Authored by Cheryl Luce

Seyfarth Synopsis:  If it becomes law, a new bill will expand the FLSA’s tip provisions into areas traditionally regulated by state law and create new areas of ambiguity that could be a breeding ground for yet more wage-hour litigation.

We have been covering the saga of a controversial 2011 DOL regulation that gave employees the right to receive tips even when they were paid the federal minimum wage of $7.25 per hour. As courts agreed again and again, the rule was contrary to the FLSA’s plain language and inconsistent with its remedies. In late 2017, the DOL proposed to rescind the rule, noting concerns about its scope. But that proposal has been highly politicized and labeled an attack on workers, authorizing employers to pocket employees’ tips (even though federal law never regulated an employee’s right to receipt of tips, even before the rule).

Ultimately, the fallout around the DOL’s 2017 proposal has resulted in a proposed law amending the FLSA called the Tip Income Protection Act of 2018, announced in principle on March 6, 2018 and receiving bipartisan support in Congress as well as from Secretary of Labor Alex Acosta. The bill has been added to the omnibus budget spending bill that the House passed yesterday and the Senate passed this morning. (The Tip Income Protection Act’s text begins on page 2,025 of the bill.) Barring a presidential veto, the bill will become law.

The Tip Income Protection Act amends the FLSA by adding a provision to 29 U.S.C. § 203(m) that states:

An employer may not keep tips received by its employees for any purpose, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.

The Act further creates a remedy for violating this provision “in the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and an additional equal amount in damages” and imposes a civil penalty of up to $1,000 for each violation.

As currently written, § 203(m) only regulates tips when the employer has taken a tip credit against its minimum wage obligations, and the FLSA only provides a remedy for the unpaid minimum wage (not for the amount of the tips retained). The Tip Income Protection Act thus expands the FLSA’s tipping provisions from ensuring tipped employees are properly notified of any tip credits and paid minimum wage to guaranteeing that employees are paid the tips they receive in full.

The proposed Tip Income Protection Act is a major deviation from the FLSA’s core purpose. Since its enactment in 1936, that purpose has been to: (i) ensure that all employees are paid at least the federal minimum wage, (ii) ensure that employees are paid at a rate of at least 1.5 times their regular rate of pay for all hours worked over 40 in a workweek, unless an exemption applies, and (iii) prohibit unlawful child labor. Never has it been the FLSA’s aim to ensure that employees are paid all of their wages. That historically has been left to the states. Indeed, if an employee makes at least the minimum wage and overtime according to the FLSA’s requirements, the FLSA can provide no further relief. The FLSA’s monetary remedies are currently limited to “unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.” 29 U.S.C. § 216(b). By allowing employees to recover the full amount of tips, the Tip Income Protection Act represents a major departure from the purposes of the FLSA.

Perhaps the bigger concern with the Tip Income Protection Act as written is that it is vague and will leave employers scrambling to understand how the new law applies to them. First, the bill states “managers and supervisors” are prohibited from sharing any portion of employees’ tips and thus cannot participate in a tip pool. But the bill does not define “managers and supervisors,” and there are various ways in which these terms are interpreted in different contexts: does a lead bartender who can’t hire or fire employees, but serves as a manager-on-duty when the owner is not around and who also primarily serves customers, get to share in the tip pool? when he is acting as a manager? or never? Additionally, the bill selects the ambiguous word “to keep” as the operative commanding verb. Restaurants and their agents are not allowed “to keep” employees’ tips. Is “keeping” tips limited to circumstances in which the employer actually uses the tips for its own purposes? Or would it also apply to the distribution of tips to other employees, as appears to be the case for tips distributed to “managers and supervisors”? Would “improper” tip pools be subject to the new standard or the old one?

The Tip Income Protection Act appears to respond to fears that no federal regulation of tips opens the floodgate to pocketing employee tips. But tips have and will continue to be regulated by state law; indeed, federal law has never regulated wage payment generally and the source of that protection has been state laws. Although its sponsors are characterizing the bill as restoring a right for employees that was created by the Obama DOL, that right never existed in federal law (and apparently has not needed to exist in federal law until now). It only existed in the form of an administrative rule that exceeded agency authority and was largely rejected by courts.

