constructive knowledge that overtime was worked.

Merritt made three arguments on appeal. First, he argued that because TFB permitted him to work unlimited hours, TFB’s knowledge of his overtime work was irrelevant. The Court denied his argument and held that a plaintiff claiming entitlement to overtime pay is required to prove the employer’s actual or constructive knowledge of the overtime work.

Second, Merritt argued that TFB had constructive knowledge of the overtime because TFB made no effort to maintain a timekeeping system or to record Merritt’s time. The Court denied this argument too, reiterating that it is Merritt’s burden to show that TFB knew he worked overtime and the “absence of a timekeeping system, standing alone, does not establish constructive knowledge,” especially when the worker is not required to report hours, operates autonomously, and works off-site.

Finally, Merritt argued that the jury was given a misleading instruction that Merritt had a duty to notify TFB he was working overtime. The Court again denied this argument, holding that the jury charge was modeled after the Fifth Circuit’s pattern jury instructions, and Merritt cites no authority to support his argument that the jury charge misstates the law.

This opinion highlights some practical points:

  1. There is another hurdle in a case where classification is contested. Even if a court rules that the worker should be classified as an employee and is owed overtime hours, a plaintiff must still prove that their putative employer knew or should have known overtime was being worked.
  2. On these facts, a missing timekeeping system by itself is insufficient to show constructive knowledge, and the court declined to treat that absence as shifting the burden to the employer.
  3. Merritt reinforces the deference given to pattern-based jury charges.

Merritt reinforces that it is the obligation of a plaintiff seeking entitlement to overtime pay to show that the employer had actual or constructive knowledge of the overtime they worked.

By: Petersen D. Walrod & Kyle D. Winnick

Seyfarth Synopsis: The U.S. Department of Labor has proposed a new independent contractor rule that would guide courts, companies, and workers in their determinations of who must be paid as an employee and who can be treated as an independent contractor under the FLSA and two other statutes.

After much anticipation, the Department of Labor (DOL) has published a Proposed Rule defining independent contractors as opposed to employees under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) (the “Proposed Rule”). As expected, the Proposed Rule largely mirrors the DOL’s earlier 2021 Rule. The Proposed Rule would replace the Biden administration’s 2024 rule and is intended to provide clarity as to the definition of who is an independent contractor under the FLSA, FMLA, and MSPA. Notably, the Proposed Rule:

  • Embraces the same “core factor” approach used in the 2021 Rule, recognizing the significant weight courts give to “the right to control the manner and means by which services are performed” factor and “the opportunity-for-profit-or-loss” factor;
  • Uses the same three non-exhaustive factors as “additional guideposts,” including: the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production; and
  • Weighs key issues similarly to the 2021 Rule, including by minimizing the probative value of unexercised control; consolidating the investment and opportunity-for-profit-or-loss  factors; expressly stating that compliance with specific legal obligations, health and safety standards, customer deadlines, and insurance minimums does not demonstrate employee‑type control; and rejecting the relevance of comparing the relative investment levels of putative employers to those of workers.

Background

As explained here, the 2021 Rule was the DOL’s first-ever attempt, via rulemaking, to formally define independent contractors versus employees under the FLSA. It was issued against the backdrop of the growing gig economy and evolving work arrangements. In synthesizing decades of case law, the DOL concluded that the “core” control factor and the opportunity-for-profit-or-loss factor exerted an outsized influence on judicial outcomes. The 2021 Rule also addressed other key issues, such as minimizing the weight given to unexercised control and excluding from the analysis any control exercised solely to comply with certain laws.

Following the change in administration, however, the DOL rescinded the 2021 Rule and eventually promulgated a new rule in 2024. The 2024 Rule rejected the “core factor” framework in favor of a six‑factor test. It relied on an ambiguous totality‑of‑the‑circumstances analysis and reframed several factors in ways that increased the likelihood that workers would be classified as employees rather than independent contractors. The 2024 Rule was subsequently challenged in court, and in 2025 the DOL directed agency investigators to cease applying it and instead rely on sub-regulatory articulations of the test. 

The “Core Factor” Analysis, Restored

The Proposed Rule adopts the same “core factor” test used in the 2021 Rule: namely, that the control factor and the opportunity-for-profit-or-loss factor are the most reliable indicators of whether a worker is operating an independent business. If these two factors point in the same direction, “there is a substantial likelihood that this is the accurate classification for the individual.”

If the core factors of control and opportunity-for-profit-or-loss do not point in the same direction, the following factors should then be considered:

  • The amount of skill required for the work;
  • The degree of permanence of the working relationship between the individual and the potential employer; and
  • Whether the work is part of an integrated unit of production.

The Proposed Rule also provides that “additional factors” other than these five may be relevant but “only if the factors in some way indicate whether the individual is in business for him- or herself, as opposed to being economically dependent on the potential employer for work.”

