Co-authored by Alex Passantino and Kevin Young

On Tuesday, the Wage & Hour Division announced a new program for resolving violations of the FLSA without the need for litigation. The Payroll Audit Independent Determination program—or “PAID”—is intended to facilitate the efficient resolution of overtime and minimum wage claims under the FLSA. The program will be conducted for a six-month pilot period, after which time WHD will review the results and determine how best to proceed.

PAID should be welcome news for compliance-minded employers. In the vast majority of cases, FLSA claims must be resolved through litigation or under WHD’s supervision. Given the proliferation of FLSA litigation, many employers have, in recent years, conducted proactive audits with legal counsel to ensure compliance with the Act. Oftentimes, employers who identified past issues through those efforts were reluctant to approach an enforcement-happy WHD to request supervision of back wage payments due to concern that doing so would trigger litigation. Employers were stuck between a rock and a hard place.

By providing a mechanism for proactively resolving wage-hour issues without the need for litigation, the PAID program should increase the incentive for employers to conduct formal audits of their wage-hour practices.

While we expect details on the PAID program, including an official launch date, to crystallize in the weeks to come, the WHD has already provided guidance on the contours of the program. According to WHD, an eligible employer who wishes to participate in the program must:

  • Specifically identify the potential violations,
  • Identify which employees were affected,
  • Identify the timeframes in which each employee was affected, and
  • Calculate the amount of back wages the employer believes are owed to each employee.

The employer must then contact WHD to discuss the issue(s) for which it seeks resolution. Following that discussion, WHD will inform the employer of the manner in which the employer must provide required information, including:

  • Each of the calculations described above—accompanied by evidence and explanation;
  • A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;
  • A certification that the employer reviewed all of the information, terms, and compliance assistance materials;
  • A certification that the employer is not litigating the compensation practices at issue in court, arbitration, or otherwise, and likewise has not received any communications from an employee’s representative or counsel expressing interest in litigating or settling the same issues; and
  • A certification that the employer will adjust its practices to avoid the same potential violations in the future.

At the conclusion of the process, the employer must make back wage payments. That process may look similar to the end of a WHD investigation in which violations are found. If an employee accepts the back wages, she will waive her rights to a private cause of action under the FLSA for the identified issues and timeframe. An employee who chooses not to accept the back wages will not be impacted.

We will share more as additional information becomes available. If you have any questions about the PAID program, the planning or execution of a proactive wage-hour audit, or any related issues, please do not hesitate to contact us.

Co-authored by Kevin Young and Kara Goodwin

Even as FLSA litigation has surged to historic highs, it is rare to see a nefarious violation of the Act by a manager or supervisor. Far more prevalent, it seems, are stories of managers who, while intending to afford employees freedom and flexibility, instead trip over one of many hurdles scattered across the 1938 legislation. At a time when plaintiffs’ attorneys are more regularly naming individual managers, not just corporations, as FLSA defendants, preventing these stories is important as ever.

In our experience, managers across the corporate landscape grasp broad wage-hour ground rules and concepts, such as requiring employees to clock in before they start work and paying employees at least minimum wage. Training is important in these areas, but it is not quite where the rubber meets the road.

Far more important a topic, in our experience, are the ways in which a manager’s well-intentioned decisions can result in potential violations of the FLSA. Here, in honor of the Act’s upcoming 80th birthday, we offer eight hypothetical examples of this. (Eighty was a bridge too far for this post.) While far from exhaustive, these are the types of examples that can provide a basis for meaningful conversations with managers and supervisors about the relevant—and sometimes hidden—contours of the FLSA.