Finally, the bill appears not to disturb the DOL regulations’ definition of a tip and guidance that “a compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer by an employer’s establishment, is not a tip.” 29 C.F.R. § 531.55. No new definition of “tip” would be added to the FLSA as a result of the bill, and service charges should be spared from the bill’s new rules.

Co-authored by Noah Finkel and Cheryl Luce

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

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

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

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

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

Co-authored by: Steve Shardonofsky and John P. Phillips

Seyfarth Synopsis: On November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act. If passed by the Senate, the bill would overturn Obama-era decisions and agency guidance broadly defining and holding separate, unrelated companies liable as “joint employers” under federal wage & hour and labor law. Perhaps more importantly, the bill signifies a broader trend to provide more clear guidance and roll-back various Obama-era rules on wage & hour issues.

The Broad Approach to “Joint Employment” Under the Obama Administration

Under the prior Administration, and particularly during the later years, employers who had traditionally relied on contract labor, temporary workers, staffing agencies, subcontractors, and franchise arrangements found themselves in the crosshairs of federal agencies and regulators. Traditionally, joint employer status was found where separate, unrelated entities shared responsibility and exercised direct control over the employment relationship, including decisions affecting the terms and conditions of employment. In that case, both entities could be held jointly liable for violations of wage & hour and other employment laws. The Obama Administration upended this traditional test, however.

In August 2015, the NLRB issued its much-discussed Browning-Ferris decision (addressed here), where the Board adopted an expansive definition of joint employment focusing on the right to control the terms and conditions of employment and the indirect exercise of those rights. (Seyfarth Shaw LLP is leading the appeal of Browning-Ferris to the D.C. Circuit Court of Appeals.) In 2015 and 2016, then-WHD Administrator Dr. David Weil issued two separate Administrator’s Interpretations (“AIs”) concerning independent contractors and joint employment. In 2015, in an effort to reduce the classification of workers as independent contractors and increase the number of workers subject to the FLSA’s minimum wage and overtime requirements, Dr. Weil issued guidance espousing a broad interpretation of who qualifies as an “employee” under the FLSA and highlighting the DOL’s position that almost all workers are employees. In 2016, Dr. Weil followed-up with guidance emphasizing the DOL’s position that joint employment must be determined based on the economic realities instead of (in their view) artificial corporate or contractual arrangements, including situations involving “horizontal” and “vertical” joint employment (discussed here). This guidance focused on the economic realities of a business’s relationship with a given worker, especially noting that indirect control (e.g., control excised solely through a staffing company) can be sufficient for a finding of joint employment. While the AIs were not entitled to judicial deference, we anticipated that some judges would treat Dr. Weil’s words as gospel.

As we previously reported, the broader tests espoused by the NLRB and the WHD exposed employers to a myriad of new wage and hour liabilities, investigations, and enforcement actions, and were especially relevant to companies that outsource work, utilize staffing agencies and contractors, or employ a franchisor/franchisee business model. If recent activity by Trump’s DOL and Congress is any indication, a shift in regulatory enforcement and focus is well underway.

The Winds of “Joint Employment” Are Shifting

As we reported here and here, this summer the DOL withdrew its AIs on joint employment and independent contractors. More recently, on November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act by a vote of 242-181, including yes votes from eight Democrats. The bill clarifies the standard for “joint employer” status under the FLSA and the NLRA, and returns to a traditional test that requires “direct, actual, immediate,” and “significant” control over the essential terms and conditions of employment, such as hiring, discharging employees, determining rates of pay and benefits, day-to-day supervision, and administering employee discipline.

Implications for Employers

The DOL’s decision to withdraw its AIs and the passage of the Save Local Businesses Act are welcome changes for employers who faced significant liability and uncertainty under the Obama-era rules. Although the bill itself still faces a tough road in the Senate—where it will require Democratic support to reach 60 votes and avoid a filibuster—it would represent a significant shift in the federal government’s focus. Even if the bill stalls, it nevertheless solidifies a broader regulatory and enforcement trend that may prompt federal courts to return to the traditional and more predictable joint employer test under the FLSA.