The Proposed Rule Readopts the 2021 Rule’s Positions on Key Issues

The Proposed Rule also, like the 2021 Rule, provides guidance that clarifies grey areas for employers. These include:

  • Requirements that a worker comply with specific legal obligations; satisfy health and safety standards; carry insurance; meet contractually agreed‑upon deadlines or quality‑control standards; or adhere to similar terms are not probative of control;
  • A worker’s opportunity for profit or loss is not evaluated relative to that of the putative employer’s opportunity, and the opportunity for profit or loss need not arise from initiative or investment;
  • Clarification of the “integrated unit” factor by explaining that it concerns whether the worker is part of an integrated unit of production, and distinguishing it from the “importance or centrality” of the individual’s work to the potential employer’s business; and
  • Confirmation that actual practice is more relevant than what is theoretically or contractually possible.

This guidance also helps address specific concerns and ambiguities that the economic realities independent‑contractor test presents when applied to specific work relationships, industries, and sectors.

The Proposed Rule’s Illustrative Examples

To further provide predictability, clarity, and certainty, the Proposed Rule includes examples of how the above factors should be applied in specific circumstances. These include:

  • It is not probative for the control factor that a logistics company requires an individual who performs logistics services for it to comply with federally mandated transportation safety rules.
  • It is not probative for the opportunity-for-profit-or-loss  factor that a company that provides a software app has invested millions of dollars into the app, whereas an individual who provides services using the app has invested substantially less.
  • The skill factor weighs in favor of employee status where a roofing worker develops roofing skills on the job, but did not start with them because the business did not require them to have those skills at the start. In contrast, the skill factor weighs in favor of independent contractor status where a roofer is required to possess skills as a prerequisite to qualification for the opportunity.
  • The integrated unit factor weighs in favor of employee status where a remote newspaper editor is involved with the entire production process of the newspaper, and does the same work as newspaper employees, even though they are not physically at the newspaper’s office.
  • The integrated unit factor weighs in favor of independent contractor status where a journalist works on specific articles, and their work is separate from the newspaper’s other processes.

The DOL also adds further regulatory text explaining that the purpose of the independent contractor test is to determine whether a worker is economically dependent on an employer for “work.” This is a helpful change as it will help courts find a rationale for embracing the DOL’s proposed approach.

Takeaway

The Proposed Rule is not a final rule. The Proposed Rule was published in the Federal Register on February 27, 2026 and it will be open for public comment for sixty days (through April 28, 2026), after which the DOL will review public input and determine what, if any, revisions to include in a final rule. The timeline from proposed rule to final rule can take several months—even longer than a year—and the DOL may alter aspects of the proposal in response to comments.

Any final rule will be treated by a reviewing court as interpretive guidance. Courts retain ultimate authority to determine who is an employee and who is an independent contractor, and they give DOL interpretations such as this one Skidmore deference—that is, weight proportional to the guidance’s persuasive power. In addition, every federal circuit already applies its own standard for distinguishing independent contractors from employees, and district courts are likely to continue following circuit precedent.

Nonetheless, if finalized, the Proposed Rule will be welcome news for employers and workers, as it provides to courts the regulatory agency’s interpretation of the economic realities test, including a modern, well-balanced, clear analysis that gives greater weight to the two core factors and interprets all factors in an even-handed manner consistent with decades of case law.

Seyfarth attorneys are closely monitoring the DOL’s rulemaking in this area and are available to provide guidance on how the Proposed Rule impacts businesses and workers.

By: Noah A. Finkel and Cassandra M. Ficano

Seyfarth Synopsis: It has long been established that, to be enforceable, a release of a FLSA claim must be approved by either the Department of Labor or a court. While courts in the Second and Eleventh Circuits have consistently adhered to this precedent, in recent years, a growing number of courts in other jurisdictions like the Ninth Circuit have begun to take a different view. The U.S. District Court for the Western District of Washington can now be added to that growing list with its summary judgment decision upholding the enforcement of a private separation agreement as a valid release of FLSA claims.

In a scenario familiar to many employers, AGC Biologics Inc. (“AGC”) and former hourly employee Eufronio Lomibao voluntarily entered into a separation agreement following the termination of his employment in which Lomibao received money and job placement services in exchange for a broad release of all claims arising out of his employment. The general release explicitly accounted for any claim brought under the FLSA. The parties did not obtain, or attempt to obtain, approval from a court or the Department of Labor.

About nine months after signing that agreement, Lomibao initiated a class and collective action against AGC, claiming the company failed to compensate him for all hours worked in violation of the FLSA and Washington wage-hour law.

AGC moved for summary judgment before discovery on the basis that Plaintiff’s individual FLSA and state law claims were barred by the parties’ separation agreement. The Court agreed, granting AGC’s motion and dismissing the action in its entirety with prejudice.