  1. You had a great January, but let’s have an even better in February. Whoever makes 50 sales will get a $150 bonus. This isn’t the company’s thing, it’s my thing.” In a vacuum, incentivizing employees to perform isn’t just okay—it is good management. Unfortunately, the nature of the incentive can have serious wage-hour implications. First, if the incentive is non-discretionary, it must be included in the “regular rate” of pay, upon which overtime pay is based. It makes no difference if the incentive is offered company-wide or only on a small team. As a distant second, occasionally production bonuses can have an unintended effect of encouraging after-hours work, which could be an issue if those hours aren’t recorded and paid. Supervisors should take care to ensure that any incentive payment is: (i) accounted for, if necessary, in the overtime calculation; and (ii) not interpreted as a relaxation of standing policies, such as those prohibiting off-the-clock work.
  2. Of course you can take it home!” It’s 5 pm and an hourly employee scheduled until 6:00 asks his supervisor if he may leave early to pick up his kid—he promises to finish his work at home later that night. Wanting to promote balance and flexibility, the supervisor agrees. While there is nothing illegal about this, the supervisor must understand potential wage-hour ramifications. An employer must pay for work it knows about or reasonably should know about, regardless of when or where the work occurs. If a supervisor is going to authorize after-hours remote work, it is essential that he or she also enforce timekeeping practices that prevent that work from going unrecorded and unpaid.
  3. Have a minute to help me out? You can take the remaining 20 minutes of your 30-minute lunch break after we’re done.” It seems harmless enough—after all, the employee will end up getting a full 30 minutes either way. But if the employer treats meal breaks, including this one, as unpaid, this could create an issue. The FLSA generally requires that an unpaid meal break like this one be uninterrupted and contiguous. Here, the supervisor should know that the employee must either (a) be paid for the whole break, or (b) be permitted to take his or her full break at a later time.
  4. Rather than recording overtime this week, why don’t you take off a few hours early next Friday and spend the afternoon with your kid?” If an employee works over 40 hours in a workweek, the FLSA requires that the employee be paid overtime. Private-sector employers should not offer or allow compensatory time off in future workweeks in lieu of overtime, even if an employee requests it.
  5. Jim volunteered an additional hour last night because he wants to prove he’s worth the promotion. I respect that sort of drive…heck, I did the same thing.” In nearly every context, the fact that an employee “volunteers” his or her work time is not a sound reason for failing to pay the employee for the associated work.
  6. Our team party starts at 3 pm. You can work through it, but I’d certainly prefer to see you there—it’s important to our team culture.” Social gatherings during the workday should typically be paid. Even if scheduled after hours, the time needs to be paid for nonexempt employees required to attend. The grey area, of course, lies between mandatory and purely voluntary attendance. Proof that attendance was strongly encouraged could support a finding that attendance was not purely voluntary and that the time should be paid.
  7. My team knows that if they ask for OT, I will always approve it. The only reason I didn’t pay Alexa’s overtime last week is that she forgot to seek preapproval—I can’t allow that to happen, and Alexa realizes that.” It is certainly permissible to require employees to seek approval prior to working overtime. It is not permissible, however, to condition payment of overtime hours worked on an employee’s compliance with that requirement. As a general rule, once the overtime is worked, the employer must pay for the time.
  8. We actually don’t need you today. And didn’t you tell me your daughter is home from college today? This works out perfectly—why don’t you head home and spend the day with her.” A growing number of states require employers to pay for “show up” or “reporting” time. This refers to a minimum amount of pay—for instance, 3 or 4 hours at the applicable minimum wage—if an employee scheduled to work longer is sent home after reporting to work for the day. There are exceptions, of course, but these rules can create traps for the unwary.

As these examples help to demonstrate, the FLSA is too thorny a place to entrust compliance to managers’ and supervisors’ intentions alone. Even top-notch, employee-first managers can find themselves trapped in one of the FLSA’s various pitfalls, potentially exposing the employer—and possibly even the supervisor herself—to potential liability.

Given these realities, employers are well served by considering the subtle ways in which FLSA issues may arise in their workplace and taking a proactive approach to training supervisors to address those issues. If we can be of assistance in that effort, please do not hesitate to reach out to us.

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

Seyfarth Synopsis: Governor Andrew Cuomo has directed the Commissioner of Labor to schedule public hearings to address the possibility of eliminating the tip credit. A tip credit allows an employer to pay less than minimum wage to employees who receive the bulk of their pay in customer tips.

As we say goodbye to 2017, New York employers should also start preparing to say goodbye to minimum wage tip credits.

Governor Andrew Cuomo has directed the Commissioner of Labor to schedule public hearings to address the possibility of eliminating the tip credit. A tip credit allows an employer to pay less than minimum wage to employees who receive the bulk of their pay in customer tips.

As we reported in 2015, the then-Commissioner issued a report questioning the continuation of the minimum wage tip credit. Governor Cuomo appears to be in favor of the elimination of tip credits; he called for the public hearings “to ensure that no workers are more susceptible to exploitation because they rely on tips to survive.” While the Governor has not made any specific proposal, it is likely that, even if the tip credit goes away, employees could still be tipped, and participate in tip pooling/sharing arrangements, but they would have to be paid at least the standard minimum wage that non-tipped employees receive.

As with the minimum wage for all employees across the state, the minimum wage for tipped employees across the state is set to increase on December 31. The Department of Labor has summarized the revisions applicable to the tipped minimum wage for hospitality employers, employers in “miscellaneous industries,” and employers in the “building service industry.” Employers should consult these summaries to determine how much they can deduct for the appropriate minimum wage tip credit as the amount varies based on the industry, job classification, location of the employee and size of the employer.

Authored by Robert Whitman

Seyfarth Synopsis: The Second Circuit has upheld summary judgment against magazine interns seeking payment as “employees” under the FLSA.

In an end-of-semester decision that may represent the final grade for unpaid interns seeking minimum wage and overtime pay under the FLSA, the Second Circuit has firmly rejected claims by Hearst magazine interns challenging their unpaid status.

The interns served on an unpaid basis for various magazines published by Hearst Corporation, either during college or for a few months between college and graduate school. They sued, claiming they were employees because they provided work of value to Hearst and received little professional benefit in return.

Following discovery, District Judge J. Paul Oetken rejected the interns’ claim of employee status and granted summary judgment to Hearst. On appeal, the Second Circuit framed the question succinctly: “whether Hearst furnishes bona fide for‐credit internships or whether it exploits student‐interns to avoid hiring and compensating entry‐level employees.” If the former were true, the interns would be deemed trainees, who could permissibly be unpaid; if the latter were true, the interns would be entitled to minimum wage and overtime pay.

In support of their appeal, the interns argued that many of the tasks they performed were “menial and repetitive,” that they received “little formal training,” and that they “mastered their tasks within a couple weeks, but did the same work for the duration of the internship.” These points, they contended, outweighed their receipt of college credit and other indicia of an academic flavor to their experience.

The appeals court, in Wang v. Hearst Corp., appeared to have little trouble upholding the grant of summary judgment in favor of Hearst. Applying its test for assessing whether interns are employees or trainees, the court held that the factual record favored non-employee status on six of the seven pertinent factors, enough to sustain the judgment in the company’s favor.

Those seven factors, as loyal blog readers will recall from prior posts, first appeared in the court’s 2016 decision in Glatt v. Fox Searchlight, in which the court held that the “primary beneficiary” test governed whether interns were considered employees or trainees. The Glatt court rejected the Department of Labor’s multi-factor test and devised its own:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa;
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands‐on training provided by educational institutions;
  3. The extent to which the internship is tied to the internʹs formal education program by integrated coursework or the receipt of academic credit;
  4. The extent to which the internship accommodates the internʹs academic commitments by corresponding to the academic calendar;
  5. The extent to which the internshipʹs duration is limited to the period in which the internship provides the intern with beneficial learning;
  6. The extent to which the internʹs work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern;
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The factors are non-exhaustive, and as the Second Circuit reiterated in the current case, need not all point in the same direction to support a conclusion of non-employee status.

The “heart of the dispute on appeal” was factor two — whether the interns received “training that would be similar to that which would be given in an educational environment.” The plaintiffs argued that, in order for this factor to weigh in favor of non-employee status, the internships would have to provide “education that resembles university pedagogy to the exclusion of tasks that apply specific skills to the professional environment.”

The court was not convinced. It recognized that the Hearst internships varied in many respects from classroom learning. But as it had said earlier in Glatt, this was precisely the point. “The [plaintiffs’] tacit assumption is that professions, trades, and arts are or should be just like school; but many useful internships are designed to correct that impression…. [P]ractical skill may entail practice, and an intern gains familiarity with an industry by day to day professional experience.”

Perhaps the most significant part of the ruling comes at the end, where the court discusses the propriety of summary judgment. The interns, and various amici curiae (unions, advocacy groups, and professors) who advocated on their behalf, argued strenuously that various “mixed inferences” on the seven internship factors precluded a grant of summary judgment. While acknowledging that application of the factors required some weighing of evidence, the court nonetheless said this did not mean the case required a trial.