Full passage of the Save Local Businesses Act in Congress and signature by the President, however, will not be a panacea for these thorny joint-employer issues. Many states, such as California, still have broad joint-employer tests under their respective wage-hour laws. Courts will also continue to grapple with the proper application and interpretation of these rules, as evidenced by a recent decision from the Fourth Circuit Court of Appeals purporting to define joint employment even more broadly than the Obama Administration. Furthermore, the plaintiffs’ bar will continue to push the outer contours of the law in their search to apply joint employer principles more broadly and thereby reach the “deep pockets” of franchisors and other principals. Regardless of what happens to the Save Local Businesses Act, we foresee continued potential exposure and litigation in this arena. Employers—and particularly those in industries that make heavy use of franchises, subcontractors, and staffing agencies—should remain engaged and focused on these issues, and continue to scrutinize their independent contractor relationships, staffing arrangements with third parties, and related contracts.

Authored By Alex Passantino

As we’ve reported previously, among the items the Department of Labor identified earlier this year in its Regulatory Agenda was a Notice of Proposed Rulemaking (NPRM) seeking to rescind portions of a 2011 rule that restricted tip pooling for employers who do not use the tip credit to satisfy their minimum wage obligations. On October 24, 2017, that NPRM was sent to the White House Office of Information and Regulatory Affairs (OIRA) for review and approval. One of the cases challenging the validity of the 2011 rulemaking may be on its way to the Supreme Court, with the Administration’s response to a cert petition due on November 7. With that deadline looming, it’s possible that the Administration is seeking to moot the issue before the Supreme Court has the chance to address some of the issues related to agency deference.

After OIRA clears the NPRM, it will be sent to the Federal Register for the public to provide comments in response to the Department’s proposal. At that time, we’ll know the specifics of the proposal and will be able to provide more guidance on what this means for employers. Stay tuned.

 

Co-authored by Abigail Cahak and Noah Finkel

Seyfarth Synopsis: The Ninth Circuit has created a circuit split by rejecting the DOL’s interpretation of FLSA regulations on use of the tip credit to pay regularly tipped employees, finding that the interpretation is both inconsistent with the regulation and attempts to create a de facto new regulation.

The Ninth Circuit Court of Appeals issued an important and restaurant-friendly decision rejecting the Department of Labor’s interpretation of FLSA regulations on the use of the tip credit when paying regularly tipped employees.

In Marsh v. J. Alexander’s, the Ninth Circuit addressed a number of actions brought by servers and bartenders who alleged that their employers improperly used the tip credit and thus failed to pay them the required minimum wage. Relying on DOL interpretive guidance, the plaintiffs asserted that their non-tip generating duties took up more than 20% of their work hours, that they were employed in dual occupations, and that they were thus owed the regular minimum wage for that time. The district court dismissed the case, holding that Marsh had not alleged a dual occupation and that deference to the DOL guidance underpinning his theory of the case was unwarranted. Marsh appealed.

Under the FLSA’s regulations, an individual employed in dual occupations–one tipped and one not–cannot be paid using the tip credit for hours worked in the non-tipped occupation. The regulations clarify, however, that “[s]uch a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee[,] and occasionally washing dishes or glasses. . . . Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.” Yet, current DOL guidance imposes time and duty-based limitations not present in the regulations: the tip credit may not be used if an employee spends over 20% of hours in a workweek performing duties related to the tipped occupation but not themselves tip-generating. The guidance goes on to state that an employer also may not take the tip credit for time spent on duties not related to the tipped occupation because such an employee is “effectively employed in dual jobs.” That guidance had been followed by the Eighth Circuit Court of Appeals and several lower courts. It created a feeding frenzy among some plaintiffs’ lawyers, causing restaurant employers to ask servers and bartenders to track their time spent on various activities down to the minute, or risk facing a collective action lawsuit in which they have to try to rebut a servers’ claims that they had spent excessive time on activities that arguably were not tip producing.

The Ninth Circuit, however, concluded in Marsh that the DOL’s guidance was both inconsistent with the FLSA regulations and attempted to create a de facto new regulation such that it did not merit deference. In particular, the court noted the regulations’ focus on dual occupations or jobs as contrasted with the DOL guidance: “[i]nstead of providing further guidance on what constitutes a distinct job, [the DOL] takes an entirely different approach; it . . . disallows tip credits on a minute-by-minute basis based on the type and quantity of tasks performed. Because the dual jobs regulation is concerned with when an employee has two jobs, not with differentiating between tasks within a job, the [DOL’s] approach is inapposite and inconsistent with the dual jobs regulation.” Moreover, the DOL guidance “creates an alternative regulatory approach with new substantive rules . . . [and] ‘is de facto a new regulation’ masquerading as an interpretation.”

In so holding, the Ninth Circuit broke with the Eighth Circuit’s 2011 decision in Fast v. Applebee’s International, Inc. and explicitly rejected the Eighth Circuit’s analysis in that case. We previously blogged about the Fast decision here.

Marsh creates a circuit split and is particularly notable coming from the frequently employee-friendly Ninth Circuit. There remains, however, contrary authority in many parts of the country, and the decision has no bearing on state laws, some of which may nonetheless follow the DOL’s reasoning. It’s also likely that this Ninth Circuit panel does not have the last word on this issue. This opinion could receive further review by the full Ninth Circuit or by the Supreme Court, and if the Supreme Court does not resolve the circuit split, other appellate courts are likely to weigh in. Regardless, the decision points out the absurdities of the DOL’s current position and demonstrates the need for guidance on the issue from the DOL once its’ appointees are in place.

Authored by Alex Passantino

The White House announced its intent to nominate Cheryl Stanton to serve as the Administrator of the U.S. Department of Labor’s Wage & Hour Division. Stanton currently serves as the Executive Director for the South Carolina Department of Employment and Workforce. Prior to that, she worked in private practice as a management-side labor and employment attorney. She also previously served as Associate White House Counsel for President George W. Bush, where she was the administration’s principal liaison to the U.S. Department of Labor, the National Labor Relations Board, and the Equal Employment Opportunity Commission.

Ms. Stanton is nominated to join a Labor Department in which only Secretary of Labor Alexander Acosta has successfully navigated the Senate confirmation process. Deputy Secretary nominee Patrick Pizzella was formally nominated in June 2017; his nomination remains pending in the Senate. With a full Fall agenda including Hurricane Harvey (and likely Irma) relief, the debt ceiling, tax reform, border wall funding, and potential immigration-related issues, it is unclear when the Senate might confirm Ms. Stanton. It would not be surprising to see her nomination linger until the end of the year–or even into 2018.

When she does arrive at WHD, she’ll be facing a full plate of issues as the agency tackles a new rulemaking process increasing the salary level required for exemption under the FLSA’s white-collar exemptions, a proposal revising the rules surrounding tipped employees and the use of tip credit, and, presumably, filling the vacuum left by the Department’s withdrawal of the Administrator Interpretations on independent contractors and joint employment. In addition, with the Department’s announcement that it would once again be issuing opinion letters, there’s likely to be quite a queue of requests awaiting Ms. Stanton’s review.

We’ll keep you posted as Ms. Stanton’s nomination works its way through the confirmation process.

 

Co-authored by Brett Bartlett, Alex Passantino, and Kevin Young

Seyfarth Synopsis: On Thursday afternoon, a federal judge in Texas issued an order officially invalidating the U.S. Department of Labor’s 2016 overtime rule, which would have more than doubled the minimum salary level for most overtime-exempt employees. While the long awaited ruling brings a measure of closure for employers, the possibility of appeal, as well as the new administration’s efforts to revise the existing overtime exemption rules, will be critical issues for employers watch in the weeks and months to come.

For nearly a year, employers have been watching and waiting as litigation challenging the Obama administration’s revision to the FLSA’s executive, administrative, and professional (“EAP”) exemptions—a revision intended to make millions of more Americans eligible for overtime pay—wound its way through litigation in the Eastern District of Texas and the Fifth Circuit of Appeals. As of Thursday afternoon, the waiting is over: District Judge Amos Mazzant issued an order invalidating the revised rule.

The Obama DOL’s revised rule, which was finalized in the summer of 2016 and slated to take effect on December 1, 2016, would have increased the salary level required for EAP employees from $455 per week (i.e., $23,660 per year) to $913 per week (i.e., $47,476 per year). The rule also called for automatic, inflation-indexed updates to the salary level every three years. Ultimately, the revised rule did not become effective on December 1, however, because Judge Mazzant issued an order days prior that preliminarily enjoined it from going into effect.

