By: Louisa Johnson and Kerry Friedrichs

Seyfarth Synopsis: In its first published ruling on such issues, the U.S. Court of Appeals for the Second Circuit disagreed with some earlier court rulings and, in keeping with the U.S. Department of Labor’s new interpretive rule (taking effect on August 7, 2020), held that the fluctuating workweek (FWW) method for paying overtime pay does not require an employee’s actual hours worked or scheduled work hours to fluctuate both below and above 40 hours. It also held that permitting employees to take PTO in another week if they had to work on a holiday or scheduled day off does not invalidate the FWW pay method. Further, the Second Circuit found that a few instances of employees receiving less than their full guaranteed salary were insufficient to show that the base weekly salary was not truly fixed or guaranteed.

As we wrote about previously here, one method of calculating overtime pay owed to non-exempt employees under the FLSA is the FWW method, which the DOL has described in its interpretive rule at 29 C.F.R. § 778.114.  Under the FWW method, with the clear mutual understanding of the employer and employee, an employer can pay a non-exempt employee whose work hours fluctuate a fixed, guaranteed salary that is intended to compensate the employee for all worktime in each week, regardless of how few or many hours are worked. In other words, the salary provides the “time” of “time and one-half” pay even for overtime hours worked.

In weeks in which the employee works 40 hours or fewer, the employee is owed the fixed, weekly salary but nothing more. In weeks in which the employee works more than 40 hours, the overtime pay (i.e., the additional “one-half” on “time and one-half” pay) is calculated by dividing the weekly salary (and other compensation earned by the employee in that workweek, except for excludable payments) by the hours worked in that workweek, dividing the resulting hourly rate in half, and multiplying the half-time rate by the overtime hours worked.

Because the FWW method of pay disincentivizes inefficient overtime work by compensating employees who work overtime at a decreasing rate of pay for each additional overtime hour worked, it can be both confusing to and unpopular with employees. Adding to these issues, some courts have read even greater rigidity into the requirements for use of the FWW method than was initially intended by the DOL. For these reasons, lawsuits challenging use of the FWW method of pay are popular among the plaintiffs’ bar.

The Second Circuit’s decision in Thomas, et al. v. Bed Bath & Beyond Inc., however, reinforces the propriety of the FWW method and rejects efforts to read more into the FWW’s requirements than was intended by the DOL’s rule and by U.S. Supreme Court’s decisions that gave rise to the DOL’s rule on the FWW method of pay. The Second Circuit’s decision includes three key findings.

First, contrary to efforts of some other courts to read more into the FWW method’s requirements, the Second Circuit found that the fluctuating hours factor of the FWW method necessitates only that the actual hours worked fluctuate to some degree from one week to the next. Nothing in the Supreme Court’s rulings or the DOL’s FWW rule requires that that fluctuation in work time be both below and above the 40-hours-per-week mark. In addition, there is no requirement that employees paid on a FWW basis have an irregular work schedule. As the Second Circuit noted, even the text of the DOL’s FWW rule does not list among the FWW’s requirements a need for the employee to have weeks with less than 40 scheduled hours.  Instead, the regulation merely provides that “typically,” the payment of a fixed salary and use of the FWW method occurs with “employees who do not customarily work a regular schedule of hours.” In other words, even when the scheduled hours lack fluctuation, the FWW’s fluctuation requirement is met where the employee’s actual hours worked fluctuate some from week to week.

Second, the Second Circuit rejected the employees’ argument that the FWW method was invalidated by the employer’s policy of permitting employees who had to work on a holiday or previously-scheduled day off to take PTO in a later week. As the DOL has long recognized, employers have broad discretion in how and when to permit employees to use PTO as long as they do not compensate FWW-paid employees less than their full fixed salary (or “dock” that salary) in weeks with time off or fewer than 40 work hours.

Third and finally, the Second Circuit made some allowance for isolated incidents in which an employee was paid less than their full fixed salary. The plaintiffs had identified a total of six instances out of 1500 weeks’ worth of pay records in which this occurred for one of several reasons. In three cases, a payroll error resulted in an underpayment that had since been corrected, and the Second Circuit found that the correction negated any argument that the fixed salary requirement had not been met in these weeks. In another week, the employer prorated an employee’s salary in their final week of employment because the employee worked only a partial week. The Second Circuit noted that this was “of no concern” because the employer “had no obligation to pay appellants their wages for days after their employment ended.” In the other two weeks of an underpayment, the facts suggested a possible lack of full compliance with the fixed salary requirement. The Second Circuit found that when these incidents were viewed in the totality of the evidence, there was no proof of an effort by the employer to undercut the fixed weekly wage requirement, and thus no basis for finding the FWW method to be an invalid means of paying the employees. The court noted that the instances of underpayment were exceedingly rare, and the employer had many times distributed documents to the employees that clearly explained the FWW method and the intent to pay a fixed salary to employees each week.

