Articles Posted in Compensation, Wages and Overtime

Over the last several years, federal courts have relied on the Federal Arbitration Act (“FAA”) in enforcing predispute mandatory arbitration agreements between employers and employees, which require an individual employee to waive his or her rights to assert employment related claims in court, in favor of arbitration.  Such agreements, however, do not by themselves mandate that class or collective actions be submitted in court or arbitration.  Consequently, employers have included class and collective action waiver provisions in such agreements; these waivers serve to  prevent employees from bringing class and collective claims in any forum.

The National Labor Relations Board (“NLRB”) has opposed class and collection action waivers, and has held that requiring employees to agree to such waivers as a condition of employment violates the National Labor Relations Act (“NLRA”).  Not surprisingly, there has been a split among the U.S. Circuit Courts of Appeal, with some disagreeing with the NLRB and others agreeing that class and collective action waivers violate the NLRA.

U.S. Circuit Courts Finding No Violation of the NLRA

On December 28, 2016, the New York State Department of Labor (“NYSDOL”) adopted final regulations scheduled to be effective, December 31, 2016, increasing the minimum salary thresholds for employees to be exempt from overtime under New York law.  Although the NYSDOL had proposed the regulations in October 2016, they garnered little attention due to the proposed increase of the minimum salary threshold under the federal Fair Labor Standards Act, which was higher and scheduled to become effective on December 1, 2016.  In light of a nationwide injunction granted by a federal court in Texas, the FLSA’s minimum salary threshold has not increased.  Nevertheless, the injunction had no effect on the NYSDOL’s proposed increases under New York law, which took effect on December 31, 2016– three days after the adoption of the final regulations.

As a result, New York employers are still required to increase the minimum salary thresholds for the executive, administrative, and professional exemptions under New York law, although the increases are not as high as those that were proposed under the FLSA.  The minimum salary thresholds for the overtime exemptions under New York law are now based on geographic location and in New York City, by employer size.  These thresholds are set forth in the New York State Department of Labor’s Wage Order Summary for Miscellaneous Industry.

In addition, the minimum wage for employees has also increased, effective December 31, 2016.  Although the basic minimum wage rate is now $9.70, in New York City large employers (of 11 or more employees) are required to pay a minimum hourly wage of at least $11.00, and small employers in New York City are required to pay $10.50 per hour.  Employers in Long Island and Westchester are required to pay an hourly minimum wage rate of $10.00.   The minimum wage rate is expected to increase each year until December 31, 2021.  Information on these rates and tip credits is set forth in the Wage Order Summary for Miscellaneous Industry.  The Hospitality Industry (including restaurants and fast food establishments) is subject to a separate Wage Order, and provides that as of December 31, 2016, Fast Food Workers are entitled to an $11.00 minimum wage in New York City, and a $10.70 minimum wage throughout the remainder of New York State.  This information, including the effect of tips on the cash wage paid, is set forth on the Wage Order Summary for Hospitality Industry.

On December 6, the New York Council introduced several bills as part of New York City’s “Fair Work Week” initiative.  The bills primarily apply to certain fast food employers, as well as some retail establishments.  These bills may never be enacted into law, and are still subject to negotiation and debate:

  • Int. 1384-2016 – Allows fast food employees to designate amounts from wages for contribution to a non-for-profit of their choice, and employers are required to remit such amounts.
  • Int. 1387-2016 – Bans “on-call scheduling” for retail employees, and prohibits providing retail employees with less than 20 hours of work during any 14-day work period (not counting time the employee voluntarily takes off).

Yesterday the U.S. Department of Labor issued a response to the recent federal court decision that blocked the Department of Labor from implementing the Overtime Final Rule on December 1, 2016.  We wrote about the decision earlier this week in Wage/Hour Alert: Court Issus Nationwide Block of Overtime Exemption Regulations.  According to the Department of Labor’s statement on its website:

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted an