By: Robert Whitman and Bill Varade

Seyfarth Synopsis: In Whiteside v. Hover-Davis, Inc., the Second Circuit upheld the dismissal of an FLSA claim because the plaintiff failed to allege facts sufficient to invoke the three-year limitations period for willful violations.

If a plaintiff merely alleges a willful violation of the Fair Labor Standards Act (“FLSA”), without more, will that suffice to invoke the FLSA’s three-year statute of limitations for willful violations?  The Second Circuit said “No” when it recently affirmed a district court’s dismissal of a plaintiff’s overtime violation claim.

The case was not without controversy, though, as the court had to navigate a circuit split on this issue, and a split between the districts courts within the Second Circuit.  Further, the opinion generated a forceful dissent, which suggests this matter, although settled in the Circuit, may rise again at the Supreme Court one day.

Case Background

The plaintiff, Mark Whiteside, worked for years at Hover-Davis as a Quality Engineer, a salaried, non-exempt position.  In January 2012, an unnamed manager asked Whiteside to switch to Repair Organization Technician, an hourly, non-exempt position.  Whiteside regularly worked 45-50 hours at his new position, but never received overtime pay.  However, his salary remained the same as before this change.

Whiteside was terminated in 2018 when Hover-Davis ceased manufacturing the product he worked on.  He then commenced suit, alleging, among other claims, that he was not paid overtime wages from January 2012 to January 2016 in violation of the FLSA.

Although his claim fell outside the FLSA’s two-year limitations period, Whiteside tried to save his untimely claim by alleging that the company’s violation was willful, and that he should benefit from the FLSA’s three-year statute of limitations for willful violations.  However, the district court disagreed, dismissing his claim because (1) his claim was untimely under the FLSA’s two-year statute of limitations, and (2) he failed to allege facts raising an inference of a willful violation.

The Second Circuit Affirms

To resolve this pleading issue, the Second Circuit considered two previously laid paths.  Both the Tenth and Sixth Circuits had encountered this issue before, but came to opposite conclusions.

The Tenth Circuit allows a plaintiff to merely allege a willful violation in order to benefit from the longer statute of limitations.  The Sixth Circuit, however, requires that a plaintiff plead facts raising a plausible inference that a willful violation has occurred.  Further, the district courts within the Second Circuit disagreed on the proper approach, with some judges following the Tenth Circuit’s approach and others following the Sixth’s.

Ultimately, the Second Circuit followed the Sixth Circuit, holding that “willfulness operates as an independent element of claims for willful violations of the FLSA,” because such claims subject an employer to heightened liability.  “[R]equiring FLSA plaintiffs plausibly to plead willfulness” upholds the distinction between ordinary and willful violations of the FLSA.  Thus, it was “incumbent on the plaintiff to plead facts that make entitlement to the willfulness exception plausible.”

Here, willfulness could not be inferred from the fact that Whiteside was asked “to perform job responsibilities typically performed by non-exempt employees even though he was classified as exempt.”  Furthermore, he failed to allege any details “suggesting an awareness of impropriety” on behalf of defendant or any of defendant’s managers.  So, the Second Circuit said he had failed to allege sufficient facts to benefit from the FLSA’s longer statute of limitations for willful violations.

Dissent And Circuit Split Suggest This Issue May Rise Again

This reasoning found support from only two of the three judges on the panel, and generated a forceful dissent by Judge Denny Chin.

Judge Chin argued that at the motion to dismiss stage, a plaintiff need only “plausibly allege” a willful violation occurred.  Here, he said, Whiteside had done just that by alleging: (1) he was assigned to a non-exempt role; (2) his supervisor and manager knew he performed this role for years; (3) he regularly worked over 40 hours a week; and (4) he was never paid overtime.  This, Judge Chin said, could “support the inference that defendants were aware of their obligation to pay him overtime and . . . either intentionally or recklessly failed to do so.”

While the dissent’s reasoning failed to carry the day, it suggests that this issue remains controversial.  Considering the current Circuit split, this issue could very well see review by the Supreme Court in the near future, perhaps in this very case.  But as it currently stands in the Second Circuit, the burden lies on “the plaintiff to plead facts that make entitlement to the willfulness exception [of the FLSA] plausible.”

By: Scott Hecker and Kevin Young

Gone are the days when the U.S. DOL’s Wage & Hour Division (“WHD”) invited employers to proactively identify and collaborate with the Division to fix their wage and hour missteps. Closed is the chapter in which employers could expect WHD to stand down on the threat of double damages outside of egregious cases. After years of a prior administration focused on compliance assistance, there’s a new guard at the DOL, and its approach thus far might be described as less carrot and more stick.