Underscoring the lack of clarity on this issue, Judge John H. Chun started his analysis in Opinion and Order by noting that “caselaw regarding waiver of FLSA rights is hardly perspicuous.” Indeed, even within the Ninth Circuit, where the Western District of Washington sits, courts have diverged on whether judicial or Department of Labor approval is always required for a valid waiver of FLSA rights. Against that backdrop, Judge Chun framed his analysis around three key questions: (1) whether FLSA rights can ever be waived by contract; (2) if so, under what circumstances should an agreement waiving FLSA rights be considered valid; and (3) if the Court does not invalidate the agreement on FLSA waiver grounds, whether any genuine issues of material fact existed that would preclude summary judgment.

In addressing the first issue, Judge Chun declined to hold, as a matter of law, that an employee can never waive FLSA rights through a contractual agreement. Taking a textualist approach, he noted that neither binding precedent nor the plain language of the FLSA supports a bright-line prohibition on such waivers. In light of that absence – and mindful of “prudential concerns and other public policies,” including longstanding principles favoring the enforcement of contracts according to their terms – Judge Chun explained that he was “not inclined to recognize a categorical ban on waiver of FLSA rights via contract.”

Second, Judge Chun determined that a bona fide dispute existed between the parties at the time the separation agreement was executed regarding potential FLSA coverage and liability. He emphasized that Lomibao was aware during his employment, and, moreover, before signing the agreement that he believed AGC had failed to compensate him for all hours worked. The Court squarely rejected Lomibao’s contention that no “active dispute” existed at that time, correctly pointing out that an “active dispute” is not the applicable standard. Rather, the law requires only the existence of a bona fide dispute between the parties.

The Court acknowledged but ultimately declined to adopt the approach followed by the Eleventh and Second Circuits, which always require Department of Labor or judicial approval for any enforceable waiver of FLSA rights. Instead, having already concluded that the parties’ separation agreement was not invalid for lack of a bona fide dispute, the Court found no remaining basis on which to invalidate the release of Lomibao’s FLSA claims.

Because Lomibao challenged the validity of the separation agreement solely on legal grounds – namely, the argument that FLSA waivers require approval to be valid and enforceable – the Court found he failed to identify any genuinely disputed or missing facts suggesting the parties did not form a valid contract. Unlike the cases Lomibao cited in opposing summary judgment, it was undisputed here that he signed an agreement expressly releasing his right to bring any FLSA claim against AGC. The Court highlighted several undisputed facts underscoring the agreement’s validity: the employee had 45 days to review the agreement; he signed it after 21 days; he was advised to consult with an attorney before executing it; he did not revoke his acceptance within the seven‑day revocation period; and AGC fully performed its obligations under the agreement, including issuing the severance payment and providing job‑placement services.

Judge Chun’s decision underscores that, unlike some other circuits, the Ninth Circuit has not embraced a universal rule. Generally, the appropriate course for each employer depends on the jurisdiction and the specific factual circumstances surrounding the agreement. The most risk‑averse approach remains obtaining judicial or DOL approval for any release of FLSA claims. Many employers, however, may elect to proceed without approval – particularly in situations like this one, where it is undisputed that a valid contract was formed between the parties, the contract expressly provides for the release of FLSA claims and the jurisdiction does not have a hard-fast rule requiring approval.

By: Ralph Culpepper III and Kevin M. Young

Seyfarth Synopsis: In one of its final rulings of 2025, the Eleventh Circuit in Villarino v. Pacesetter Personnel Services, Inc. affirmed summary judgment in favor of a staffing agency, rejecting minimum wage and compensation claims tied to optional van transportation and pre- and post-shift activities. The court held that deductions for use of employer-provided vans did not violate the FLSA or Florida law because the vans were optional and primarily benefited the employees. The court also applied a clear, textual reading of the Portal-to-Portal Act, finding that time spent commuting to a project site, waiting on an optional employer-provided van, and collecting tools were not compensable. The decision offers welcome clarity for employers, particularly those operating in the Southeast.

In 2020, an individual named Shane Villarino filed a hybrid FLSA collective and Florida Minimum Wage Act (FMWA) class action against his former employer—a staffing agency that assigns temporary workers to client sites across the Southeast. Roughly 300 individuals joined the case, challenging two core practices: (i) wage deductions for using optional, employer-provided transportation, and (ii) exclusion of certain time—such as travel to work sites and tool collection—from compensable hours.

The plaintiffs, all temporary workers, could choose whether, when, and where to accept assignments. On days they chose to work, they reported to a central hub, signed into a portal, and received a ticket with the worksite location, report time, and recommended tools.

To get to the job site, the employees had several options: personal vehicle, public transportation, carpooling with coworkers, or using a company-provided van. Use of the van was entirely optional. If chosen, the agency deducted $3.00 per day ($1.50 each way); those who volunteered to carpool coworkers received $3.00 per passenger.

The plaintiffs raised two primary claims. First, they alleged the deductions for using employer-provided vans brought their wages below the minimum wage, resulting in violations of the FLSA and FMWA. Second, they argued they should be compensated for time spent (i) traveling from the central hub to the worksite; (ii) waiting for the agency’s vans to arrive, and (iii) retrieving and returning tools.

