By: Simon L. Yang and Kevin M. Young

Seyfarth Synopsis: Most wage and hour laws set out to benefit and protect workers in some way. The recent wave of state and local predictive scheduling laws and minimum wage hikes is no different. Yet it is critical to assess, and attempt to account for, the possibility that these laws could hasten the demise of the very jobs held by the workers they intend to protect the most.

While opinions differ as to how much or how soon workers will have to adapt to the automation tsunami, this trend seems certain to impact the workplace in myriad ways. For example, a recent study focused on the Indianapolis workforce suggests not only the potential for job loss, but unfortunately, a pronounced impact on occupations disproportionately held by women.

Meanwhile, another trend impacting the American workforce involves more active state and local lawmaking concerning wage and hour issues. Prime examples include minimum wage increases and predictive scheduling laws, which are being proposed and enacted across the country with increasing frequency.

With respect to minimum wage hikes, employers are well aware of the “Fight For $15” movement that started in Seattle in 2012. States like California have joined cities like Seattle in enacting laws that phase in $15 minimum wages. Many other jurisdictions have enacted minimum wage ordinances that soar above the federal $7.25 minimum.

Predictive scheduling laws represent a more recent, but arguably more impactful, trend in the retail and foodservice industries. While such laws (or proposals) vary by jurisdiction, they generally require employers to (1) set work schedules at least two weeks in advance; and (2) pay an employee for a certain number of hours not worked due to a subsequent schedule change. These laws also often restrict whether and when a business may hire part-time labor and impose minimum payments for on-call periods when no work is performed.

While these state and local laws intend to benefit workers in today’s economy, it is fair to question what the longer term net impact of this sort of legislation might be.

Even in the short-term, these laws could run counter to other trends in the American workforce. For example, a great many workers value flexible work arrangements and freedom over concrete work expectations and long-term commitments. On the one hand, laws that require employers to adhere to a work schedule set weeks in advance could promote flexibility through predictability. On the other hand, however, such requirements could get in the way of workers who value part-time work over full-time work or who would strongly prefer to go home early if demand is lower than anticipated.

Looking further down the line, the potential ramifications of these legislative efforts loom even larger. By increasing the threshold cost of labor, minimum wage hikes could make the prospect of reducing labor hours, whether via job automation or other means, far more attractive to certain employers. For example, a study on the Seattle minimum wage ordinance found that workers’ hours are being reduced at a rate that exceeds increased wages, resulting in a $74 reduction in average monthly earnings for workers in low-wage jobs.

Predictive scheduling laws seemingly risk the same brand of unintended consequences. To date, these laws have been concentrated in the retail and foodservice industries, where labor costs oftentimes constitute the greatest expense on an employer’s P&L statement. It is fair to wonder how, over time, employers in these industries will adapt to laws that could require them to incur labor expenses not only for hours worked by their employees, but also for certain hours not worked.

None of this is to suggest a particular view on the wisdom of state and local minimum wage and predictive scheduling laws. Protecting the workers of today is a worthy cause. But so too is accounting for the workers of tomorrow. If these new laws could fuel certain businesses to eliminate or automate jobs, or to shy away from mutually desirable part-time or flexible work arrangements, that creates an issue that both opponents and proponents of the laws should be interested in solving.

There is no clear answer on how to balance and account for these issues; the question is layered with political, policy, and ethical considerations that go beyond the confines of a blog post. What does seem clear, however, is that single-faceted wage and hour lawmaking that focuses only on the workers of today could in fact hinder the workers of tomorrow.

By: Robert S. Whitman and Howard M. Wexler

Seyfarth Synopsis: The U.S. Department of Labor has announced the launch of the Payroll Audit Independent Determination program—or “PAID”— to facilitate the resolution of overtime and minimum wage claims under the FLSA without litigation.   New York Attorney General Eric T. Schneiderman recently called PAID “nothing more than a Get Out of Jail Free card for predatory employers,” and said his office “will continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID Program.”

As we previously reported, the U.S. Department of Labor has announced the launch of the Payroll Audit Independent Determination program—or “PAID”— to facilitate the resolution of overtime and minimum wage claims under the FLSA without litigation.  Employers that avail themselves of PAID will still have to make payment of all back wages due under the FLSA, but the DOL “will not require additional payment of liquidated damages or civil monetary penalties when employers choose to participate in the program and proactively work with WHD to fix and resolve the compensation practices at issue.”