We have observed the shift at WHD both through formal announcements and anecdotal experience. Mere weeks after the new administration’s arrival, the DOL confirmed its termination of the PAID program, which invited employers to conduct self-audits and work with WHD to remediate identified issues and provide back wage payments to employees. And just last month, the Division issued new guidance to its field staff confirming a reversal of prior policy that reserved the imposition of liquidated damages for rare and egregious cases.

Unsurprisingly, these shifts in policy have been coupled, in our experience, with a change in the temperament and approach of many WHD investigators who knock on employers’ doors and pursue investigations. We’ve seen more investigators push for near-instantaneous document production, threatening use of subpoena power or imposition of civil money penalties and citing a regulation requiring employers to make documents available for inspection within 72 hours of WHD’s demand. Some have rapidly issued investigatory conclusions to employers, sometimes with document requests still pending, both in FLSA cases and in the prevailing wage law context. Demands that employers enter into compliance agreements drafted by WHD also seem to be increasing in popularity.

Employers we work with are linked by their desire to do right by their employees and comply with the FLSA. Certainly WHD and its investigators want the same. But for many businesses, the change in approach at the Division, from policymakers at the top to enforcement agents in the field, presents a new type of pressure that demands a different level of preparedness.

So what can employers do when facing increased pressure from WHD? Here are a few tips:

  • Ensure that records are in order. WHD has broad authority to request FLSA-related records required to be maintained under 29 C.F.R. Part 516. All employers should take proactive steps to ensure that their records required under these regulations, as well as other documents pertinent to wage-hour compliance, are in good order so that they can be efficiently accessed and reviewed if the WHD comes knocking.
  • Be prepared for the knock. Employers operating across multiple physical locations should ensure that front-line managers know what to do when an investigator from any government agency, including WHD, shows up in person, sends them a letter, or contacts them by phone. While investigators should be treated with the utmost respect, their inquiries should be promptly deferred to a pre-designated point of contact who can help coordinate a response. We encourage employers to carefully consider what their response team and protocols should look like.
  • Be respectful and reasonable. Responding promptly and respectfully to an investigator’s inquiries should help limit fireworks in a potentially combustible situation. While WHD has fairly broad subpoena authority, it’s fair to question whether the Division would get much traction in court in the event that an employer isn’t objecting to or stonewalling an investigator’s requests, but is simply asking for a more reasonable approach, whether in terms of time to respond or the types of documents to produce.
  • Seek counsel. With WHD becoming increasingly zealous with its demands—both in terms of what must be produced and when—the potential for business disruption and missteps is greater than ever. We strongly encourage employers to retain counsel familiar with these investigations to assist. Experienced and capable counsel can help to manage the flow of information and work with the investigator to identify efficiencies to avoid overburdening an employer’s personnel. When necessary, counsel can support employers who choose to contest WHD’s conclusions.
  • Self-audit. The FLSA’s statute of limitations forces employers to live with missteps for two (and sometimes three) years, and the termination of programs like PAID makes it more difficult to resolve those missteps in a decisive way when they are identified. As a result, there’s no time like the present for employers to take reasonable steps to ensure compliance. The need is even greater in businesses where employees are performing different duties, or working in different settings or circumstances, as a result of the pandemic. Areas of focus will vary by business, but at a minimum they should include exempt classification, recordation of all hours worked, and proper calculation of overtime pay. As noted in our update last month, Seyfarth’s FLSA Handbook offers useful material on these topics, including:
  1. Chapter 14, “Compliance and Prevention Matters,” which provides an overview of steps employers can take to comply with wage and hour laws, and an outline to assist employers in structuring their own self-assessment process and to address any issues identified through that process.
  2. Chapter 7, “Exempt Employees,” which explains the most common, “white collar” minimum wage and overtime pay exemptions.
  3. Appendix 8, “Sample Job Assessment Questionnaire Form” which contains a practice and user-friendly set of recommendations to assist employers in reviewing exempt classifications.

As President Biden’s appointees settle in at WHD, we expect to see ramped up enforcement not only under the FLSA, but also under the Davis Bacon Act, Service Contract Act, and other statutes in the Division’s wheelhouse. Prevailing wage laws may represent a particular area of emphasis, given the Biden Administration’s focus on infrastructure projects.

In short, employers must be prepared for a shift in approach at the Division and be ready to demonstrate and defend their compliance. Please feel free to reach out to the authors or your friendly, neighborhood Seyfarth attorney with any questions.

By: Noah Finkel

Seyfarth Synopsis:  After delaying the effective date of a finalized Trump-era interpretive regulation that would have brought much needed clarity to the definition of employee under the Fair Labor Standards Act, the DOL yesterday formally repealed that guidance. The result is that companies, workers, and courts will continue to struggle in classifying which workers are employees and which ones can be independent contractors.