The staffing agency moved for summary judgment, which the district court granted. The workers appealed. On December 5, 2025, the U.S. Court of Appeals for the Eleventh Circuit affirmed for the employer.

On the wage deduction issue, the Eleventh Circuit reiterated a core principle: while employers cannot shift business expenses that drop workers below minimum wage, not all deductions are unlawful. The court explained: “[T]he rule is not that expenses can never be deducted from wages—it is that expenses cannot be shifted to employees when they are for the employer’s benefit.”

Because the van rides were optional and offered primarily for employees’ convenience, the court found the deductions permissible. Employees were responsible for getting to work on time and had multiple options for doing so, none of which were mandated.

The panel also rejected the claim for compensating pre-shift time. The court’s analysis of the argument turned heavily on the Portal-to-Portal Act, which amended the FLSA in 1947 to clarify that time spent commuting to and from work, as well as other activities that are preliminary or postliminary to an employee’s “principal” work activities, are not compensable. Through the lens of the PTPA, “the fact that workers need to get to their jobs in order to do them is not enough—if mere causal necessity were sufficient to constitute a compensable activity, all commuting would be compensable… And that would make the PTPA a dead letter.”

Similar principles governed time spent collecting tools. The tools were generic (hard hats, gloves, vests), not always required, sometimes supplied at the jobsite, and employees could bring their own. Even arriving without tools did not necessarily prevent the employee from working. Under these facts, collecting and returning tools was not an indispensable part of the employees’ duties, and thus not compensable.

A similar analysis applied for the employees’ claims concerning waiting time. The court explained that workers were not required to wait—they could use alternate transportation—and those who waited could use the time for personal pursuits, such as drinking coffee, reading/watching the news, or taking a nap. Under these circumstances, again, the time was not an integral and indispensable part of the employees’ duties.

Takeaways for Employers

The Eleventh Circuit’s decision is a win for employers operating in Florida, Georgia, and Alabama. It reinforces the viability of optional transportation policies and the continued strength of the PTPA’s protections for employers. The court’s emphasis on employee choice and benefit is a useful lens for assessing current transportation-related practices and potential future challenges.

That said, the ruling is fact-specific. Seemingly small differences—like whether a tool is required, how workers spend wait time, and what transportation options are made available to employees—can materially impact the analysis and potentially change the outcome.

The ruling provides a useful reminder for employers in a number of areas:

  1. Keep Written Policies Up to Date. Clear, consistent communication is key. In this case, the agency’s ability to prove that van use was entirely optional played a key role in the outcome.
  2. Train for Consistency. Relatedly, managers should communicate policies in a way that mirrors the written guidance. Misalignment between policy and practice is breeding ground for litigation risk.
  3. Be Mindful of the PTPA. The decision hinged heavily on the PTPA. While the PTPA is, of course, part of the federal wage-hour analysis, employers should keep in mind that some state wage-hour laws do not recognize or incorporate the PTPA—and the outcome could be different in those states.

If you have any questions, please do not hesitate to reach out to your favorite Seyfarth wage-hour lawyer or the blog authors.

[New York employers should expect heightened scrutiny of their wage-and-hour policies in 2026.]

As we kick off 2026, it is an important reminder for employers that New York is a hotbed for wage-hour issues.  The Eastern and Southern Districts of New York consistently see more cases asserting claims under the Fair Labor Standards Act (FLSA) than any other federal court.  See here.  In 2025 alone, more than 600 wage-and-hour cases were filed in New York State courts.  While the New York Labor Law (NYLL) and its implementing regulations mirror the FLSA in certain respects, they differ in important ways. Below are some of the most frequent wage-and-hour issues employers should keep in mind.

Minimum Wage and Overtime Exemptions

Minimum wage is set at $7.25 per hour under the FLSA.  As explained here, New York requires that non-exempt employees be paid at least $17.00 per hour for those based in New York City, Long Island, or Westchester, and $16.00 per hour for employees in the rest of the state. 

The New York Department of Labor (NYDOL) has also set the salary threshold for the executive and administrative exemptions at $1,275 per week for employees in New York City, Long Island, or Westchester, and $1,199.10 per week for employees elsewhere in the state.  Currently, New York does not impose a salary threshold for the professional exemption, leaving the FLSA’s requirement of $684 per week in place.

While New York recognizes many of the FLSA’s exemptions to overtime, there are important exceptions.  For example, the Second Circuit has held that New York does not recognize the Motor Carrier Exemption, which provides an overtime exemption for certain employees who drive or operate motor vehicles weighing over 10,000 pounds. 

Pay Frequency

New York also regulates how frequently employees must be paid—for example, “manual workers” must be paid weekly.  As discussed here, New York has seen a surge of litigation seeking damages on behalf of classes of manual workers who were paid biweekly instead of weekly.  In May 2025, New York amended the NYLL to sharply limit damages for these pay-frequency violations. Challenges to the constitutionality of this amendment are currently pending.  