For employers that currently use or are interested in adopting a FWW method of pay for non-exempt employees, the best practices that can be extracted from the Second Circuit’s decision and prior cases and guidance are as follows:

(1) explain to FWW-paid employees in writing, at the time of hire and regularly throughout their employment, that they are receiving a fixed salary that is intended to compensate them for all hours worked in any week and that their overtime premium rate will be at half the effective hourly rate of their salary that week based on their actual hours worked;

(2) have a policy for FWW-paid employees to report payroll errors and have a procedure in place for investigating such pay complaints and addressing them in a timely manner;

(3) make clear to FWW-paid employees that even if their scheduled hours do not change much from week to week, their actual work hours will fluctuate based on the needs of the business; and

(4) keep in mind that in a few states, including Alaska, California, New Mexico, and Pennsylvania, the FWW method of pay is not permitted under state laws.  For example, California law requires that a non-exempt salaried employee’s salary can cover no more than 40 hours – the salary cannot “build in” the base portion of any overtime hours.  Accordingly, salaried non-exempt employees must be paid a full time and one half rate for all overtime hours (and double time rate for all double time hours).

By: Sara E. Fowler and Kevin M. Young

Seyfarth Synopsis: Chicago’s Fair Workweek Ordinance goes into effect on July 1. The law will require covered employers to provide covered employees ten days’ notice of their work schedule. Save for certain exceptions, schedule changes after that time will require payment of “Predictability Pay” to the impacted employee. The City recently published additional guidance on the law, which includes, among other things, clarification on the impact of COVID-19-related schedule changes and the calculation of Predictability Pay for covered salaried-exempt employees.

It’s official: pandemic notwithstanding, Chicago’s Fair Workweek Ordinance is going into effect on July 1. And that means, in addition to thinking through return-to-work and reopening plans, covered employers must also account for the new law as they endeavor to set and manage employee work schedules amidst a turbulent business environment.

As we detailed in an alert just after the measure was passed, Chicago joins several other cities to have enacted so-called “fair workweek” or “predictive scheduling” legislation. Chicago, however, goes further than its predecessors by expanding its law beyond the retail, hospitality, and fast food industries. Under Chicago’s law, “Covered Industries” will include: (1) building services; (2) healthcare; (3) hotels; (4) manufacturing; (5) restaurants; (6) retail; and (7) warehouse services. The law will cover employers in these industries with over 100 employees globally, so long as they employ at least 50 “Covered Employees.” “Covered Employees” are generally those who earn less than $26 per hour or $50,000 annually, who perform the majority of their work in Chicago, and who perform most of their work in a Covered Industry.

In a nutshell, the Fair Workweek Ordinance has the following key requirements:

  • Employers must provide employees with a “good faith estimate” of their work schedule upon hire.
  • Employers must schedule employees with 10 days’ advance notice (14 days after July 1, 2022).
  • Employers must pay employees “predictability pay” for schedule changes made within the 10-day (or eventually, 14-day) notice period, subject to certain exceptions.
  • Employees are entitled to premium pay if they agree to work within 10 hours of a prior day’s shift (and cannot be forced to do so).
  • Before hiring new employees, employers must first offer shifts to existing, qualified Covered Employees, then temporary or seasonal workers, subject to certain exceptions.

To aid businesses in complying with the law, the City recently published its Final Rules, “Fair Workweek FAQs,” and a Notice that must be posted in a conspicuous place.

The Final Rules provide helpful clarification on a handful of points. For example, the guidance provides that schedule changes of 15 minutes or less do not require predictability pay. Also, predictability pay and advanced scheduling requirements do not apply when an employee is returning to work from an agreed leave of absence.

Through its guidance, the City also confirms that predictability pay requirements will apply to salaried-exempt employees in a Covered Industry who earn less than $50,000 per year. Their predictability pay, when required, is to be “calculated on an hourly basis based on the regular rate of pay” which the City instructs “means dividing the salary by 52 weeks and then by 40 hours (assuming a full time schedule).”