Companies, workers, and courts long have wrestled with how to draw the line between an employee who is subject to various employment laws and an independent contractor who is not.  This confusion occurs at several levels:

▪      Companies are subject to a hodgepodge of federal employment laws, many of which provide differing definitions of employee, or none at all;

▪      States also regulate the employment relationship with varying sets of laws and a myriad of different tests to determine who is an employee;

▪      Most tests for employee versus independent contractor are balancing tests that require a multi-factor analysis under which courts can balance those factors in various ways, often depending on the court’s particular jurisdiction or circuit;

▪      The factors that are balanced under these tests often are open to many interpretations by each court; and

▪      These tests for employee versus independent contractor usually were developed before the current era in which workers rarely retain one full-time job throughout their working years and need to be applied to a rapidly evolving economy.

The DOL’s Proposal and Its Short Tenure

The FLSA is among the oldest and most influential employment law statutes and yet it contains no statutory definition of employee. Until January 6, 2021, it had not contained a regulatory definition of the term.  That is when the DOL issued its final rule on “Employee or Independent Contractor Classification” in the waning weeks of the Trump administration.

In that rulemaking, the DOL — and consistent with case law and its own sub-regulatory guidance — focused on whether, as a matter of economic reality, the worker is dependent upon the company for work or instead in business for him or herself.  In doing so, it set forth two core factors to be considered: (1) the nature and degree of the worker’s control over the work; and (2) the worker’s opportunity to earn a profit or loss.

The rule further provided that, if both factors point toward the same classification, whether employee or independent contractor, then the worker is very likely to be that classification. If, however, those factors point in opposite directions, then three other factors should be considered: (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the individual and the company; and (3) whether the work is part of an integrated unit of production.

The rule, which was to be effective March 8, 2021, provided a simpler clearer analysis for determining whether a worker can be classified as an independent contractor under the FLSA. While there was no guarantee that judges would defer to it, it had the potential to be highly influential in courts and possibly harmonize how different circuits analyze whether a worker is an employee or independent contractor.

But following the change in administrations, the DOL delayed the effective date of that rule, proposed withdrawing it, and then, yesterday, formally withdrew its prior guidance. Its main reason for doing so is that the rule elevated two factors — the degree of control and the worker’s opportunity for profit or loss — above other factors that historically had been considered, which the DOL considers in tension with the text and purpose of the FLSA. This is despite the fact that, in 2015 (the last time the DOL was under a Democratic administration), the DOL issued sub-regulatory guidance in the form of an Administrator Interpretation effectively changing the employee vs. independent contractor test from the historic economic realities test to one that focused on economic dependence.

Barring successful litigation, the DOL’s independent contractor regulation is a dead letter.

What Now and What Next?

So what is now the test for employee versus independent contractor under the FLSA?  It is the same as it ever was:  a balancing test that varies from circuit to circuit, creating litigation results that often seem like they are dependent on each judge’s particular views.

That may not be the case for long, as the DOL under President Biden is expected to issue its own interpretation of how it believes courts should define employee under the FLSA. It remains to be seen when that will occur, what form it will take (will it be by notice-and-comment rulemaking, amicus briefs, opinion letter(s), Administrator Interpretation, or other?), and what its substance will be.

Many in the plaintiffs’ bar have advocated and will advocate for the DOL to adopt the so-called ABC test, which is used with some variations in several states for wage-hour purposes. The version of the ABC test that all but guarantees employee status in most scenarios (and which is currently used in California and Massachusetts), presumes that a worker is an employee unless the company can show that the worker is free from company control and direction in actual practice and per contract, performs work outside the company’s usual course of business, and the worker is customarily engaged in an independently established trade, occupation, or business. Federal adoption of this test, though, is unlikely. Even those who favor a broad definition of employee recognize that the ABC test could not be adopted by the DOL without legislation from Congress. Such legislation exists within the PRO Act, which has been passed by the House, but it is highly unlikely to make it out of the Senate.

More likely, and particularly if, as rumored, David Weil is tapped to be Administrator of the Wage-Hour Division, the DOL will propose a standard similar to the one it issued in its 2015 Administrator Interpretation (which Dr. Weil authored). That standard — focusing on economic dependence — lacks the simplicity and clarity of the now repealed test and likely would be interpreted in a manner to render a greater number of workers employees than under various tests currently used in most circuits.

The extent to which courts would defer to the DOL’s eventual replacement test is an open question.  The fact that the definition of employee is becoming one that depends on which party holds the White House — and thus runs the DOL — may make courts view any DOL test with skepticism and thus cause them to fall back on the same varying and elastic tests they have used over the last 80 years in the absence of a DOL definition of employee. The one certainty for independent contractor jurisprudence seems to be a lack of it.