“Status as an ‘employee’ for the purposes of the FLSA is a matter of law,” the court said, “and under our summary judgment standard, a district court can strike a balance on the totality of the circumstances to rule for one side or the other.” It continued: “Many of our FLSA tests that are fact‐sensitive and require the judge to assign weight are routinely disposed of on summary judgment [citing cases]. The amici contend that summary judgment is inapposite in all unpaid intern cases that turn on competing factors. Such a rule would foreclose weighing of undisputed facts in this commonplace fashion.”

In many ways, the Wang decision may be the epilogue to a textbook that has already been written. After the Glatt decision in 2016, the number of lawsuits filed by interns seeking unpaid compensation dropped precipitously. That may have been due to Glatt’s highly-employer-friendly resolution, both as to the merits of the employee-or-intern question and its pronouncements on the high threshold for collective/class certification on the question. Or perhaps it was due to the decisions by employers, reacting to the onslaught of intern lawsuits seeking pay under the FLSA and state law, to curtail or limit their internship programs or to pay interns compensation at or above minimum wage. Whatever the reason, the Wang decision cannot be heartening for plaintiffs’ lawyers, and the days of widespread lawsuits by interns are likely over.

Still, companies who remain interested in sponsoring unpaid interns should not get complacent. Paying minimum wage, of course, remains a fail proof antidote to the possibility of FLSA claims by these individuals. But if that is not an option, companies should take care to ensure that their programs have primarily educational aims and coordinate wherever possible with the interns’ educational institutions to ensure they meet the factors articulated by the court. Otherwise, the interns may be the ones teaching them a lesson.

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.

Authored by Cheryl Luce

Seyfarth Synopsis: Tipped workers who didn’t receive notice of the tip credit get a win under New York state minimum wage law in a case that echoes technical traps we have seen in FLSA decisions.

Throughout the year, we have been covering cases that show how the FLSA has been construed by courts as “remedial and humanitarian” in purpose, but that its technical traps do not always serve such a purpose and do not necessarily serve to ensure a living wage for working Americans. A recent decision from a New York federal court applying New York law shows how state minimum wage laws can also provide traps for the unwary and result in big payouts to employees who were paid at least minimum wage but in a way that violates the law’s technical requirements.

This case was filed five years ago against a restaurant company operating franchises in New York. The plaintiffs moved for partial summary judgment on whether they were properly advised in writing about tip credits when they started at the company and whether their wage statements met New York state law requirements. The moving plaintiffs were paid $5.00 per hour in regular pay and $7.50 per hour in overtime in addition to tips that (at least for the purposes of summary judgment) the plaintiffs did not dispute brought their pay above New York’s minimum wage requirements, nor did they contend that they did not understand that they were paid pursuant to the tip credit. Nonetheless, because of the company’s technical tip credit notice and wage statement violations, the court concluded that the company was liable to 15,000 workers for the liability period of 2011 to present for the difference between their hourly rate and the New York minimum wage (which increased to $9.70 per hour on December 31, 2016).

According to reporting by Law360, the plaintiffs’ attorney estimates that the damages could lead to more than $100 million in payments to the workers. It is not hard to imagine that such a massive judgment could put a major strain on the company’s operations or even threaten their ability to continue doing business. All the while, the plaintiffs did not dispute that, accounting for their tips, they were actually paid at least the New York minimum wage. In the event that the court orders defendants to pay them difference in the hourly rate they were paid and the New York minimum wage, they will have received the benefit of not just tips, but also damages resulting from what can only be described as a technicality.

Although this is a state law case and thus does not make up the fabric of inconsistent and illogical rhetoric we find in FLSA decisions that we have examined earlier, we find it appropriate to draw similar conclusions here. What is remedial and humanitarian about this court’s construction of New York’s minimum wage requirements? What protection of the right to earn a living wage is afforded low wage workers in this case? And if the answer is none, then perhaps courts ought to acknowledge that they do not always construe wage-hour laws in a way that achieves their core purpose of ensuring a living wage for working Americans, but rather in a way that has no apparent connection to such a purpose.