In addition, the City sheds light on the new law’s predictability pay exception for schedule changes that are “because of” a pandemic. Notably a schedule change will be considered “because of” the current pandemic—and thus predictability pay will not be required—if COVID-19 causes a business to “materially change its operating hours, operating plan, or the goods or services provided … which results in the Work Schedule change.” This exception applies to the schedule for the week in which the material change occurs, as well as the following week’s schedule. This clarification should provide some relief to employers concerned about forecasting schedules with the threat of continued COVID-19 impacts lurking in the background.

The right to file a private lawsuit for violations of the Ordinance has also been pushed back until January 1, 2021. That does not impact, however, the City’s ability to enforce the Ordinance once it goes into effect on July 1, 2020.

Chicago employers in a “Covered Industry” must act now to ensure their compliance with the new law starting on July 1. This may include, for example, posting and disseminating the required notices (both the City’s poster and a notice accompanying the first paycheck on or after July 1), preparing a protocol and associated forms to help promote compliance with the law’s various requirements, and training managers, payroll personnel, and other key stakeholders to ensure they are well equipped to promote compliance with the law.

As always, please feel free to reach out to us or to your favorite Seyfarth attorney if you would like to discuss this important topic.

By: John G. Yslas and Phillip J. Ebsworth 

Seyfarth Synopsis: In acquiring a company in bankruptcy, there is often a tendency to think this guarantees the purchaser will be “free and clear” of any liability (including so-called “successor liability”).  This is not necessarily so with wage and hour liability, particularly if the purchaser merely continues to operate virtually the same business that was acquired.

Ordinarily, a bankruptcy debtor’s sale of property ‘free and clear’ of interests under Bankruptcy Code section 363(f) excises from the sold assets any claims made on a theory of successor liability.  The purchaser is shielded from successor liability claims in accord with public policy underlying the Bankruptcy Code, including the inequality of allowing one creditor to pursue a purchaser of assets for successor liability while other creditors’ recourse is limited to the proceeds of the asset sale.  However, although rarely applied, some bankruptcy courts have found exceptions to this ‘free and clear’ transfer where: (1) the successor expressly or impliedly assumes the liabilities; (2) there is an actual or de facto consolidation or merger of the two companies; (3) the purchaser is a mere continuation of the seller; or (4) the transaction was entered into fraudulently to escape liability.  This not-often-discussed and rarely-applied exception is similar to that which has developed in connection with asset purchase sales (which was first recognized under the FLSA and has recently continued to develop in state statutes), as we previously wrote about here.

Moreover, in a post-COVID-19 world, it is foreseeable that public policy concerns may continue to further shift away from protecting the purchaser or employer and in favor of protecting the creditor or employee—making the application of such exceptions more common.  Although some of the COVID-19 legislation passed has benefited employers—for example, California’s relaxation of Cal-WARN notification requirements—much of the legislation and the public policy discussion has focused on protection of employees and even independent contractors.  As one example, legislators have enacted additional paid sick leave requirements at the federal, state, and local level and job protection for employees who could not, or did not, work for COVID-19-related reasons.  And uncertainty remains on significant issues such as California’s final pay requirements for employers in the context of furloughs.

The COVID-19 pandemic will likely lead to more distressed businesses and bankruptcies in the near future.  COVID-19‑related legislative efforts may then pivot to focus on the bankruptcy arena.  For example, the City of Los Angeles has implemented a citywide worker retention ordinance which requires any purchaser of a business to give priority in hiring to the seller’s employees for the first six months and prohibits discharge of the seller’s employees without cause for the first 90 days.  It is unclear whether this ordinance would apply to a bankruptcy sale, but arguably, Bankruptcy Code section 363(f) would preempt any such municipal or state legislation and relieve a purchaser in bankruptcy of these obligations.  The pandemic has also greatly increased legal compliance risks to businesses.  The seemingly constant modifications to federal, state, and local laws and executive orders regarding everything from requirements for businesses to remain open to sick leave for employees has created a dizzying maze of regulations complete with the bear traps and trip wires of steep monetary penalties and class action litigation exposure.  With the primary focus seemingly on employee protection, it is foreseeable that courts may more frequently utilize the previously rare “exceptions” allowing successor liability in the bankruptcy context.