District Judge Mazzant issued his order in two consolidated lawsuits challenging the DOL for acting beyond its rulemaking authority. The order was the result of a motion filed by a group of state attorneys general who argued that the DOL’s rulemaking was invalid, in part because it exceeded the authority Congress gave DOL to define who is a “bona fide” EAP employee who should not be entitled to overtime pay. At about the same time that the “state plaintiffs” filed their motion for preliminary injunction, which the district court granted, another set of plaintiffs—a group of business associations (“business plaintiffs”)—filed an expedited motion for summary judgment, advancing similar arguments that the DOL’s rulemaking was unlawful.

After Judge Mazzant granted the state plaintiffs’ preliminary injunction motion, the Obama DOL filed an interlocutory appeal in the Fifth Circuit attacking the injunction order. Importantly, however, this was just before the Trump Administration took office. Ultimately, briefing in the appeal was delayed as a new president settled into office and his new Labor Secretary, Alexander Acosta, took the helm at DOL. In doing so, Secretary Acosta and his Acting Solicitor were required to assess how to maneuver a proceeding involving an injunction order that on the one hand blocked the implementation of an overtime rule championed by the prior administration, but on the other hand suggested that the DOL might not have authority to set any salary level for the EAP exemptions, despite having done so for nearly eighty years.

In the meantime, the business plaintiffs’ motion for summary judgment lingered before the district court.

Thursday’s ruling was preceded by a recent flurry of activity. On Wednesday, for example, Judge Mazzant issued an order confirming no further argument was necessary on the summary judgment motion. The court also collapsed the state plaintiffs’ and business plaintiffs’ cases together and joined the state plaintiffs to the business plaintiffs’ pending summary judgment motion. Nevertheless, it seemed unlikely that Judge Mazzant would rule on the summary judgment motion before hearing from the Fifth Circuit regarding his earlier preliminary injunction order. After all, an appellate ruling on whether it was proper to preliminarily enjoin the new rule certainly could have impacted or at least informed Judge Mazzant’s reasoning on whether the rule should be declared invalid, as the summary judgment motion argued it should.

Meanwhile, at the Fifth Circuit, oral argument was slated for October 3, and the parties were jockeying for an opportunity to be heard. The business plaintiffs, who were not parties to the appeal, requested permission to appear as amici at the oral argument. Soon thereafter, all parties filed a motion to stay proceedings while they attempted to negotiate a deal that would eliminate the need for further proceedings. Indeed, even on Thursday as the district court was issuing its final judgment, the parties on appeal were filing various submissions with the Fifth Circuit.

So perhaps all were surprised when District Judge Mazzant issued orders finding that the DOL’s 2016 rulemaking was invalid, and that the AFL-CIO would not be joined to the case. The district court’s ruling on both of these issues is fairly straightforward. On the motion for summary judgment, which collapsed all parties and remaining issues into its walls, the court ruled as follows:

  • As associations and similar groups, the business plaintiffs had standing to challenge the DOL’s rulemaking.
  • The FLSA does in fact apply to state governments, contrary to the state plaintiffs’ arguments.
  • Applying Chevron deference analysis, the DOL exceeded its authority by setting a salary level test that in effect eliminated the need to consider whether employees performed duties that demonstrate their roles working in a bona fide EAP capacity, based on definitions that Congress would have understood at the time it enacted the FLSA.
  • The automatic updating provided by the DOL’s final 2016 rule was unlawful for similar reasons.
  • Clarifying an area of concern for the DOL and other stakeholders, the court did not rule on the question of whether the DOL has authority to set any salary level for the EAP exemptions. The court’s ruling concerned only the 2016 rulemaking, finding the heightened salary level under the revised rule goes too far.

In denying the AFL-CIO’s motion to intervene as a necessary or permissive party, the court reasoned:

  • The union’s motion was untimely, as it had been aware of the litigation and the issues on which it bore. Yet it waited to file its motion to intervene until material events had occurred in the litigation.
  • The union failed to show that the DOL and related defendants were not adequately representing the interests that it purported to protect.
  • The union had argued among its primary points that Secretary of Labor nominee Andrew Puzder would not protect those interests; but Alexander Acosta was confirmed as Secretary of Labor, meaning that Mr. Puzder’s potential actions never became a reality.
  • And the court would nevertheless not exercise its discretion to allow the union to join the case.

