By: A. Scott Hecker

The long wait for a Senate-confirmed U.S. DOL Wage and Hour Division (“WHD”) Administrator is over!  As of October 25, 2023, Jessica Looman has ascended to the top role in one of the Department’s premier enforcement agencies, winning confirmation 51-46.  Operating as Principal Deputy Administrator since January 20, 2021, Ms. Looman’s WHD was active even before she landed the big chair – and a great Capitol view from the Administrator’s Office – by, e.g., “modernizing” the Division’s Davis-Bacon regulations.  Now Ms. Looman has the political gravitas of Senate confirmation behind her as she continues to spearhead rulemaking efforts on independent contractor classification and overtime exemptions, as well as enforcement initiatives like battling child labor abuses.

Historically, presidential administrations have found it difficult to get their Administrator nominees approved, as stakeholders express significant interest in a role tasked with overseeing thorny issues like minimum wage, overtime, tipped work, and employee classification.  Ms. Looman did not engender the same level of resistance as President Biden’s initial Administrator nominee, Dr. David Weil, who served in the same role during the Obama Administration.  Dr. Weil was unable to secure the votes of Democratic Senators Joe Manchin, Mark Kelly, and Kyrsten Sinema (a Democrat at the time, now rebranded as an Independent), but Ms. Looman received support from all three.  She even collected a “Yea” vote from Republican Senator Dan Sullivan, making her confirmation bipartisan.

At the time of Ms. Looman’s nomination, the International Franchise Association (“IFA”) released a statement “congratulat[ing] Jessica Looman on her nomination to be Administrator of the Wage and Hour Division at the Department of Labor,” and noting “[i]n recent weeks, our members have had productive conversations with Acting Administrator Looman about the essential role that franchising plays in our economy and why it is critical that the Department of Labor serves to enforce existing law rather than create new policy.”  July 27, 2022 IFA Statement on Nomination of Jessica Looman to Labor Department Wage and Hour Division.  Further, IFA indicated it “look[ed] forward to working together” with Ms. Looman.  Id. 

Not everyone is a fan, however, and Ms. Looman will undoubtedly face headwinds in her confirmed role.  For example, responding to Ms. Looman’s nomination, and opining on her union background, House Education and Labor Committee Chair Virginia Foxx commented:

Under an “Administrator Jessica Looman,” we can expect to see more of the same bureaucratic antics that have plagued Biden’s WHD since the beginning.  Under Looman’s tenure, we’ve already seen the WHD undercut the Trump administration’s independent contractor rule, implement more burdensome regulations under the Davis-Bacon Act, and end compliance assistance, including the PAID program.  As a former union official, Jessica Looman will likely keep the WHD’s bar incredibly low while throwing workers, employers, and independent contractors under the bus.

Congresswoman Foxx also recently made clear her displeasure with the Department’s and Division’s insistence that the comment period on the notice of proposed rulemaking, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” remains at 60 days.  Along with this kind of congressional pushback, Ms. Looman must keep navigating the turbulent waters of enforcement staff attrition, which will likely limit WHD’s ability to execute on its various, competing priorities. 

Going forward, though, Administrator Looman will face such challenges wearing the badge of Senate confirmation.

For more on this or any related topic, please do not hesitate to connect with the author or your favorite member of Seyfarth’s Wage and Hour Practice Group.

By Lennon Haas and Noah Finkel

Seyfarth Synopsis:  Employers frequently struggle with questions around the compensability of certain activities, classification of employees, and how to structure their policies to avoid Fair Labor Standards Act violations.  Getting the answers wrong can be costly.  But getting them wrong without making reasonable efforts to comply with the law doubles an employer’s exposure.  According to a recent Eastern District of Pennsylvania decision, consulting an experienced labor and employment attorney and implementing policies responsive to that advice can avoid that double trouble.

Many a manufacturer requires its line level employees to wear protective clothing on the job.  And many a case has been litigated over whether time spent donning and doffing that clothing is compensable. 

East Penn Manufacturing Co. found itself embroiled in one such case brought by the Department of Labor that involved employees who worked with lead while making batteries and related components.  A trial determined that East Penn violated the FLSA and owed $22,253,087.56 in back wages.  The DOL asked the court after trial to impose liquidated damages (which double the amount of a back pay award) on East Penn, arguing that the company had not acted in good faith in its attempts to comply with federal law and had no reasonable grounds to believe it had complied with the FLSA.

The court disagreed.  To avoid liquidated damages in FLSA cases, an employer must show that it acted in good faith and had reasonable grounds to believe it complied with the law.  Good faith, said the court, is a subjective requirement that requires employers to “have an honest intention to ascertain and follow” the FLSA.  Reasonableness, meanwhile, “imposes an objective standard” that asks what a reasonably prudent [person] would” do “under the same circumstances.” 

East Penn proved both that it acted in good faith and reasonably.  Every time a donning and doffing issue arose—something that happened in 2003 and 2016—East Penn “took affirmative action to ascertain its FLSA obligations.”  In 2003, the company directed its outside labor and employment attorney to analyze two DOL donning and doffing settlements and advise East Penn about its own compensation policies.  Upon receipt of the lawyer’s memo and recommendations, East Penn adopted one of their attorney’s “solutions” and promulgated a new compensation policy for donning and doffing time.

In 2016, East Penn learned of an OSHA complaint “about the amount of paid time allotted for showering.”  The company revised its compensation policy yet again and solicited the same lawyer’s input on the new proposed policy’s legal compliance.  The lawyer approved the policy and the company implemented it.

“In other words,” said the court, “East Penn relied in good faith on the advice of a properly experienced labor and employment attorney” who himself tried to ascertain if the company’s donning and doffing policies complied with the FLSA.  Indeed, East Penn “tailored its policies in response to, and consistent with” its lawyer’s advice.

For many of the same reasons, the court also held that East Penn acted in an objectively reasonable manner.  The “legitimate legal uncertainty about the compensable status” of donning and doffing time coupled with the company’s actions in response to that uncertainty led the court to conclude “that East Penn was objectively reasonable as a matter of law.”  The court thus denied the DOL’s request for liquidated damages and East Penn was able to avoid paying an extra $22,253,087.56.

For employers facing uncertainty about their compensation policies, classification decisions, or other wage and hour related issues, this opinion provides a roadmap for how to avoid the imposition of liquidated damages in the event liability is found.  Step one is diligently endeavoring to learn what the FLSA requires of an employer.  Step two is structuring policies and conduct accordingly.  And the most efficient, easy-to-prove way of doing both of those is, according to East Penn, by consulting experienced wage and hour counsel.

Those with questions or concerns about compliance with the FLSA or similar state laws should feel free to reach out to a member of Seyfarth Shaw LLP’s world class wage and hour team for additional guidance.

Tips from Seyfarth is a blog series for employers, and their in-house lawyers and HR, payroll, and compensation professionals, in the food, beverage, and hospitality sector. We curate wage and hour compliance “tips” to keep this busy industry informed.

By: Ariel Cudkowicz and Michael Steinberg

Seyfarth Synopsis: Proposed New Rules Under Colorado’s Overtime & Minimum Pay Standards Order Would Narrow Employers’ Use of the Tip Credit and Tip Pools. Meanwhile, Chicago eliminates its tip credit, while state and local efforts to eliminate the tip credit proliferate across the U.S.

Here at TIPS, we’re keeping track of the flurry of legislation making its way through state houses and municipal governments all across the country, in which states and localities seek to eliminate the tip credit.  We previously wrote about such an effort—which failed this year—to eliminate the tip credit in Connecticut.  Restaurant and hospitality employers have come to rely on the tip credit for many decades as a way to manage their labor costs while acknowledging the reality that tips usually boost tipped workers’ earnings well above the minimum wage.

But equally as important as the question of whether an employer can take a tip credit is the related question: Who counts as a tipped worker in the first place? If an employer takes a tip credit for a worker (or group of workers) who don’t qualify, then they risk violating federal and state minimum wage and overtime laws.  We previously wrote about ongoing litigation over the federal government’s “80/20” rule, which focuses on the amount of time a tipped worker can spend on non-tip-producing work to still qualify.

The states, though, may have different and more stringent rules relating to tipped workers.  Recently, on September 29, 2023, the Colorado Division of Labor Standards and Statistics issued proposed amendments to the state’s Overtime & Minimum Pay Standards Order (“COMPS Order #39”).  A public hearing on the proposed changes is scheduled for October 30.  Among other changes, the Division proposes changes to: (1) the definition of “tipped employee” under Colorado law, and (2) which employees may participate in a valid tip pool.  If enacted, restaurant and hospitality employers in Colorado will need to carefully review and update their pay practices with respect to the use of the tip credit and tip pooling.

Currently, Colorado law, consistent with federal law, considers a tipped employee to be “any employee engaged in an occupation in which s/he customarily and regularly receives more than $30 per month in tips.”  The Division says that the $30/month threshold, which has been in place since 1977, is outdated.  The proposed changes would instead define a tipped employee as “any employee who regularly receives more than $1.55 per hour in tips” over a workweek.  In accompanying commentary to the proposed rule, the Division notes that this hourly rate was derived from the estimated inflation-adjusted monthly equivalent of $30 in 2024 dollars—$187.32.  Note also that the change means it will no longer be sufficient for an employer to show that an employee works in an occupation in which workers customarily and regularly receive tips—the new definition makes the inquiry individualized to the particular employee. 

Moreover, under the proposed new Colorado rules, fewer employees will be able to participate in a valid tip pool.  Only those employees who “perform significant customer-service functions in contact with patrons” will be eligible.  This seems to be a significant departure from current law and federal law, which generally permit employees who may have less frequent customer contact than servers or service bartenders—such as bussers, food runners, and barbacks—to participate in a valid tip pool.

Here at TIPS, we’ll keep you posted on the rulemaking process for the proposed new wage order, which could have significant implications.

Meanwhile, the push to eliminate the tip credit continues to spread in states and localities all over the U.S.  Last week, for example, the Chicago City Council voted to approve a “One Fair Wage” bill phasing out the tip credit for tipped workers.  We’re also tracking active bills to eliminate the tip credit in Ohio, Maryland, Massachusetts, New York, Illinois, and Wisconsin, among others.

In short, restaurant and hospitality employers have never faced a more diverse and ever-changing patchwork of laws and regulations in this space.  Luckily, the team at Seyfarth has a repository of frequently updated, nifty survey charts — available for free to our clients — that map out the various federal and state requirements. As always, if you want more in-depth analysis of the rules of the road for taking the tip credit, tip pooling, or the broader panoply of wage and hour obligations affecting the fast-paced restaurant and lodging sectors, do not hesitate to reach out to the authors, or your favorite member of Seyfarth’s Wage and Hour Practice Group.

By: Beth Pelliconi and Noah Finkel

Seyfarth Synopsis:  The Tenth Circuit Court of Appeals has provided a helpful guide to employers seeking to defeat class and collective certification of claims that employees worked off-the-clock and skipped meal and rest periods in order to meet productivity standards.

“We can’t get our work done in the time you’ve allotted” is a common refrain offered by wage-hour plaintiffs and their counsel in off-the-clock cases.  They invoke this to argue that productivity standards or timeliness requirements, particularly against the backdrop of policies or practices limiting overtime, constitute a common issue that should allow them to pursue wage-hour claims on a class or collective basis because those standards or requirements caused them to work overtime off-the-clock or through meal and rest breaks.

But last week in Brayman v. Keypoint Government Solutions, Inc.,  the Tenth Circuit provided a helpful roadmap as to why such allegations may be insufficient to certify a class or collective action.

There, the Tenth Circuit vacated a Colorado district court’s decision to grant certification to a class of employees for claims alleging off-the-clock work and meal and rest period violations under California law.  In doing so, the court reaffirmed the principle that class certification should not be granted in the absence of a vigorous predominance analysis under Rule 23(b)(3), showing that factual issues can be determined by reference to a predominance of common, rather than individualized, forms of proof.    

The employees in Brayman were Field Investigators whose job duties involved conducting interviews, searching public records, and writing reports.  Their claims focused on allegations that they were forced to work off-the-clock and to miss meal and rest breaks in order to meet the employer’s stringent productivity, timeliness and quality standards.

The productivity standard at issue required that employees achieve minimum levels of “source unit” credits per hour worked – they received specified amounts of these credits, per hour, for performing certain essential tasks, whereas other tasks, such as certain administrative tasks, did not qualify for any credit. 

In addition to productivity standards, the employees were required to meet timeliness and quality standards, by completing at least 85% of their assignments by a stated deadline and by submitting reports that did not require revision. 

The employees were subject to discipline for failing to meet these productivity, timeliness, and quality standards.  While they were permitted to work overtime, the employees had to obtain approval from supervisors in advance of doing so, and alleged that overtime hours were limited and not always approved.

Against this factual backdrop, the district court had granted class certification to the employees on their off-the-clock claim, finding that it could be established by common evidence of work assignments, performance expectations, and work hours reflected in the employer’s software systems.  The district court also found that there was common evidence of whether the employer “knew or should have known” about the uncompensated overtime, because employees had complained to supervisors and Human Resources personnel about the productivity standards.

The Tenth Circuit, however, vacated the district court’s order, concluding that its failure to conduct a proper predominance analysis was an abuse of discretion.  In remanding the case, the Tenth Circuit directed the district court to consider the following questions in determining whether individual or common issues predominated in the case: (1) whether each employee in the proposed class worked uncompensated overtime; (2) how much uncompensated overtime was worked by each employee; and (3) whether the employer “knew or should have known” about the uncompensated overtime.  As to the “knew or should have known” standard, the Tenth Circuit signaled that variations in the evidence could make it difficult to conclude that the same common evidence would be admissible in each employee’s individual case.  As the Tenth Circuit noted, some employees stated that the employer’s knowledge of uncompensated overtime arose from the fact that supervisors altered timecards to remove overtime hours, whereas others alleged that they were “encouraged and pressured” by supervisors to work unrecorded overtime hours, and others contended that they were instructed to underreport their overtime hours.    

As for the meal and rest break claims, the district court had granted class certification based on the same evidence underlying the off-the-clock claim, without conducting a separate analysis that reviewed the evidence in connection with the elements of those claims.  The Tenth Circuit found that this was also an abuse of discretion, noting:  “It is one thing to say that because of the workload, the employee was pressured to put in uncompensated overtime.  It is an entirely different thing to say the employee would feel pressured to eliminate rest breaks and meal breaks to get the work done – particularly when employees have autonomy on when they schedule their meal and rest breaks.” 

In addition to vacating the district court’s class certification rulings, the Tenth Circuit reversed the district court’s denial of the employer’s motion to compel certain plaintiffs to arbitrate their California state-law claims.

Brayman is a good reminder of how a proper predominance analysis is to be conducted in connection with class certification motions.  The decision also provides a helpful roadmap for defeating class certification, and also collective action certification, through emphasis of variations in proof and consideration of individualized inquiries that would be required in order to reach liability determinations for wage-hour claims.

By: Paxton Moore and Rob Whitman

Seyfarth Synopsis: New York Governor Kathy Hochul has signed legislation that, effective immediately, adds wage theft to the definition of “larceny” under the state’s penal code, creating potentially harsh penalties for the state’s employers.

Under a recently enacted New York statute, wage theft is considered a form of “larceny” under the state’s penal law. The statute adds to existing criminal penalties for wage theft and allows prosecutors to seek even stronger penalties against violators.

Expanding the Definition of Larceny

Governor Hochul signed the Wage Theft Accountability Act (S2832-A/A154-A) on September 6, 2023. Effectively immediately, the Act amends the Penal Law to include “wage theft” in the definition of “larceny.”

Under the Penal Law, “[a] person steals property and commits larceny when, with intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.” Penal Law § 155.05(1). The recent amendment revises the definition of “property” to include “compensation for labor or services.” Id. § 155.00(1). It further adds a definition for “workforce,” which “means a group of one or more persons who work in exchange for wages.” Id. § 155.00(10).

Most significantly, the Act adds a subsection that defines larceny by wage theft to mean the following:

A person obtains property by wage theft when he or she hires a person to perform services and the person performs such services and the person does not pay wages, at the minimum wage rate and overtime, or promised wage, if greater than the minimum wage rate and overtime, to said person for work performed. In a prosecution for wage theft, for the purposes of venue, it is permissible to aggregate all nonpayments or underpayments to one person from one person, into one larceny count, even if the nonpayments or underpayments occurred in multiple counties. It is also permissible to aggregate nonpayments or underpayments from a workforce into one larceny count even if such nonpayments or underpayments occurred in multiple counties.

Id. § 155.05(2)(f).

Although the bill’s sponsors fixated on the vulnerability of low-income earners—including non-union construction workers and undocumented immigrants—the new law potentially impacts all employers in the state. It does not include any carve-out provisions or exemptions for particular positions or industries.

An open question is whether the law applies to compensation paid to independent contractors in addition to employees. The Act is not part of the Labor Law, which generally governs the employer-employee relationship, and refers generically to “hir[ing] a person to perform services,” rather than hiring “employees.” But it refers to “wages” and “wage theft”—concepts that derive from the Labor Law and assume an employer-employee relationship—and not to “fees” or the like, which suggests that it is limited to employment and not independent contractor arrangements.

The new law allows for the aggregation of nonpayments or underpayments to one victim employee and for the aggregation of victims, which has two distinct effects. Prosecutors may now (1) seek stronger penalties against employers who steal wages from workers, and (2) try incidents of wage theft committed by the same employer in multiple counties in a single venue. The ability to aggregate claims could result in harsh penalties for both corporate and individual employers. Under the Penal Code, petit larceny includes theft of up to $1,000 and is a Class A misdemeanor. See NY Penal Law § 155.25. A corporation can be fined up to $5,000 for conviction of a Class A misdemeanor. Id. § 80.10(1)(b). Theft of $1,000 or more constitutes grand larceny of varying degrees—the lowest of which, Grand Larceny in the Fourth Degree, constitutes a Class E felony. Id. §§ 155.30-155.42. An individual could face a maximum prison sentence ranging from four to twenty-five years depending on the amount stolen. Id. § 70.00(2)(b-e). For corporations, conviction of a felony carries a fine of up to $10,000. Id. § 80.10(1)(a).

The Labor Law already provides for criminal penalties for wage theft. See Labor Law § 198-a (listing certain offenses as misdemeanors or felonies). The addition of wage theft to the definition of larceny does not appear to alter, replace, or repeal these existing criminal penalties.

The Act, which passed with near unanimous majorities in both chambers of the Legislature, is the latest in an ongoing effort to combat wage theft in New York. According to the bill’s sponsors, beginning in December 2017, the Wage Theft Initiative—a collaboration among seven District Attorney’s Offices, including the five in New York City as well as Westchester and Nassau Counties; the Department of Investigation; the New York City Comptroller’s Office; the New York State Department of Labor; and the New York State Attorney General’s Office—has led the prosecution of ten criminal cases accounting for more than $2.5 million in stolen wages affecting over 400 construction workers. On February 16, 2023, the Manhattan District Attorney announced the creation of the Worker Protection unit to investigate and prosecute wage theft, among other offenses.

According to a co-sponsor, Assemblymember Catalina Cruz, wage theft accounts for almost $3.2 billion in lost wages each year—affecting over 2 million New Yorkers. Cornell University’s Worker Institute sets forth a more conservative estimate, asserting wage theft in New York to account for nearly $1 billion in lost wages affecting tens of thousands of workers.

Outlook for Employers

New York is taking an expansive approach to protect employees and their wages. Failure to properly navigate the State’s complex wage and hour laws now carries potentially harsher outcomes than the already existing criminal and civil penalties. While criminal prosecutions for these offenses will likely be rare and limited to the most egregious violators, all employers are well advised to pay close and careful attention to compliance with their wage payment obligations, and to consult with wage-and-hour counsel if they have any concerns about the administration of their payroll.

By: Rachel V. See, Christopher J. DeGroff, and Andrew L. Scroggins

Seyfarth Synopsis: The EEOC and the Department of Labor Wage Hour Division (WHD) have taken an important step toward inter-agency coordination, committing to information sharing, joint investigations, training, and public outreach. The Memorandum of Understanding between the EEOC and DOL contemplates referring complaints between the two agencies, a move that should catch the attention of all employers.  What is more, the agencies have agreed to share swaths of information, including EEO-1 reports and FLSA records.  This coordination will not just occur at the agency leadership level – the MOU enables front-line personnel from both agencies to receive shared information quickly and expeditiously. This enhanced and elevated level of agency cooperation should be top of mind for all employers.

On September 14, 2023, the EEOC and WHD announced that they had entered into a Memorandum of Understanding enabling information sharing, joint investigations, training, and outreach. The MOU now empowers the agencies’ field staff to coordinate efforts on both individual matters and larger investigations.

The EEOC’s press release, and some initial media coverage, have focused on the agencies’ coordinated efforts relating to the recently enacted PUMP Act (extending to more nursing employees the rights to receive break time to pump and a private place to pump at work) and the Pregnant Workers Fairness Act (requiring reasonable accommodations for limitations related to pregnancy, childbirth, or related medical conditions). But the MOU’s information-sharing and other contemplated coordinated activity provisions go far beyond those statutes, covering a broad range of activities, touching on all aspects of EEOC and WHD jurisdiction.

For example, the MOU explicitly describes that each agency will make complaint referrals to the other, and that the two will share complaint or investigative files, EEO-1 reports and FLSA records, and “statistical analyses or summaries,” and that the agencies “will explore ways to efficiently facilitate” the data sharing.

Information sharing under the MOU is not limited to just top-level agency officials in Washington, DC; leadership from each agency’s District (or Regional) offices may request information without the need to first obtain approval from HQ in Washington, DC. Importantly, the EEOC District Directors and Regional Attorneys also may designate other EEOC employees to make the request. This means that front-line EEOC staff involved in enforcement and litigation can quickly access a wide range of information held by WHD. It is also noteworthy that the MOU allows any EEOC Commissioner to directly request information from WHD, without first channeling the request through EEOC career staff. This is significant because it enables EEOC Commissioners from different political parties than the Chair to obtain information directly from WHD.

But the elephant lurking in the corner of the room may be the potential for broad-based data-sharing between the two agencies. The MOU specifically contemplates that the EEOC may share employer EEO-1 reports with WHD. Notably, Title VII prohibits the EEOC from disclosing EEO report data to the public, but the MOU does not bind the WHD in the same way. Instead, the WHD agrees to “observe” Title VII’s confidentiality requirements.

Whether these provisions of the MOU might be sufficient to ward off a FOIA request directed to WHD may, at some point, be tested in the courts. WHD’s sibling agency at the Department of Labor, OFCCP, has been involved in contested FOIA litigation seeking large volumes of EEO-1 reports in OFCCP’s possession. For more information about this litigation, see our most-recent client update on OFCCP’s release of EEO-1 reports.

Implications for Employers

Employers can expect the MOU to lead to more information sharing between the EEOC and WHD when it comes to individual charges and investigations. (The MOU contains a high-level framework for coordinated investigations involving the same employer.)  More concerning is the potential for data sharing to fuel broader systemic investigations. Indeed, as we recently wrote, the EEOC’s five-year Strategic Plan announced just last month that it is committing to developing these “big cases,” in the hope that this will enable the EEOC “to increase its impact on dismantling discriminatory patterns, practices, or policies.” The ability to gather additional data through this partnership with the WHD adds another powerful tool to the EEOC’s investigative powers. 

For more information on the EEOC and WHD, and how both may affect your business, contact the authors or a member of Seyfarth Shaw’s Complex Discrimination Litigation Group or Wage Hour Litigation Practice Group.

By: A. Scott Hecker

As one does, I was recently reading U.S. DOL Wage and Hour Division (“WHD”) Field Assistance Bulletin (“FAB”) 2023-3 regarding “Prohibitions against the shipment of ‘Hot Goods’ under the Child Labor Provisions of the Fair Labor Standards Act.”  You may be disappointed to learn that the term “hot goods” does not appear in the FLSA, but section 212(a) of the Act provides the operative definition for this fun phrase: “any goods produced in an establishment situated in the United States in or about which within thirty days prior to the removal of such goods therefrom any oppressive child labor has been employed.”

FABs are meant to provide enforcement guidance to WHD field personnel, and this one “clarified” elements of the hot goods provisions, as well as discussed potential penalties and the availability – in certain circumstances – of a good faith defense for purchasers of hot goods.  According to section 212(a), to demonstrate good faith, purchasers must show they relied “on written assurance from the producer, manufacturer, or dealer that the goods were produced in compliance with the requirements of this section, and . . . acquired such goods for value without notice of any such violation.”  FAB 2023-3 indicates the good faith analysis is case-specific and requires a purchaser’s “objectively reasonable” actual knowledge or belief “that the written assurance of compliance was true, and [the purchaser] was not aware of any other child labor violations.”  Purchasers cannot claim the defense if they:

  • “[A]cquire[] goods after becoming aware of child labor violations.”
  • Did “not receive actual written assurance from the producer, manufacturer, or dealer.”
  • “[R]eceive[] written assurance of compliance after acquiring the goods.”
  • Rely on “[w]ritten assurances with respect to the future production of goods,” rather than addressing goods already produced.

When WHD finds child labor violations, it “may request that the producer, manufacturer, or dealer voluntarily refrain from shipping the goods until the child labor violation has been remedied.”  If these entities won’t voluntarily comply, WHD “may pursue legal action . . . and may notify other downstream parties in the supply chain of the shipment restrictions.”  WHD can also assess civil money penalties and consider requiring “enhanced compliance terms” before lifting its embargo on hot goods.

All very interesting and important information.  But the section of the FAB that struck me most, and that illustrates why we need to read “the fine print” in sub-regulatory guidance, advised when “a company sends [a 17-year-old] minor to perform landscaping work at a clothing company’s factory where goods are produced and eventually shipped out of state,” and “the minor uses a power-driven saw to cut wood, which is a hazardous occupation under 29 C.F.R. 570.55, and therefore constitutes ‘oppressive child labor,’” then,

[e]ven if the minor is not themself engaged in commerce or the production of goods for commerce and is not employed by an enterprise that is engaged in commerce or the production of goods for commerce, section 212(a) may still apply because oppressive child labor occurred in or about the establishment where the goods were produced.

Put another way, “even if the minor is employed by the landscaping company, not the clothing company, and the landscaping company is not engaged in commerce or the production of goods for commerce, section 212(a) may apply,” so “[a]ny goods produced at the clothing factory that are removed from the establishment within 30 days of the minor using the power-driven saw, or any other child labor violation, are considered ‘hot goods’ and are thereafter barred from being shipped in commerce.”

Having podcasted and presented on the importance of child labor compliance, and how it might be achieved, please don’t read this as suggesting my kids should be able to work anywhere with a power-driven saw (not sure I should be allowed), but to stay on the right side of the law, employers must remain cognizant of how agencies view their enforcement authority, including – especially? – when they suggest a company, which doesn’t employ the minor and may well appear fully compliant with child labor laws, could nonetheless run afoul of statutory requirements.

Perhaps this attention to detail is even more important in our current environment where state and federal child labor laws aren’t always aligned.  Indeed, responding to a request from Iowa State Senator Nate Boulton, Solicitor of Labor Seema Nanda and Principal WHD Deputy Administrator Jessica Looman recently wrote “provisions of Iowa’s child labor law . . . appear to be inconsistent with federal child labor law,” and “employers covered by the FLSA who only follow a less restrictive Iowa law will be in violation of federal law.”

For more on this or any related topic, please do not hesitate to connect with the author or your favorite member of Seyfarth’s Wage and Hour Practice Group.

By: Robert S. Whitman and Kyle D. Winnick

In Perry et al. v. City of New York, the Second Circuit upheld a large jury verdict in favor of a collective of workers regarding off-the-clock work.  In doing so, the Court reaffirmed the principle that employers will ordinarily not be liable under the FLSA when employees fail to follow a reasonable process to report time worked.

Many wage-and-hour lawsuits involve “off-the-clock” claims—allegations that employees performed work outside of their recorded working hours for which they were not compensated.   One issue that often arises in such cases is whether the employer is liable for work not recorded by employees in the timekeeping system. 

In Perry v. City of New York, a certified collective of 2,519 EMTs and paramedics for the New York City Fire Department sued under the FLSA, contending that they were not compensated for all overtime worked because their various pre- and post-shift activities was not counted as time worked.  After a rare collective action trial, the jury found these activities were compensable and awarded the plaintiffs $17,780,063 for unpaid overtime, liquidated damages, and attorneys’ fees. 

The City appealed, arguing that it was not liable because the plaintiffs did not record the time spent on these activities in the City’s timekeeping system, such that it could not have known that the plaintiffs performed such work or failed to receive compensation for it.

The Second Circuit upheld the jury award, but reaffirmed principles favorable to employers.  It explained that compensable work under the FLSA is work that employers require, know about, or should have known about.  Thus, employees’ failure to report overtime work, for example by failing to include it on their time sheets, “will in many circumstances allow the employer to disclaim the knowledge that triggers FLSA obligations.” 

One caveat to this principle is if the employer otherwise had notice of the work.  The court held that there was sufficient evidence for this caveat to apply in this case.  Specifically, there was evidence showing that the collective members could not have performed their jobs without completing these pre- and post-shift activities, and that they had complained to supervisors about being uncompensated for performing them.  Thus, according to the court, the City should have been aware that compensable work was being performed. 

The City made another argument: even if it had notice of the pre- and post-shift activities, it was unaware that collective members were not paid for such work.  The court rejected this argument, holding that “knowledge of non-payment is irrelevant to FLSA liability.”  In other words, if an employer is on notice that work is performed, the employer must ensure that such time is compensated. 

Perry is a good reminder that employers can protect themselves from FLSA liability through sound wage-and-hour practices.  One way discussed by the court is by establishing “a reasonable process for an employee to report work time,” because “an employer with such a system will not ordinarily be chargeable with constructive knowledge of unreported work.”  But the Second Circuit explained that such a process must be administered so as not to impede “employees’ ability to report their work, such as by surreptitiously deleting overtime requests, punishing workers who ask for overtime pay, or otherwise discouraging employees from reporting.”  It is therefore critical for employers to train supervisors and non-exempt employees on what work activities are compensable and how to report work time outside their normal work shifts, and to ensure that employees are not impeded from reporting work time.  By establishing robust reporting procedures, employers can protect themselves from liability for off-the-clock work.

By: A. Scott Hecker and Ted North

Seyfarth Synopsis:  This alert summarizes the IRS’s recent notice of proposed rulemaking on complying with prevailing wage and apprenticeship requirements under the Inflation Reduction Act and explains key provisions including (i) identification of a qualifying project’s applicable wage determination(s), (ii) penalties for non-compliance, and (iii) the new exception for incorporating Project Labor Agreements. Understanding these requirements and the IRS’s proposed rule is important to businesses seeking to claim the enhanced tax credits under the Act, as failure to comply can result in not only monetary penalties, but also loss of eligibility for the enhanced credits.

On August 30, 2023, the Federal Register published the IRS’s notice of proposed rulemaking (“NPRM”), “Increased Credit or Deduction Amounts for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements,” which provides compliance guidance to employers seeking enhanced tax credits under the Inflation Reduction Act (“IRA”). Earlier in the week, the IRS had announced its NPRM and issued FAQs on the IRA’s prevailing wage and apprenticeship (“PWA”) compliance requirements. In its press release, the Treasury Department explained the NPRM’s guidance “marks the end of the first phase of [the Department’s] implementation of the Inflation Reduction Act’s clean energy provisions.”

As we have discussed before, the IRA incorporates prevailing wage requirements from the Davis-Bacon Act (“DBA”) and extends those requirements to private businesses seeking to claim enhanced tax credits worth up to five times as much as base credits. The proposed rule seeks to clarify implementation of the PWA requirements in several important areas, such as: (i) the applicable wage determinations; (ii) enforcement and penalty provisions for failing to comply with PWA requirements when claiming the IRA’s enhanced tax credits; and (ii) waivers of PWA penalties, including through the use of Qualified Project Labor Agreements (“PLA”). While businesses may claim enhanced tax credits for projects dating back to January 1, 2023 in their upcoming tax filings, key aspects of implementation remained unclear until the NPRM’s publication. The NPRM should help employers better understand IRS’s approach to PWA compliance, so they can successfully claim the IRA’s valuable tax credits.

Applicable Wage Determinations

The proposed rule clarifies the wage determination applicable to a qualifying project as “the wage determination in effect for the specified type of construction in the geographic area when the construction, alteration, or repair of the facility begins.” NPRM at 1.45-7(b)(2). The proposed rule indicates the wage determination applicable at the start of the project generally remains valid for the duration of the work being performed. 1.45-7(b)(5). Locking in historical wage determinations appears in at least some tension with U.S. DOL Wage and Hour Division’s recent final rule, “Updating the Davis-Bacon and Related Acts Regulations,” which, as we wrote previously, will obligate government contractors to more frequently incorporate updated wage determinations after contract awards.

Similarly, for businesses seeking tax credits for alteration or repair of a facility, the applicable wage determination is the one in effect at the time the alteration or repair work begins. Id.That said, businesses would have to apply a new wage determination when (i) work on a facility is changed to include additional construction, alteration, or repair work not within the scope of the original project; or (ii) work is performed for an additional time period not originally obligated (this includes exercising an option to extend the term of the underlying contract). Id.

In addition, the proposed rule identifies entities that can request supplemental wage determinations when no general applicable wage determination exists, or the relevant determination does not list all needed labor classifications. According to the proposed rule, as well as published FAQs, taxpayers, contractors, and subcontractors can all make requests for supplemental determinations to U.S. DOL’s Wage and Hour Division. See id. at 1.45-7(b)(3); see also IRS Wage Determination FAQ No. 3.

Penalties and Cures

The proposed rule establishes opportunities for businesses to cure non-compliance with PWA standards to remain eligible for the enhanced tax credits. In the event a business claiming the enhanced tax credit did not meet the prevailing wage requirements, the business may correct its non-compliance and claim the credit if it:

1. pays the affected workers the difference between what they were paid and the amount they were required to have been paid, plus interest at the Federal short-term rate plus 6 percentage points, and

2. pays a penalty to the IRS of $5,000 for each worker who was not paid at the prevailing wage rate in the year.

NPRM at 1.45-7(c)(1)(i)-(ii). If a business fails to meet the apprenticeship requirements, the business may correct its non-compliance and claim the credit if the business pays a penalty of $50 multiplied by the total labor hours for which the apprenticeship requirements were not met. 1.45-8(e)(2)(i). Penalties are more severe for non-compliance with PWA requirements when claiming the tax credit if the IRS determines a business intentionally disregarded its PWA obligations. See 1.45-7(c)(3) and 1.45(e)(2)(ii).

However, penalties may be waived entirely if the business corrects the error within 30 days of becoming aware of its non-compliance or when the enhanced tax credit is claimed. Id. at 1.45-7(c)(6)(i). This option is only available in the event that the worker was being paid less than the prevailing wage for not more than 10% of all pay periods of the calendar year during the life of the project or if the difference between what the worker was paid during the calendar year and the amount they should have been paid is not greater than 2.5% of the amount the worker should have been paid. 1.45-7(c)(6)(i)(A)-(B).