Overtime and Regular Rate of Pay

As under the FLSA, employers must pay overtime premiums to all non-exempt employees for hours worked beyond 40 in a workweek. Like the FLSA, New York calculates overtime pay at 1½ times the employee’s “regular rate of pay.”

For employers covered by New York’s Miscellaneous Wage Order—the default Wage Order that applies to most employers—the regular rate of pay is determined by adding the employee’s pay for the workweek and all other earnings (except certain statutory exclusions) and dividing that total by the number of hours worked during the week.

In contrast, under New York’s Hospitality Industry Wage Order, which applies to restaurants and hotels, the regular rate is calculated by dividing the employee’s total weekly compensation by the lesser of 40 hours or the actual hours worked (if fewer than 40). This method necessarily increases the regular rate of pay and, correspondingly, the overtime rate.

Tips and Gratuities

New York also deviates from the FLSA with respect to tips and gratuities. Generally, New York only permits employers in the hospitality industry to take a tip credit.  As discussed here, New York eliminated the tip credit for employers subject to the Miscellaneous Wage Order, which includes workers in nail salons, car washes, and hairdressing establishments.    

For employers that may take a tip credit, New York follows the 80/20 rule: employers of service employees and food service workers cannot take a tip credit for any day in which the employee spends more than 20 percent—or two hours, whichever is less—of the workday performing non-tipped duties.

Administrative fees for banquets and other special events are presumptively considered tips that must be paid to tipped employees. To rebut this presumption, the employer must provide customers with notice that complies with the Hospitality Wage Order requirements. 

Spread of Hours and Split Shifts

The NYLL requires employers, in certain circumstances, to provide additional pay to employees whose workday exceeds ten hours or whose hours are “split” (non-consecutive). For employers covered by the Miscellaneous Wage Order, this means the employee must receive at least one additional hour of pay at the basic minimum hourly wage rate for each spread-of-hours or split shift worked during the workweek.

Courts and the NYDOL have held that this regulation does not apply if the employee’s total daily compensation exceeds the New York State minimum wage multiplied by the number of hours worked, plus one additional hour at the minimum wage. In other words, these regulations do not apply if the employee is paid sufficiently above the minimum wage.

In contrast, under the Hospitality Industry Wage Order, covered employees who work a spread of hours exceeding ten hours or a split shift are entitled to an additional hour of pay at their regular rate of pay—even if they earn above the minimum wage.  

Uniform Maintenance Pay

An increasing number of wage-and-hour lawsuits in New York have involved claims for uniform maintenance pay (UMP). New York requires employers to provide employees with an additional fixed weekly sum, depending on the size of the employer and the number of hours worked.

According to the NYDOL, this regulation applies to employers subject to the Miscellaneous Wage Order only if requiring employees to launder or maintain a uniform would reduce their hourly wage below the minimum wage.

Under the Hospitality Wage Order, UMP is not required when uniforms: (1) are made of “wash and wear” materials; (2) can be routinely washed and dried with other personal garments; (3) do not require ironing, dry cleaning, daily washing, commercial laundering, or other special treatment; and (4) are furnished to the employee in sufficient quantity to match the average number of days worked per week.    

Independent Contractors

The New York State Freelance Isn’t Free Act and the New York City Freelance Isn’t Act provide protections to “freelance workers”—defined as any natural person or any organization composed of no more than one natural person that is hired as an independent contractor (i.e., sole proprietors)—including contractual requirements and a formal enforcement process for unpaid compensation.  

In New York City, certain workers who perform delivery and couriers services through third-party applications, and who are classified as independent contractors, must be paid $21.44 per hour.  For more information on this law, see here.  

New York City also has several laws scheduled to take effect on January 26, 2026 (pending current legal challenges) that regulate the use of gig workers:

  • Local Law 113 of 2025, which requires delivery services to pay their contracted delivery workers no later than 7 calendar days after the end of a pay period.
  • Local Law 108 of 2025, which requires third-party food delivery services and third-party grocery delivery services that offer online ordering to solicit gratuities for food delivery workers and grocery delivery workers before or at the same time an online order is placed.  
  • Local Law 107 of 2025, which requires third-party food delivery services and third-party grocery delivery services to provide an option to pay gratuity that is at least 10 percent of the purchase price on each food or grocery delivery order.

NYC Mayor Zohran Mamdani has stated that his administration will target the alleged misclassification of app-based delivery workers as independent contractors. We therefore anticipate additional regulations governing the use of app-based workers.

The bottom line: New York employers should expect heightened scrutiny of their wage-and-hour policies in 2026.

By: Alison Silveira and Natalie Costero

Seyfarth Synopsis: The University of Georgia Athletic Association (“UGAA”) recently filed an application in Georgia state court to compel arbitration against former Georgia defensive end Damon Wilson II. UGAA seeks $390,000 in liquidated damages after Wilson ended his NIL agreement early and transferred to Missouri. This case offers one of the first public looks at how NIL contracts, the transfer portal, and revenue-sharing rules intersect. 