The question on everyone’s mind is: where does this leave us?

One easy answer is that with respect to the EAP exemption itself, the 2004 rule remains in place. Employees making $455 per week (i.e., $23,660 per year) and whose primary duty satisfies one of the EAP duties tests may be classified as exempt.

Beyond that, there are no easy answers. The parties are no doubt considering whether the district court’s summary judgment order, which purports to withdraw all prior rulings, renders the pending appeal moot or requires its dismissal. After all, the summary judgment motion decided by the district court presents largely the same issues currently before the Fifth Circuit—namely, the validity of the new overtime rule. Some commentators have already exclaimed that the district court’s order mooted the interlocutory appeal entirely. Our view is that the question could be more complicated. Suffice it to say, there’s a lot to digest.

Either way, it also remains unclear whether either side will appeal Thursday’s rulings. While one would assume that DOL will not, we can’t slam the door on the possibility. As we saw with the appeal of the preliminary injunction, even the new Administration’s policy differences may not override DOL’s desire to defend itself against court orders limiting its authority, as the preliminary injunction did and as the court’s summary judgment order appears to do. If DOL determines that there is an institutional need to preserve its rulemaking authority, then it is possible we might see a DOL-initiated appeal, which would further complicate the question of how the union might agitate the proceedings.

As for the AFL-CIO, next steps are even foggier at this moment. Given that the DOL has already signaled the commencement of new rulemaking on the EAP exemptions, the AFL-CIO may take the view that even a complete victory on appeal—i.e., one that would permit its inclusion in the case and the reversal of the district court’s summary judgment decision—would ring hollow, as it could be undone by the DOL’s efforts to formulate a new rule that would take the place of the Obama rule.

Without question, the Eastern District of Texas’s order invalidating the 2016 overtime rule brings a large measure of closure for employers waiting to learn whether the rule would ever go into effect. The completeness and finality of that closure will depend largely on whether the AFL-CIO seeks appeal, as well as the DOL’s anticipated efforts to implement a new rule altogether. We will, of course, continue to monitor and update you on these important events.

Authored by Alex Passantino

Seyfarth Synopsis: On July 26, 2017, the U.S. Department of Labor will publish its anticipated Request for Information on the White-Collar Overtime Exemption in the Federal Register. The RFI will give the regulated community 60 days to provide its comments in response.

The RFI seeks input on a wide variety of topics, many of which involve issues that have been raised since the Department published its final rule increasing the salary level over a year ago. With the salary level on hold, the Department has the opportunity to revisit the level–or at least to take the temperature of the regulated community.

The issues on which the Department seeks comment are:

  • Should the 2004 salary test be updated based on inflation? If so, which measure of inflation?
  • Would duties test changes be necessary if the increase was based on inflation?
  • Should there be multiple salary levels in the regulations? Would differences in salary level based on employer size or locality be useful and/or viable?
  • Should the Department return to its pre-2004 standard of having different salary levels based on whether the exemption asserted was the executive/administrative vs. the professional?
  • Is the appropriate salary level based on the pre-2004 short test, the pre-2004 long test, or something different? Regardless of answer, would changes to the duties test be necessary to properly “line up” the exemption with the salary level?
  • Was the salary level set in 2016 so high as to effectively supplant the duties test? At what level does that happen?
  • What was the impact of the 2016 rule? Did employers make changes in anticipation of the rule? Were there salary increases, hourly rate changes, reductions in schedule, changes in policy?  Did the injunction change that? Did employers revert back when the injunction was issued?
  • Would a duties-only test be preferable to the current model?
  • Were there specific industries/positions impacted? Which ones?
  • What about the 2016 provision that would permit up to 10% of the salary level to be satisfied with bonuses? Should the Department keep that? Is 10% the right amount?
  • Should the highly compensated employee exemption salary level be indexed/how? Should it differ based on locality/employer size?
  • Should the salary levels be automatically updated? If so, how?

Of course, the value of these responses ultimately is dependent on the Fifth Circuit’s decision on whether the salary test is permissible to begin with. Should the Fifth Circuit rule in the Department’s favor on that issue, the RFI responses will provide the Department with the information it needs to proceed on a new rulemaking adjusting the salary level…assuming the employer community responds.