While PAID looks like welcome news to those employers seeking to resolve wage and hour disputes before being sued, New York employers may wish to curb their enthusiasm.  Attorney General Eric T. Schneiderman recently called PAID “nothing more than a Get Out of Jail Free card for predatory employers,” and said his office “will continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID Program.”

Given that, under the PAID program or otherwise, the U.S. DOL “may not supervise payments or provide releases for state law violations,” Schneiderman’s comments have little substantive significance.  However, his comments may cause employers, especially those in New York, to think twice before availing themselves of PAID out of fear of putting themselves on the radar of aggressive state and local government enforcement agencies.  The agency Schneiderman supervises, the New York Attorney General’s Labor Bureau, has a long track record of active enforcement of Labor Law violations in the state.

PAID remains a pilot program that will operate for the next six months, at which point the U.S. DOL will evaluate its effectiveness and decide whether to make it permanent.  The DOL has scheduled a webinar for April 10, 2018 to explain “how the PAID program works, determining eligibility for the program, and how to participate in PAID.”  For now, the decision whether to use PAID is not as easy or straightforward as it may seem.  While employers may view it as a way to do the right thing and move forward with compliant wage-payment practices, officials in New York State may not be impressed.  Contact counsel if you have any questions about the PAID program or the planning or execution of a proactive wage-hour audit.

Authored by Colton Long and Noah Finkel

Seyfarth Synopsis: Employers seeking to show that they correctly have classified an employee as exempt from the FLSA’s overtime requirements often have faced hostility from courts under the misimpression that FLSA exemptions must be “construed narrowly.” Today the United Supreme Court put to rest the “narrow construction” doctrine, signaling to district and appellate courts that FLSA exemptions should be construed plainly as written and without a thumb tilting the scales toward a non-exempt finding.

Today, in a 5-4 opinion (Justice Thomas writing for the majority) the Supreme Court reversed the Ninth Circuit in Navarro et al. v. Encino Motorcars LLC, holding that car dealership “service advisors” are “salesm[e]n . . . primarily engaged in . . . servicing automobiles” and therefore are exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(b)(10)(A). We have been tracking this case since January 2016, as the outcome of this decision is likely to have a significant impact on the nation’s 18,000 franchised car dealerships and estimated 45,000 service advisors. While this opinion surely gives a sigh of relief and much needed certainty to automobile industry dealerships, one particular point made by Justice Thomas likely will provide significant help to all employers asserting the application of any FLSA exemption.

In its underlying decision denying exempt status to dealership service advisors, the Ninth Circuit had reasoned that the FLSA and its exemptions under Section 213(b) should be “construed narrowly,” citing a line of several appellate cases to support this construction of the FLSA (without delving into the basis for the cited language itself). The Supreme Court, however, took this reasoning head on in Navarro, “reject[ing] this principle as a useful guidepost for interpreting the FLSA.” Justice Thomas noted in his opinion that the FLSA “gives no ‘textual indication’ that its exemptions should be construed narrowly” and there is therefore “no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.” Further, Thomas noted that “the FLSA has over two dozen exemptions in § 213(b) alone . . . . Those exemptions are as much a part of the FLSA’s purpose as the overtime pay requirements.” Justice Thomas made no bones about picking apart this “cannon” of statutory construction, noting that “the narrow-construction principle relies on the flawed premise that the FLSA ‘pursues’ its remedial purpose ‘at all costs.’” Rather, Thomas noted, the FLSA and its exemptions should be construed plainly, as they are written, with no bent one way or the other (“[w]e thus have no license to give the exemption anything but a fair reading.”)