Thus, inheriting successor liability should be kept in mind when considering distressed asset purchases.  The risk that the purchased asset will not be ‘free and clear’ of such claims should be factored into the purchase price, making due diligence for labor and employment compliance (and considering putting aside monies for potential liability including potential litigation) all the more important.  Further, representations and warranties insurance should be considered, as we previously explained at length here.  That said, section 363 purchasers also should be aware that some insurers have implemented exclusions for COVID-19-related exposure.

The Labor and Employment department of Seyfarth Shaw, along with Seyfarth Shaw’s Bankruptcy Group, continues to provide guidance on all issues, including:

  • Paid and unpaid sick leave, including the provisions of the FFCRA and its interaction with FMLA and state and local jurisdiction sick leave laws, and health benefits related to COVID-19;
  • Furloughs and layoffs, including compliance with WARN and state WARN statutes, required notice, and unemployment issues;
  • Wage and hour issues, including components of final pay, misclassification issues associated with reductions in pay, and furloughs/layoffs of exempt and non-exempt employees;
  • Worker health and safety, including COVID-19 protective measures, OSHA guidance and regulations, disability, and medical privacy issues;
  • Traditional labor issues including the interaction of all the above with collective bargaining agreements and labor rights;
  • The impact of bankruptcy on all of the foregoing; and
  • Purchases of distressed assets before and during bankruptcy and related successor liability risks.

Conclusion

Along with the increased number of bankruptcies and distressed asset sales on the horizon comes the possibility that asset sales may carry hidden risk.  As such, it is now more important than ever that purchasers conduct thorough and competent labor and employment due diligence that contemplates COVID-19‑related developments and previously remote possibilities, such as successor liability following a ‘free and clear’ bankruptcy purchase.

By: Yao Li and Noah Finkel

Seyfarth Synopsis: More than a decade after it was originally proposed, the U.S. Department of Labor’s Wage & Hour Division has finally promulgated a new rule concerning the fluctuating workweek (FWW) method of computing overtime under the FLSA. The rule now makes clear that the payment of bonuses, in addition to a salary, does not invalidate the FWW method.

Washington DC USA , Sep 03 2019 : Labor sign and building.

The U.S. Department of Labor has released its Final Rule clarifying that the FWW method of calculating overtime pay is consistent with the payment of bonuses, premiums, hazard pay, and other incentive compensation.

Under the FWW method, an employer pays a non-exempt employee a salary intended to cover all hours worked each week. If the employee works overtime, the employer may compensate the employee at a rate of one-half (½) the employee’s “regular rate” of pay for the overtime hours (not 1½ times). That is because the “straight time” pay for such overtime hours has already been included in the regular salary. Notably, the regular rate varies each week as hours vary, decreasing with each additional hour worked that week. This is because the regular rate is calculated by dividing remuneration for the week by the hours it is intended to cover, i.e., the number of hours actually worked that week. As a result, the FWW method disincentivizes inefficiency. Employers must remember, however, that the FWW is not available under the laws of certain states, including Alaska, California, New Mexico, and Pennsylvania.

The DOL first proposed to clarify that the FWW method was fully compatible with bonuses, premiums, and other incentive pay in 2008. But that proposal was shelved in 2011. In the meantime, courts have taken divergent approaches to whether incentive compensation restricted use of the FWW method. Some courts held that if an employer provides an employee with any bonus compensation, that would render the FWW method unavailable. Other courts concluded that “productivity-based” bonuses were allowed, but “hours-based” bonuses were not, a distinction that the DOL never drew. The Final Rule continues to reject such a distinction.

With the Final Rule, the DOL has included a few new clarifications prompted by public comments, six of which are discussed below:

First, the Final Rule clarifies that the FWW method is merely one example of how to properly compute the regular rate and overtime compensation; it is not an “exception.”

Second, the Final Rule clarifies that use of the FWW method does not require an employee’s hours to ever fluctuate below 40 hours per week. This clarification rejects the view of a few courts that had held that the FWW method is available only if an employee’s hours sometimes fluctuate below 40 hours per week.

Third, the Final Rule incorporates into the regulation the DOL’s longstanding interpretation that occasional disciplinary salary deductions for willful absences or tardiness, or infractions of major work rules, are compatible with the FWW method. An employer must still make certain that such disciplinary deductions do not cut into the required minimum wage or overtime compensation.

Fourth, the Final Rule clarifies that the occasional need for an employer to supplement an employee’s salary to meet the minimum wage does not invalidate use of the FWW method. (The DOL cautions, however, that the FWW method is not available if the employer could have foreseen that the employee’s salary would not meet the minimum wage in all workweeks, or if the salary turns out to in fact not meet the minimum wage “with some degree of frequency.”)