For additional information on how to respond to the RFI, please contact OTRuleHelp@seyfarth.com or Alex Passantino at apassantino@seyfarth.com. We’ll continue to update you as additional information becomes available.

Authored by Alex Passantino

Seyfarth Synopsis: The Wage & Hour Division announced its regulatory plan for the next year and it is less ambitious than some may have anticipated.  A request for information on the overtime rule and a proposal to rescind a limited tip credit regulation are all that is on the immediate horizon for employers.

Each spring and fall, Washington waits with bated breath as the Executive Branch releases its regulatory agenda. As the first pronouncement of some of the specifics of the Trump Administration’s regulatory plans, this year’s agenda was anticipated more than most. And now we have it

The Wage and Hour Division’s initial plans include the announced Request for Information on the white collar exemptions, which is expected to be published this month. An as-of-yet-unannounced action, however, is a notice of proposed rulemaking (NPRM) that would rescind aspects of the Department’s 2011 rule related to tipped employees. Specifically, the NPRM would seek comment on the Department’s proposal to rescind the portion of the rule that restricts tip pooling for employers who do not use the tip credit to satisfy their minimum wage obligations. That rule has been the subject of much litigation, with mixed results. One of the cases may be on its way to the Supreme Court, with the Administration’s response to a cert petition due on September 8. With the NPRM slated for an August publication, it’s possible that the Administration may be seeking to avoid review by the Supreme Court on some of the touchier issues related to the proper deference a federal agency should be afforded. We’ll keep you posted.

Finally, WHD has identified a long-term plan to revisit the Section 14(c) program. Section 14(c) of the FLSA permits, under certain circumstances, employment of individuals with disabilities at subminimum wages. It is a politically sensitive program, and one in need of updating. No timetable has been provided for the Department’s review.

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

Seyfarth Synopsis:  The majority of courts have held that releases of FLSA rights require approval by a court or the US Department of Labor.  A recent case in the Southern District of New York highlights a dilemma employers face when seeking “finality” through DOL-approved settlements.

In Wai Hung Chan v. A Taste of Mao, Inc., five employees asserted FLSA claims for unpaid minimum wage and overtime.  Before the lawsuit was filed, the employer agreed with the DOL to pay back wages of $38,883.80 to 19 of its employees, including four of the five plaintiffs in the lawsuit.  During negotiations on that agreement, the DOL confirmed that it had the authority to represent and resolve all of the employees’ claims, and it subsequently mailed WH-60 forms notifying them of the settlement and their right to a share of it.  Meanwhile, the employer transmitted the settlement funds to the DOL for distribution to the employees.

The five Chan Plaintiffs did not sign the WH-60 forms and instead commenced the lawsuit, seeking back pay for a period exceeding that covered by the DOL settlement.  The employer sought summary judgment on grounds that the DOL still possessed the settlement funds that it remitted on behalf of the plaintiffs, even though they did not sign the WH-60 forms.

District Judge William H. Pauley, III rejected the employer’s argument that the plaintiffs “constructively accepted the funds when the DOL, as their authorized representative, took possession of such funds.” He held that the plaintiffs’ refusal to sign the WH-60 forms was “tantamount to a rejection” of the settlement offer, invoking a presumption that “employees do not have to take the settlement unless they specifically opt into it.”  The court held that the employer expressly acknowledged this possibility as part of its settlement with the DOL by agreeing that any unclaimed funds would be disbursed to the U.S. Treasury.

Judge Pauley also rejected the employer’s argument that the plaintiffs should be bound to the agreement on grounds that “employers who in good faith strive to settle claims should be afforded the benefit of knowing that they will not face liability in the future.” Although he was sympathetic to the employer’s predicament, he stated that “it is Congress – not this Court – which must force a solution to that quandary…even if it means compelling an outcome that forces [the employer] to address the same allegations it believed were resolved through the DOL Settlement.”

The Chan decision highlights yet another potential hurdle to complete and binding settlements of employee wage claims.  In the Second Circuit  and elsewhere, releases of FLSA rights require approval, and agreements submitted for judicial approval are subjected to close scrutiny that is difficult to bypass.  In light of Chan, DOL approval doesn’t make the process any easier.  The circumstances described in Chan demonstrate that employers may not be able to obtain true finality in such settlements and may still face the risk of subsequent litigation.