Background 

Wilson signed an NIL agreement with Classic City Collective in December 2024, worth $420,000 over 14 months, plus bonuses. The agreement also included a liquidated damages clause requiring Wilson to pay Classic City all remaining licensing fees that would otherwise have been payable to Wilson under the agreement if he withdrew from the team or entered the transfer portal. 

One month later, Wilson announced his transfer to Missouri. Previously, NCAA transfer rules required university approval and affected eligibility for future seasons. The 2024 updates removed these restrictions, provided athletes meet GPA and credit-hour requirements. As a result, Wilson has started all 11 games for Missouri this season, and become one of the top pass-rushers in the SEC.  

Classic City terminated the agreement and demanded payment of liquidated damages, consistent with the terms of the contract. It also assigned its rights under the agreement to UGAA, a private, non-profit corporation that manages athletics for the University of Georgia. While still part of the University system (the UGA President and Provost serve as Chair and Vice Chair of the Board, respectively), UGAA oversees all aspects of sports and athletics for the university. When Wilson ignored arbitration demands, UGAA filed in court. 

Why This Matters for Universities 

This case highlights critical compliance and operational risks for universities, intertwined with the assignment and enforcement of NIL rights: 

  • Revenue-Sharing Compliance: Under House, universities face a $20.5M cap on revenue sharing. NIL deals entered into between collectives and athletes fall outside this cap, providing an avenue by which student athletes may earn more for licensing of their NIL based on their own fair market value. Maintaining separation between collectives and universities is imperative for university compliance with House, as the punishments for exceeding the $20.5M revenue share cap, administered by the College Sports Commission, may include anything from significant fines to bans from postseason play to reductions in future scholarship counts and/or roster limits.  
  • Employment Risk: A contract between a collective and an athlete may contain clauses that would be unadvisable in a revenue sharing agreement between a university and its student-athlete.  For example, Wilson’s contract with Classic City was invalidated the minute he decided to stop playing football for UGA. Such a clause in a revenue-sharing agreement, tying eligibility for the funds to continued participation (or, potentially, specific performance metrics) could be challenged as impermissible “pay for play.” Revenue sharing agreements between universities and student-athletes are also already under scrutiny as potential evidence of an employment relationship, which remains a viable and pending legal issue in Johnson v. NCAA. Contracts between collectives and athletes do not face the same scrutiny, lessening concern over terms that could be interpreted as indicia of control, like the prohibition at issue in Wilson against entering the transfer portal.  
  • Roster Stability: The liquidated damages clause in Wilson’s agreement was, presumably, Classic City’s attempt to strengthen the ties between NIL sponsorships and the athletes, with the hope of leading to roster stability. Through these types of provisions, collectives are trying to avoid exorbitant payments for short term commitments followed by rapid exits, while also balancing athlete free agency and the potential for antitrust claims. While the liquidated damages provision did not restrict Wilson from transferring, it functioned like a clawback provision used in corporate compensation packages: a mechanism designed to protect the Classic City’s investment and introduce stability into a system where athletes can move freely with a single transfer portal entry. Universities, who must comply with the NCAA’s transfer portal rules, should closely consider whether similar clauses may be enforceable. 
  • Title IX Exposure: Consolidating NIL funding under the university could trigger Title IX obligations.  Because collectives are privately run corporations, they are not subject to the same Title IX obligations facing universities. Assignment of rights under a collective agreement to a university – where an estimated 80-90% of beneficiaries of collective agreements are male athletes – could raise questions of fund allocation and potential exposure for university beneficiaries.   

Checklist: Before Accepting Assignment of NIL Rights 

If UGAA prevails against Wilson (which the public may never know, as UGAA is requesting that the case proceed to private arbitration consistent with the contract), UGAA could recover significant funds which, presumably, it will use to fund future revenue sharing deals with its athletes.  However, before accepting assignments, universities should consider whether that potential receipt of funds could create inadvertent risk, including: 

  • Does this assignment risk exceeding the House revenue-sharing cap? 
  • Could the agreement resemble “pay-for-play” or employment? 
  • Are liquidated damages enforceable under state law? 
  • Does this create Title IX compliance obligations? 

Looking Ahead 

  • Donor Relations: NIL instability is increasingly frustrating both donors and coaches.  Miami’s Mario Cristobal, for example, has stressed that he is not looking for “one-year subcontractors”—he wants players who care about the University of Miami and invest in the long-term culture of the program. Individual donors are expressing similar frustration, including Troy Aikman who was quoted in a recent New York Times article saying “I’m done with NIL. I mean, I wanna see UCLA be successful, but I’m done with it.”[1] The current influx of money into college sports by donors sponsoring collectives is likely not sustainable, without some long-term return on investment. Contractual devices like liquidated damages are one vehicle by which donors and collectives are trying to align financial commitments with that kind of stability, without in fact prohibiting athlete mobility. Adequate notice provisions could provide similar protections. What’s clear is that careful – and creative – drafting is imperative.
  • Collective Bargaining: Athletes.org has released the first-ever framework of terms of a Collective Bargaining Agreement (CBA), representing the first serious step toward organizing college players around a labor model. How the NCAA and universities will respond remains uncertain. If collective bargaining – for all sports or just certain sports – were to be the next step in the evolution of college sports, key questions need to be answered around who is at the table and what items the parties are willing to bargain – including what types of compensation may be the subject of bargaining. As both institutions and athletes formalize their positions on these subjects, details like assignability of NIL deals with collectives, arbitration of claims, notice provisions, and liquidated damages take on increased significance, along with questions around revenue sharing and – potentially – the future of the transfer portal. Each dispute becomes a preview of what the next era of contracting in college sports will look like. 