Co-authored by Kara Goodwin and Noah Finkel

Seyfarth Synopsis: The Ninth Circuit recently joined the Second, Fourth, Eighth, and D.C. Circuits in holding that the relevant unit for determining minimum-wage compliance under the FLSA is the workweek as a whole, rather than each individual hour within the workweek.

Yes, Virginia, contrary to the contentions of some plaintiffs’ counsel, the FLSA does allow for flexibility in how employers compensate their employees. In the recent case of Douglas v. Xerox Business Services, the Ninth Circuit rejected the argument that the FLSA measures minimum-wage compliance on an hour-by-hour basis; instead, the Ninth Circuit copied the other circuits that have addressed the issue and concluded that minimum-wage compliance is measured by weekly per-hour averages.

The plaintiffs—customer service representatives at call centers run by Xerox—were paid under what the court described as a “convoluted” and “mind-numbingly complex payment plan” where employees earned different rates depending on the task and the time spent on that task. In reality, the pay arrangement was not terribly difficult to discern. For certain defined activities like trainings and meetings, employees received a flat rate per hour; for time spent managing inbound calls, employees were paid a variable rate calculated based on a matrix of qualitative and efficiency controls; all remaining tasks had no specific designated rate.

At the end of each workweek, Xerox totaled all amounts earned (for defined activities and for activities paid at the variable rate) and divided that total by the number of hours worked that week. If the resulting average hourly wage equaled or exceeded minimum wage, Xerox did not pay the employee anything more. But if the average hourly wage fell below minimum wage, Xerox gave the employee subsidy pay to bump the average hourly wage up to minimum wage.

In the plaintiffs’ view, because Xerox averaged across a workweek, it compensated above minimum wage for some hours and below minimum wage for others, thereby violating the FLSA. Plaintiffs sought back pay for each hour they worked at sub-minimum wage because, they claimed, the FLSA bars an employer from paying below minimum wage for a single hour.

The Ninth Circuit disagreed and concluded that the relevant unit for determining minimum-wage compliance under the FLSA is the workweek as a whole and, as such, Xerox properly compensated employees for all hours worked by using a workweek average to arrive at the appropriate wage.

Although the FLSA’s “text, structure, and purpose” provided “few answers” to the per-hour versus per-workweek question, the Department of Labor’s longstanding per-workweek construction and decisions by sister circuits shaped the Ninth Circuit’s holding. The Department of Labor adopted the per-workweek measure just over a year and a half after the FLSA was passed in 1938 and has never deviated from this understanding: “[T]he workweek [is] the standard period of time over which wages may be averaged to determine whether the employer has paid the equivalent of [the minimum wage].”

Courts—including every circuit that has addressed the issue—have overwhelmingly followed the Department of Labor’s guidance. The Second Circuit first embraced the per-workweek construction in 1960 in United States v. Klinghoffer Brothers Realty Corp., explaining that “the [c]ongressional purpose is accomplished so long as the total weekly wage paid by an employer meets the minimum weekly requirements of the statute.” The Fourth (Blankenship v. Thurston Motor Lines, Inc.), Eighth (Hensley v. MacMillan Bloedel Containers, Inc.), D.C. (Dove v. Coupe), and now Ninth Circuits have also agreed that minimum wage compliance is measured by the workweek as a whole. No circuit has taken a contrary position.

As is often the case, plaintiffs relied heavily on the fact that the “FLSA is remedial legislation” that “must be construed broadly in favor of employees” (if you are a frequent reader of this blog you are aware of our feelings on this language as described in detail here) and argued that a per-hour approach is necessary to ensure workers are protected from wage and hour abuses. But, as the Ninth Circuit pointed out, there is no empirical evidence that broad application of the workweek standard disadvantages employees in any way. As this case makes clear, even if employees (or their attorneys) are unhappy with an employer’s pay plan, there is no violation of the FLSA’s minimum wage provision so long as an employee’s total compensation for the week divided by total hours worked results in a rate that is at or above the minimum wage.

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.

Co-authored by Cheryl Luce and Noah Finkel

Seyfarth Synopsis:  An unpopular DOL regulation that prohibits employers from retaining customer tips received another blow this summer. The Tenth Circuit joined the Fourth Circuit and several district courts in holding that the FLSA does not require employers to turn over customers’ tips to employees so long as those employees are paid at least minimum wage. And parting ways with the Ninth Circuit, the court also struck down a DOL rule regulating tips even when employers do not take a tip credit.