Fifth, the Final Rule adds clarifying text to emphasize that, although the employer and employee must have a clear and mutual understanding that the employee’s fixed salary is compensation for all hours worked, the parties do not need to have such an understanding as to the specific manner in which overtime pay is calculated.

Sixth, the Final Rule revises the regulation’s examples of additional compensation that are compatible with the FWW method to specifically include commissions and hazard pay. These examples are in addition to the original examples of bonuses and premium payments, plus “other additional pay of any kind.”

As U.S. Secretary of Labor Eugene Scalia noted, the timing of this new rule is fortuitous. The new rule gives employers certainty that “they can pay workers’ bonuses in a broader range of circumstances. This rule comes at a time when millions of Americans are returning to work and will benefit from added flexibility in compensation.” Wage and Hour Division Administrator Cheryl Stanton added, “As employers navigate the challenges of the coronavirus, the rule enhances flexibility to provide hazard pay, and to promote health and safety in the workplace through flexible work schedules that stagger start and end times and implement social distancing in the workplace.” Thus, while long-awaited, the new rule may be just in time.

By: Gena Usenheimer, Victoria Vitarelli, and Noah Finkel

Seyfarth Synopsis:  By eliminating two interpretive regulations, the U.S. Department of Labor expanded the number of employers that may qualify as a “retail or service establishment” under Section 7(i)’s exemption of the Fair Labor Standards Act.  This potential expansion of coverage of Section 7(i) opens the door for more employers to classify employees as exempt.

Section 7(i) of the FLSA provides an overtime exemption to certain employees who are paid mostly on a commission basis, so long as specific conditions are met, including the employee must be one of a “retail or service establishment.”

Determining what is a “retail or service establishment” would seem straightforward. But the DOL’s regulations on the subject—all written amid a 1960s economy—consist of 35 regulations that take up more than 15 pages of single-spaced text in the Code of Federal Regulations and often leave employers, lawyers, and judges scratching their heads on how to apply them today.

Among those interpretations are those that require “a retail or service establishment” to have a “retail concept.” The DOL sought to provide guidance as to which establishments may or may not be recognized as having a “retail concept” by proffering two partial lists of establishments that purportedly served to clarify which establishments may, or may not, have a “retail concept” under Section 7(i) of the FLSA.

In 29 C.F.R. § 779.317, the DOL provided a partial list of establishments in which the DOL presumed to have “no retail concept,” which, among dozens of entities, included establishments that serve the everyday needs of the public such as banks, barber shops and beauty salons, dentists offices, insurance brokers, investment counseling firms, loan offices, tax services, and travel agencies. In contrast, 29 C.F.R. § 779.320 provided a partial list of establishments that “may be recognized as retail,” which included department stores, hotels, restaurants and sporting goods stores, to name a few.

Effective May 19, 2020, the DOL issued a final rule withdrawing these two interpretive regulations. The DOL posited that the removal of these lists promotes consistent treatment when evaluating Section 7(i) exemption claims and reduces confusion.  In its own words, the DOL “will apply one analysis—the same analysis—to all establishments, thus promoting consistent treatment for purposes of the section 7(i) exemption.” The DOL also noted that elimination of these regulations provide for a streamlined analysis that may be flexible with the developments in industries over time, and eliminates criticism and inconsistent application by the courts.

Without the lists’ restraints, establishments previously on the “no retail concept” list may assert that they have a retail concept to seek the Section 7(i) exemption.

The removal of these regulations — which are effective immediately because they are interpretations rather than notice-and-comment regulations — acknowledges that the concept of retail and service establishments has evolved from the 1960s when the lists were first introduced, and provides an avenue for the 2020 concept of retail and service establishments to apply the exemption.

Next up? Let’s hope the DOL can provide some modern clarity on its 33 other interpretations of “retail or service establishment.”

By: Ala Salameh

Employees under heightened demands to care for their health and families are using time off and sick leave in record numbers. This has left many employers, particularly those qualified as “essential businesses,” short-staffed in a phase of critical need. To fill the void, employers are contemplating a temporary reshuffle of work assignments including posting exempt employees to traditionally non-exempt work. As a result, employers must grapple with whether those employees would lose the exemption by changing the duties of exempt positions on a short-term basis.