Bottom line: With the College Football Playoffs approaching and the transfer portal reopening January 2, 2026, expect more cases like Wilson as universities and collectives navigate athlete compensation and investment protection. Careful drafting and thoughtful planning to navigate potential exposure risks are essential.  

[1] Deitsch, Richard, “Aikman’s guiding principle for ‘Monday Night Football’:  ‘I try to be fair,”’ The New York Times, Dec. 9, 2025.

By: Phillip J. Ebsworth and Sofya Perelshteyn

Seyfarth Synopsis: Second Appellate District affirmed the ruling in a PAGA bench trial finding that the employer’s pay plan was lawful and that the PAGA notice did not include the facts and theories that plaintiffs pursued at trial.

The bench trial focused on the pay plan by which the employer car dealership paid its mechanics. Plaintiffs were paid minimum wage for all hours worked but also received a “flag bonus” if they performed certain jobs or tasks quicker than average. The plaintiffs argued that the “flag bonus” amounted to piece rate pay and therefore violated Labor Code section 226.2. Following a bench trial, the trial court found that the employer’s pay plan was lawful and did not violate the “no borrowing rule” and issued a decision in the employer’s favor.

The Second District affirmed the trial court’s decision and held there was an independent basis for affirming the decision on the PAGA claim. The Second District noted that the plaintiffs’ primary theory of liability was not included in the PAGA notice submitted to the LWDA which provided an independent basis to find in favor of the employer on the PAGA claim. The Second District also emphasized that while the plaintiffs introduced pay records as evidence at trial, they did not meet their evidentiary burden to demonstrate any Labor Code violations.

By: Howard M. Wexler, Kyle D. Winnick, and Kimberly I. Garcia

Seyfarth Synopsis: The Third Circuit held that Section 216(b) of the FLSA does not prohibit the release of FLSA claims in an opt-out class-action settlement.

Settling “hybrid” cases in the Third Circuit just became easier for parties asserting claims under both federal and state wage-and-hour laws.

By way of background, the FLSA provides, in relevant part, that “[n]o employee shall be a party plaintiff to [a FLSA action] unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.”  29 U.S.C. § 216(b).  Thus, similarly-situated employees do not become plaintiffs in a FLSA case unless they file a consent in writing affirmatively agreeing to become a party-plaintiff.  In contrast, in a certified class action under Rule 23 of the Federal Rules of Civil Procedure, class members are part of the class unless they opt out of the litigation. 

The opt-in requirement of the FLSA has led some district courts to conclude that, while state wage-hour claims may be released pursuant to Rule 23’s opt-out procedures (and, thus, typically a large portion of the relevant employee population will be bound by the settlement, because people tend not to opt out of class-action settlements), FLSA claims cannot be released through an opt-out mechanism. Rather, only those individuals who affirmatively opt into the litigation may be bound by a settlement agreement.  In the settlement context, this usually results in fewer employees releasing their FLSA claims because far fewer employees tend to opt into the settlement than opt out.      

In Lundeen v. 10 West Ferry Street Operations LLC, the Third Circuit addressed whether the FLSA’s opt-in requirement prohibits named-plaintiffs in a class action from settling prospective class members’ unasserted FLSA claims as part of an opt-out class settlement under Rule 23(b)(3). The Third Circuit held that the FLSA does not forbid such settlements.

The plaintiff in Lundeen filed a hybrid class and collective action alleging violations of the FLSA and the Pennsylvania Minimum Wage Act. The parties reached a settlement that included compensation for both opt-in collective members and opt-out Rule 23 class members.  Importantly, the settlement provided that all the putative class members who did not opt out of the settlement released not just their Pennsylvania law claims, but also their FLSA claims. The plaintiff then filed a motion seeking preliminary approval of the settlement.

The district court denied preliminary approval, finding that the settlement was “neither fair nor reasonable” because it conflicted with the FLSA’s opt-in requirement, which provides that no employee shall be a party to an action without written consent.

The plaintiff appealed, arguing that section 216(b) of the FLSA does not restrict employees from releasing FLSA claims in a class settlement. Both parties agreed that the district court had misinterpreted the statute.

The Third Circuit reversed. The court emphasized that section 216(b) governs litigation, not settlement, and began its analysis with the plain language of the statute. It rejected the district court’s categorical prohibition on releasing FLSA claims in an opt-out settlement, noting that the Fifth and Ninth Circuits have enforced similar releases under the doctrine of res judicata.