Justice Thomas’s direct repudiation of the “narrow construction” argument aligns with our recent analysis from August 2017, which concluded that the FLSA and its exemptions should not be construed any more narrowly than how they are written. Courts frequently insist that the FLSA’s exemptions “are to be construed narrowly” while the FLSA’s remedial provisions should “be construed liberally to apply to the furthest reaches consistent with Congressional intent.”  We further asserted that no reasoned analysis of the FLSA should conclude that the Act and its exemptions should be interpreted lopsidedly in favor of employees and against employers and that the “narrowly” vs. “liberally” dichotomy derives from unsubstantiated and conclusory language from a 1945 Supreme Court case. At best, we said, the language constitutes an imprecise assertion that the FLSA’s exemptions should not be so broad as to swallow the remedial nature of the FLSA and, at worst, the language amounts to unsupported dicta never intended as a grand pronouncement of how courts should interpret the FLSA.  Our analysis further concluded that courts tend to quote this language to justify a decision’s outcome; when a court decision favors an employee, a court is more likely to cite the “narrowly/liberally” language, when a decision favors an employer, a court is less likely to cite this language.

Consistent with the reasoning noted above, the Supreme Court in Navarro forever repudiated the argument that the FLSA’s exemptions should be construed narrowly. Employers accordingly will be well served by the Supreme Court’s reasoned denunciation of this baseless and oft-cited pronouncement. Further, the logical consequence of the Supreme Court’s Encino Motorcars opinion should serve to banish the “construed liberally” corollary as well. Indeed, as Thomas noted in the opinion, the FLSA should be given nothing but a fair reading. As we noted in our August 2017 analysis, there is no sound basis for maintaining that the FLSA should be construed liberally in favor of employees based alone on the fact that the FLSA is “humanitarian and remedial” legislation (which forms the sole ostensible basis for construing the FLSA broadly in favor of employees). “What piece of legislation passed by Congress is not intended as remedial or humanitarian? It would seem that one has to presume that Congress is always attempting to benefit the public, and that it does not classify its legislation as though some is for the public good, some is for the benefit of lobbying or business groups, and some is to score political points. All legislation is aimed in some way at benefitting the public interest (or at least we would like to, and have to, assume).”

With sound reasoning, the Supreme Court has disposed of an oft-cited yet fundamentally flawed method for construing the FLSA’s exemptions under § 213(b) and provides employers with a compelling counter to litigants seeking to apply the FLSA in a manner broader than the statutory text allows.

 

By: Joshua A. Rodine and Christopher J. Truxler

Seyfarth Synopsis: California employers must use the formula prescribed by the Division of Labor Standards Enforcement Manual to calculate overtime on flat sum bonuses, not the bonus overtime formula used under federal law.

California law generally follows federal law as to how employers should calculate overtime pay on nondiscretionary bonuses for non-exempt employees. But California law on calculating bonus overtime has been somewhat unclear in relation to “flat sum” bonuses. On March 5, 2018, in Alvarado v. Dart Container Corp., the California Supreme Court decided that a formula invented by the Division of Labor Standards Enforcement—without engaging in any administrative rulemaking—is the proper method for calculating bonus overtime pay, and that the DLSE’s formula applies retroactively.

The Facts

Hector Alvarado worked as an hourly employee for Dart Container, which makes cups, plates, and other food service products. Alvarado earned an attendance bonus of $15 for each full weekend shift he worked. Dart, in calculating overtime pay generated by the bonus, followed the method established by the federal Wage Hour Division in 29 C.F.R. § 778.110. Under the federal formula, the regular rate for a weekly bonus would be the amount of the bonus divided by all weekly hours worked (both straight hours and overtime hours), and the regular rate would divided by two before multiplying it by the number of weekly overtime hours worked to calculate the amount of overtime pay generated by the bonus.

Alvarado sued Dart for unpaid bonus overtime. Alvarado argued that, for “flat sum” bonuses, California employers must determine the regular rate by dividing the bonus by only the straight time hours worked, as specified in the DLSE Manual, and not by the total hours worked.

The trial court granted Dart summary judgment, holding that Dart properly used the federal method. The Court of Appeal affirmed, opining that while the DLSE Manual’s formula represented a reasonable effort to prevent dilution of the regular rate by overtime hours, the Manual is not binding legal authority. Because no California law required otherwise, the Court of Appeal affirmed Dart’s use of the federal method.