By: Ryan McCoy and Andrew Paley

Seyfarth Synopsis: Back in January 2020, a federal district court enjoined the State of California from enforcing AB 5 against interstate motor carriers. Now, in a split 2-1 decision, a Ninth Circuit panel has reversed the district court, on the rationale that AB 5 is just another generally applicable labor law that affects all businesses regardless of industry, and is no different from many prior state laws the Ninth Circuit has upheld. Casting aside the dissent’s description of the wide-ranging impact that AB 5 would have on motor carriers, the panel majority held that the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) does not preempt AB 5. The district court’s injunction is expected to be lifted in the coming weeks. The panel’s decision could be subject to a rehearing en banc by the full Ninth Circuit, and eventually the U.S. Supreme Court will likely be asked to address the circuit split on whether the FAAAA preempts “all or nothing” state laws like AB 5. 

The District Court’s Injunction Prohibiting Enforcement

On January 16, 2020, a federal judge in the Southern District of California, following up on a temporary restraining order issued on December 31, 2019, granted the California Trucking Association’s request for a preliminary injunction blocking enforcement of AB 5 against interstate motor carriers. The district court found that AB 5’s ABC test destroys the historical owner-operator model, in direct contravention of the FAAAA, a 1994 deregulation measure that forbids any state law “related to a price, route, or service of any motor carrier … with respect to the transportation of property.” The district court concluded that the FAAAA “likely preempts ‘an all or nothing’ state law like AB 5 that categorically prevents motor carriers from exercising their freedom to choose between using independent contractors or employees.”

The Ninth Circuit’s Decision

A  2-1 panel decision overturned the district court’s decision, effectively permitting the State of California to enforce AB 5 against interstate motor carriers who have long contracted with truck drivers who are owner-operators. The panel majority rejected the district court’s analysis, reasoning that AB 5 is like other state laws (such as those regarding meal and rest periods) that the Ninth Circuit has upheld as generally applying to all industries as opposed to a targeted group. The panel majority concluded that AB 5 is a generally applicable labor law that, while affecting a motor carrier’s relationship with its workforce, is not aimed specifically at the trucking industry.

The panel majority threw out the district court’s finding that the FAAAA preempted AB 5’s enforcement against interstate motor carriers, because AB 5 does not “bind, compel, or otherwise freeze into place the prices, routes, or otherwise freeze into place the prices, routes, or services of motor carriers,” as required for FAAAA preemption.

The Dissent

A lengthy dissent by Judge Mark Bennett faulted the panel majority for failing to consider the full scope of AB 5’s impact on interstate motor carriers, including the impact on their customer relationship and services. AB 5, Judge Bennet argued, differs from the prior state laws of general applicability that the Ninth Circuit has upheld. AB 5 establishes an “all or nothing” rule for interstate motor carriers and mandates how motor carriers must engage with their workers. Judge Bennett cited the district court’s finding that Prong B was the “Achilles heel” of AB 5 for interstate motor carriers because AB 5 makes a truck driver an employee unless the motor carrier proves that the driver “performs work that is outside the usual course of its business.”

Finally, in an evident effort to garner attention from the U.S. Supreme Court, Judge Bennett pointed out the circuit split that the panel majority has created, in that other Circuits have ruled that the FAAAA preempts “all or nothing” statutes.

Motor Carriers Should Examine Current Practices While Keeping A Close Eye On Further Developments

The Ninth Circuit did not immediately lift the injunction, but one can expect the injunction to be lifted by court order in the coming weeks, which would permit California agencies to enforce AB 5 against motor carriers. The panel’s decision could be subject to a rehearing en banc by the full Ninth Circuit, and eventually one might expect that the Supreme Court will be asked to weigh in on the issues raised by the appeal, especially in light of Judge Bennett’s characterization of a circuit split on “all or nothing” rules.”

By: Louisa J. Johnson

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

The Joint Employer Rule

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

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

The Independent Contractor Rule

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

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

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

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

What Does This Mean For Companies?

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

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

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

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

Register today!

By: Jennifer R. Nunez and David D. Kadue

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

The Facts

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

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

The Trial Court Decision

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

The Appellate Court Decision

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

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

The Supreme Court Decision

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

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

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

What Donohue Means For Employers

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

By: Robert S. Whitman and John P. Phillips

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

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

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

Background

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

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

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

Congressional Bills Under Consideration

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

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

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

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

Takeaways

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

 

By: Amanda Mazin and David D. Kadue

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

Facts

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

The Ninth Circuit’s Decision

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

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

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

What This Case Means to Employers

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

By Kevin M. Young and Scott P. Mallery

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

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

Overview of the Raise the Wage Act

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

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

chart reflecting graduated minimum wage increase to $15.00

 

 

 

 

 

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

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

The Act’s Potential Impacts

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

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

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

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

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

The Path Forward for Raise the Wage—Reconciliation or Bust

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

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

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

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

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

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

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

How Else Could the Administration Accomplish its Policy Goals?

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

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

Conclusion

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

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

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


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