The Court further explained that Congress added the opt-in requirement in 1947 to reduce duplicative litigation, not to protect employees from settling claims. The court concluded that the district court misconstrued the provision’s purpose. The Court reiterated that courts “must not revise legislation to better serve its supposed purpose.”

By allowing for FLSA claims to be released through a Rule 23 mechanism, at least where both FLSA and state law claims are asserted and settled, Lundeen allows employers within the Third Circuit (and hopefully beyond) to structure class-action settlements in a way that will offer them greater protection from future FLSA lawsuits. 

Seyfarth Synopsis: The Fifth District Court of Appeal reaffirmed its earlier holding in CRST Expedited, Inc. v. Superior Court that plaintiffs can bring “headless” PAGA actions—claims seeking civil penalties solely for Labor Code violations suffered by other employees.

In Galarsa v. Dolgen California, LLC, the Fifth District revisited the permissive language in the pre-reform version of PAGA. Specifically, the Court examined the phrase “on behalf of himself or herself and other current or former employees” and found it ambiguous when paired with the permissive verb “may.” This ambiguity, the Court explained, justified applying the “exceptional rule of construction,” interpreting “and” to mean “and/or.” As a result, the Court concluded that pre-reform PAGA allows plaintiffs to pursue (1) claims for violations they personally suffered, (2) claims for violations suffered only by others, or (3) both. This interpretation, the Court reasoned, best promotes PAGA’s purpose of maximizing Labor Code enforcement.

The Fifth District’s reaffirmation of headless PAGA actions applies only to claims brought under the version of PAGA in effect prior to the July 1, 2024 reforms. With a split in appellate authority still unresolved, trial courts retain discretion to adopt the statutory interpretation they believe best reflects legislative intent. The California Supreme Court will weigh in when it decides Leeper v. Shipt, Inc., which could settle the debate over whether headless PAGA actions remain viable under pre-reform law.

By: Hillary Massey, Kyle A. Petersen, and Molly C. Mooney

Seyfarth Synopsis: The federal government has now shutdown as of midnight on Wednesday, October 1, 2025 with no money flowing to fund non-essential services. Private-sector employers with federal contracts may need to consider cost-saving measures, such as temporary furloughs, reductions in hours, or reduced pay.

With government funding turned off, private sector employers with federal contracts may need to consider cost-saving measures during the government shutdown. Employers should bear in mind the potential wage and hour implications when implementing these changes.

Non-Exempt Employees: Reductions in Hours and Hourly Rate. Because non-exempt (overtime eligible) employees do not need to be paid for time when they are not working, employers can reduce their scheduled hours, as well as their hourly pay without implicating wage and hour laws. Such changes should be prospective and, of course, the hourly pay must still satisfy the federal and state minimum wage. When reducing rates of pay, it is important to check state law on how far in advance you must tell an employee their hourly rate is going down. It is also important to continue paying workers on time.

Exempt Employees: Full-Week Reductions in Hours and Salary. Frequent readers of this blog should know that exempt employees are subject to the salary basis test, which means they generally must be paid the same minimum weekly salary regardless of how many or few hours they work each week. (Federal law currently requires a minimum weekly salary of $684 but some states impose higher thresholds). Reductions in that weekly salary could jeopardize the employee’s exempt status. This means that employers cannot implement partial week furloughs for exempt employees. Full-week furloughs are permitted, so long as the employee performs no work during the week. And, yes, that includes abstaining from responding to email, taking phone calls, and other activities that could constitute hours worked.  Given that many employees are constantly “plugged in,” ensuring compliance with this requirement is essential yet challenging.

Exempt Employees: Partial-Week Reductions in Hours and Salary. As you might have surmised, partial-week reductions in salary are generally not permitted without risking an employee’s exemption. For example, employers generally cannot pay exempt employees 80% of their salary for working four-day workweeks instead of five at the employer’s request. A narrow and delicate exception is that employers can implement a fixed reduction in future salaries and base hours due to a bona fide reduction in the amount of work. While the FLSA and federal regulations do not specifically address furloughs, the Department of Labor’s opinion letters (to the extent they still have sway) and courts have (almost) unanimously concluded that employers may make prospective decreases in salary that correspond to reduced workweeks, so long as the practice is occasional and due to long-term business needs or economic slowdown. How frequently an employer can furlough its exempt employees is not settled, but federal courts have held that salary reductions twice per year are infrequent enough to be bona fide.

Another option is to use accrued leave. Employers can reduce an exempt employee’s salary and substitute paid leave (subject to state law), as long as the employee receives their regular salary in any week they perform work. While this doesn’t immediately reduce payroll costs, it can help reduce accrued leave liabilities and minimize the financial burden to impacted employees.

Once the budget crisis passes and employees return to work, caution is still warranted in returning furloughed employees to work.  As always, when dealing with these issues, be sure to contact your wage and hour counsel.