The Supreme Court Decision

The Supreme Court, reversing the lower courts, adopted the formula proposed in the DLSE Manual, on a theory that the DLSE’s formula was necessary to discourage employers from requiring employees to work overtime hours. The Supreme Court announced that an employer, in determining the regular rate on a flat sum bonus, must divide the bonus by only the straight-time hours worked during the period, not by all hours. Moreover, the Supreme Court announced that the regular rate must be multiplied by 1.5, not 0.5, when applied to the number of overtime hours worked during the week. Adding insult to injury, the Supreme Court rejected Dart’s request that this judicially unprecedented holding apply prospectively only.

The Supreme Court justified its decision by emphasizing California’s longstanding policy of discouraging employers from imposing overtime work. To effectuate this policy, the Supreme Court reasoned, a flat sum bonus must be treated as if it were earned on an hourly basis throughout the relevant pay period. The Supreme Court rejected the Court of Appeal’s reasoning that no state law governed the issue, because the DLSE’s Manual, though not binding legal authority, was interpreting the underlying statutory law, and because courts interpreting that law are free to adopt the DLSE’s view if courts find that view persuasive.

In a remarkable concurring opinion, four of the Supreme Court’s seven justices acknowledged that the “spare language” of statutory law could have left employers “somewhat uncertain about how to proceed,” and that the DLSE Manual was not an “authoritative construction by a state agency.” The four concurring justices further acknowledged that employers who “fully intended to comply with state overtime laws” “may now be faced with substantial penalties”—an “unfortunate” state of affairs that “conceivably could have been avoided had an interpretative regulation of this subject been promulgated through formal APA rulemaking.” The concurring justices nonetheless agreed that the Supreme Court’s new interpretation should apply retroactively, even if, “[r]egrettably,” “more was not done to help employers meet their statutory responsibilities.”

What Alvarado Means For Employers

Alvarado is an unwelcome decision that takes a poorly reasoned DLSE provision in a nonbinding manual and declares it to be the law, applied retroactively. This development arguably might visit “substantial penalties” on employers who were not using the DLSE’s flat sum bonus formula, as four justices sadly acknowledge. Now would be a good time to revisit nondiscretionary bonuses for non-exempt employees with the lessons of Alvarado in mind.

By Robert A. Fisher and Molly C. Mooney

Seyfarth Synopsis: In an important decision, the Massachusetts Supreme Judicial Court clarified the scope of personal liability for unpaid wages under the Massachusetts Wage Act.  The SJC held that board members and directors of a company generally cannot be held personally liable for unpaid wages, unless they take on significant management duties of the company. 

On December 28, 2017, the Massachusetts Supreme Judicial Court clarified the scope of individual liability under the Massachusetts Wage Act (Massachusetts General Laws Ch. 149, §§ 148 and 150). While the statute specifies that the president and treasurer of a corporation may be liable for unpaid wages, “agents having the management” of a company may be liable, as well.  The SJC has now clarified exactly who those “agents” are not.  In Segal v. Genitrix, the SJC held that investors and board members, when acting solely in those capacities, do not fall within the purview of the Wage Act and may not be held personally liable for unpaid wages.

In Segal, the plaintiff Andrew Segal was the president and chief executive officer of Genitrix LLC, a biotechnology startup. Defendants H. Fisk Johnson, III and Stephen Rose were former board members and investors in the company. Under the terms of his employment agreement, Segal was responsible for conducting the company’s business and managing its finances, subject to the overall direction and authority of the board. Consistent with the terms of his agreement, Segal was responsible for all day-to-day operations and was the only person authorized to sign checks from the company’s bank accounts, including payroll checks for employees’ wages.

In 2006, Segal informed the board that the company was running out of money to pay its employees. Despite this, Rose limited further investments into the company, and those that were made were earmarked for specific purposes. In 2007, Segal stopped taking his salary so that he could continue paying the one remaining employee. Segal proposed a cost-cutting plan, but that proposal was not authorized by the board. By the middle of 2007, the company had run out of money, and the board was deadlocked.

In 2009, Segal sued Fisk and Rose in Massachusetts Superior Court for unpaid wages under the Massachusetts Wage Act. The case ultimately went to trial and the jury concluded that both Johnson and Rose were individually liable under the Wage Act.