In Marlow v. The New Food Guy, Inc., a unanimous Tenth Circuit panel (decided by two judges instead of three due to Justice Gorsuch’s ascension) held that an employer that pays its employees at least minimum wage does not violate the FLSA by retaining customer tips. The Tenth Circuit first found that the catering company, Relish, complied with the FLSA by paying the employee $12 an hour, which is above minimum wage, and held that Section 203(m) of the FLSA, which regulates tips when tips are used to satisfy the minimum hourly wage, does not apply in this case.

The Tenth Circuit also rejected a DOL regulation promulgated in 2011 that 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 Ninth Circuit upheld this regulation in Oregon Restaurant & Lodging Association v. Perez, but the regulation has been rejected by several district courts. In this case, the Tenth Circuit concluded that the DOL tip rule exceeds the DOL’s discretion, which it can only exercise in instances of statutory silence or ambiguity. The Tenth Circuit found no silence or ambiguity in whether the FLSA regulates tips of employees who are paid at least minimum wage. The plain language of the FLSA “does not direct the DOL to regulate the ownership of tips when the employer is not taking the tip credit.”

In a footnote, the opinion picks up on a point that we have argued is fatal to the DOL’s tipping regulation: there’s no remedy for violating it. Even if an employer keeps customer tips, what can its employees recover under the FLSA? Nothing more than the minimum wage owed to them, which, if they receive cash wages of more than minimum wage, they already have received. The FLSA creates a private cause of action for violations of the minimum wage and overtime requirements. The FLSA does not create any remedies for withheld tips.

Now that a circuit split has emerged on whether the DOL tipping rule can stand, we will wait to see if Justice Gorsuch will finally have a chance to weigh in on the issue with his eight new colleagues.

 

iStock-649373572Authored by Katherine M. Smallwood

Seyfarth Synopsis: On May 8, 2017, Governor Nathan Deal signed a law expanding the reach of a pre-existing statute that prohibits Georgia localities from passing ordinances affecting worker pay in Georgia. The amendment is in line with a trend of states’ laws proactively limiting counties’ and cities’ abilities to promulgate ordinances that exceed worker protections that state and federal laws provide.

House Bill 243, authored by Representative Bill Werkheiser (R – Glennville), amends the Georgia Minimum Wage Law to preempt any local government rules requiring additional pay to employees based on schedule changes. The Georgia Minimum Wage Law already prohibited local governments, such as counties, municipal corporations, and consolidated governments, from adopting mandates requiring an employer to pay any employee a wage rate or provide employment benefits not otherwise required under state or federal law.

Prior to the adoption of House Bill 243, the Georgia Minimum Wage Law defined “employment benefits” to mean “anything of value that an employee may receive from an employer in addition to wages and salary,” including but not limited to, “any health benefits; disability benefits; death benefits; group accidental death and dismemberment benefits; paid days off for holidays, sick leave, vacation, and personal necessity; retirement benefits; and profit-sharing benefits.” House Bill 243 amends the definition of “employment benefits” to include “additional pay based on schedule changes.”

According to the National Federation of Independent Business, House Bill 243 benefits employers by protecting them from predictive scheduling requirements, which are intended to require employers to set employees’ work schedules in advance and pay an employee for lost or adjusted time if the schedule changes after the employer initially sets it. Proponents of the Bill argued that members of the food, service, and retail industries rely heavily on scheduling flexibility to serve their customers, and that these business realities justified the Bill’s protection from predictive scheduling requirements that localities might promulgate if it were not passed into law.

The Georgia Minimum Wage Law and this new amendment to it are part of the larger wave of so-called preemption bills, which seek to preclude localities from enacting ordinances that impose additional obligations on employers operating within their boundaries. Numerous states, including South Carolina, Minnesota, Tennessee, Missouri, and Arkansas, have either passed or considered similar preemption laws. While the laws in these several states (each of which is generally perceived to be business-friendly) should provide some solace to employers on the lookout for business-impacting local laws, they also highlight the need for caution in states whose legislatures are less willing to restrict cities’ and counties’ from passing worker protection laws.