Exemptions During an Emergency

A scantly cited, but increasingly relevant, FLSA provision provides insights on the recommended calculus when making emergency work assignment decisions. Under the FLSA (29 C.F.R § 541.706), an exempt employee will not lose exempt status by performing work of a normally nonexempt nature because of an emergency. Accordingly, when emergencies arise, any work performed by exempt employees in an effort to continue operations during an emergency is considered exempt work.

What Constitutes an Emergency?

Emergencies are defined as circumstances beyond an employer’s control, for which they cannot reasonably provide in the normal course of business. They are largely rare conditions that employers cannot realistically anticipate. The Department of Labor issued guidance regarding the work during emergencies indicating that the regulation is intended to provide flexibility and account for real emergencies. Classic examples of emergencies include strikes resulting in the reduced availability of labor to continue operations and a mine explosion requiring exempt employees to immediately assist in digging out trapped workers. Alternatively, heavy work periods, rush orders, and times during which necessary equipment needs routine repair do not qualify as emergencies.

How is an Emergency Measured?

The Third Circuit provides the seminal analysis for measuring exempt status during an emergency. In Marshall v. Western Union Telephone Company, Western Union experienced a prolonged strike during which managerial employees performed nonexempt work. Exempt plaintiff-employees alleged that they were covered by the FLSA’s overtime provision as a significant portion of their job duties were then non-exempt and thus entitled to overtime premiums. In response, Western Union argued that the labor strike qualified because it was beyond the employer’s control and could not have been reasonably managed in the normal course of business.

In determining that the strike qualified as an emergency, the primary question before the Court was over what period of time exempt status should be measured. The Court rejected the notion that exempt status should be measured on a weekly basis. It reasoned that Congress created exempt status for managerial employees with the power to direct, supervise, and manage operations. Exempt employees are generally not required to keep time sheets or provide reports of day-to-day tasks accomplished on the job. Therefore, using the workweek as a yardstick would not comport with how Congress intended to create exempt status. Instead, a weekly assessment would demand new recordkeeping requirements and oversight to properly inform micro-decisions regarding exempt status. Work of exempt employees can shift on a week-to-week basis. Therefore, due to the logistical burdens and intent of the emergency provision of the exempt status regulations, the Third Circuit held that exempt status should be measured over a more protracted period of time.

While Marshall v. Western Union did not provide a precise measurement period for exempt status, it provided two key take-aways: 1) even prolonged periods of unanticipated labor shortages may constitute emergencies under the FLSA, and 2) exempt status must be measured over a period of time that does not result in significantly heightened administrative burdens to the employer. In 2017, the California Court of Appeals held that each emergency determination must be grounded in the unique facts of the circumstances, asserting that a “court cannot simply presume it loses its emergency status after a set amount of time.”

Does the COVID-19 Pandemic Qualify as an Emergency?

The COVID-19 global pandemic is uncharted terrain in many ways, including the emergency regulation for exempt status. Based on precedent and corresponding guidance, the pandemic has all the hallmarks of an emergency under the FLSA—wholly beyond employers’ controls, unanticipated, not reasonably provided for in the normal course of business, and threatening employee safety and company operations. While national reopening and relaxation of restrictions appear on the horizon, it remains unclear how long the pandemic will have its grip on the labor force. Regardless, even prolonged labor shortages due to COVID-19 may underlie a proper emergency classification.

As employers endeavor to meet business needs, difficult decisions regarding work assignments will continue to prompt questions and create potential legal risks. Unfortunately, the U.S. Department of Labor has never issued guidance or regulations relative to the period of time applicable to a determination of exempt status. When considering whether to reassign exempt employees to non-exempt posts, it is best to consult your wage and hour counsel to evaluate your unique business needs and circumstances as well as state law limitations.

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

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

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

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

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

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

By: Yao Li and Kevin M. Young

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

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

Under the FWW method, an employer pays a non-exempt employee a salary intended to compensate them for all hours worked each week. If the employee works overtime, the employer may compensate the employee at a rate of one-half (½) the employee’s “regular rate” of pay for the overtime hours. This difference from the conventional time and a half (1½) overtime rate is due to the fact that the employee’s salary is intended to compensate them for all hours worked in the week, including any hours in excess of 40. (Importantly, however, this is not allowed in states like California and Pennsylvania, where the FWW approach is not compatible with state overtime laws.)

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

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

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

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

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

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

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

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

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

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

By Zheyao Li and Kevin Young

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

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

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

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

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

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

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

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

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

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