On appeal, the Supreme Judicial Court held that Johnson and Rose could not be liable under the Wage Act. Because the parties agreed that neither Johnson nor Rose were officers of the company, they could only be liable if they were “agents having the management” of Genitrix. The Court found it significant that the statute does not include board directors or investors in its definition of employer. Further reviewing the statutory language and the legislative history, the Court determined that only individuals who have assumed significant management responsibilities over a corporation, in their individual capacities, similar to those performed by a president or treasurer, should be liable under the Wage Act.

The Court held that investors and board members are ordinarily not considered agents of a company. With respect to Johnson and Rose, because management powers, particularly over the payment of wages, were expressly delegated to Segal as president and CEO, the Court found that they had limited agency authority. Similarly, the Court explained that individual board members exercising normal corporate oversight, and acting collectively with other board members, do not have the management of the company. Segal argued that the board’s rejection of his cost-cutting plan established that Rose and Johnson had authority.  The Court disagreed, explaining that “corporate boards are regularly required to make difficult decisions that have an impact on the company’s finances.” The Court concluded that such decisions are not the acts of individual board members as agents and do not impose Wage Act liability. Segal also argued that Rose’s restrictions on additional investments constituted management of Genitrix.  Again, the Court disagreed, explaining that investors invariably exercise some control over the businesses in which they invest, including when the business seeks new funds. The Court concluded this is separate and distinct from having the management of the company.

Segal is significant because it limits the circumstances that corporate directors and investors can be on the hook for unpaid wages, particularly when the company itself is defunct. So long as investors and board members act solely in those capacities and do not take on the day-to-day management of the business, they should not be personally liable for the company’s failure to pay wages.

 

‘Twas the week before Christmas, and the WH-L-PG

Contemplated the wage-hour year lyrically;

We considered the issues our readers would most like to savor

And decided the tastiest one was class waiver.

 

“Employers and employees,” begins the debate,

“Are free to agree that they shall arbitrate.”

But a critical question remains–it is whether

Employees can be stopped from proceeding together.

 

Will class waivers be cool?  Can’t we be more prophetic,

Than continuously repeating that the case will be Epic?

Well, we expect that class waivers will finally be decided,

More likely than not, from a Court that’s divided.

 

But which way it breaks, we’ll have to just see

On which side of the case we find Justice Kennedy.

So for now, just sit tight and await the decision

(Unless Congress intervenes with a “minor” revision.)

 

Where shall we go next?  It’s a place we know well.

As we take a close look at this year’s DOL.

They started out slowly, yes a slight hesitation.

As the Senate could not seem to provide confirmation.

 

But the overtime reg case could simply not wait,

Until it did, then the new guys pronounced the reg’s fate:

“That double-high salary, we firmly reject.

But our authority to set it at all, please respect.”

 

Then in an effort to avoid an adverse citation,

DOL told the court “We need more information.”

Now we’ll wait and we’ll see what the Department will do,

And we’ll see a new level in a year (prob’ly two).

 

WHD also announced the opinion letter’s return,

And the guidance on J/E and I/C got burned.

And when the tip pooling reg lost in the Ninth Circuit,

DOL finally gave up and declared “We’ll rework it.”

 

Tipped employees and janitors and bankers grew frustrated

As increasingly courts determined they were not situated

Similarly to those for whom they wanted to proceed.

It may be a low hurdle, but it still can impede.

 

Maybe that is why cases are down . . . although slightly—

They’re still filed at a rate of 320, fortnightly.

They crowd up the dockets, they test judges’ mettle,

Yet it seems like they’re making it harder to settle.

 

But the cases get filed, regardless of position,

From the lowest-paid worker to half a mil in commission.

And up to this point, we’ve neglected to warn ya

About salary increases — New York, California.

 

Just a couple of points that are worth a short mention,

The debate on the reading of narrow exemptions,

Bag checks, franchises, and PAGA, so zany!

Up to our eyeballs in wage–hour miscellany.

 

From calculating rates (which requires division)

To ordinances that require scheduling with precision.

Franchise liability, meal breaks, and more,

Who knows what 2018 has in store?

 

But before we proceed to the next year apace,

Let us make sure our commas are properly placed,

And let’s get one last thing off our chests:

We thank you, dear readers, you guys are the best!

 

THANKS TO ALL OF OUR READERS. BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!