While the NPRM maintains a good faith exception regarding meeting apprenticeship requirements, “[t]he taxpayer will not be deemed to have exercised a Good Faith Effort beyond 120 days of a previously denied request unless the taxpayer submits an additional request,” 1.45-8(e)(1)(i)(A)(2), so “[i]f a request was not responded to or was denied, the taxpayer must submit an additional request(s) to a registered apprenticeship program after 120 days to continue to be eligible for the good faith effort exception,” IRS Penalty and Cure Provisions and Recordkeeping FAQ No. 2.

Project Labor Agreement Exception

Businesses may also avoid penalties for non-compliance if there is a qualifying PLA for the project the business is claiming the enhanced tax credit. To qualify for this waiver, PLAs must:

1. Bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents;

2. Contain guarantees against strikes, lockouts, and similar job disruptions;

3. Set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the term of the project labor agreement;

4. Contain provisions to pay prevailing wages;

5. Contain provisions for referring and using qualified apprentices; and

6. Be a collective bargaining agreement with one or more labor organizations of which building and construction employees are members.

Having a PLA in place does not exempt a business from PWA requirements, but may allow the business to avoid penalties for non-compliance if the PLA meets the conditions listed above, and the business corrects the failure to pay the prevailing wage in a timely manner.

Employers should seek competent counsel when considering entering into collective bargaining with labor organizations.

Comment Period and Effective Date

The published NPRM lists a 61-day comment period, which will remain open until October 30, 2023. Comments and requests to appear at a scheduled November 21 public hearing must both be submitted by that date. After the comment period closes, the agency will review and analyze all comments it receives. This may result in changes to the NPRM – or it may not.  In either event, the agency will eventually publish its final rule with an effective date no less than 30 days after its official publication in the Federal Register.

The NPRM suggests there may be some nuanced differences between DBA and IRA PWA obligations, so impacted employers must remain aware of these compliance considerations. For any clarification of the proposed rule, or assistance with submitting comments or requests prior to October 30, please do not hesitate to connect with Scott, Ted, or your friendly, neighborhood Seyfarth attorney.

By: Kevin Young, Brett Bartlett, Scott Hecker, Noah Finkel, and Leon Rodriguez

Just days before Labor Day, the U.S. Department of Labor (“DOL”) unveiled its Notice of Proposed Rulemaking (“NPRM”), aimed at revising the Fair Labor Standards Act’s overtime exemptions for executive, administrative, and professional employees. While the proposal—the cornerstone of which is a minimum salary increase to slightly more than $55,000 per year (up from $35,568)—is more measured than many anticipated, it could still have a massive impact across industries and commands employers’ attention.

The Proposed Changes

Contrary to the whirlwind of speculation, the DOL’s proposed changes are more evolutionary than revolutionary. If finalized, the changes would entail:

  1. Increased salary for “white collar” employees: The proposed rule would increase the minimum salary level from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year). Note, however, that, as explained in the Preamble to the proposed rule, the final rule likely will provide for an even higher minimum salary level because, when the final rule is issued, it will use updated wage data.
  2. Increased total compensation threshold for the “HCE” exemption: The proposed rule would raise the total annual compensation requirement for the highly compensated employee exemption from $107,432 to $143,988.
  3. Automatic updating every three years: The proposed rule would implement a triennial automatic update to these thresholds, designed, the DOL says, to align with shifts in worker salaries and provide employers with a predictable timetable for future adjustments.
  4. Additional updates for certain territories and industries: The DOL proposes to update salary levels in U.S. territories and for employees in the motion picture industry.

Notably, the proposed changes would leave the “duties” tests for the exemptions untouched.

The NPRM’s Road Ahead

The NPRM process includes a 60-day public comment period, set to commence once the proposals are formally published (which they have not yet been as of the time of this post). We would anticipate that a final rule will not be published until at least several months after that comment period ends. Then, if the new rules are not subjected to any other delay—whether because of court or congressional challenges—employers would most likely be provided between 60 and 90 additional days to prepare for the rules’ official effective date.

With respect to court challenges, it is worth remembering that the Obama Administration’s 2016 attempt to overhaul these exemptions in a similar fashion—i.e., an increased salary threshold with automatic, inflation-based increases—was stymied by legal challenges and never came into effect. The DOL’s new proposal is not immune to similar challenges, particularly as we approach another election cycle where compensation issues often become political footballs.

Next Steps for Employers

As the DOL opens the floor for public comment, employers have an opportunity to weigh in on these proposed changes and begin preparing for their potential implementation.

While it is possible that a final rule will look different in some ways than the proposed rule, businesses should not wait to start planning. At a minimum, it is important for employers to develop an accurate picture and understanding of their exempt workforce—i.e., what roles it comprises, how many incumbents occupy the roles, where they are located, what functions they perform, and, of course, how much they are paid. Understanding the contours of the exempt population will allow employers to begin thinking strategically to identify and triage the roles that are most likely to be impacted by the new rule or that otherwise command attention during this time of change.

In short, while the DOL’s proposed changes may not be the seismic shift some had predicted, they nonetheless represent a significant evolution in this area of the law that employers will need to plan for, monitor, and be ready to act upon.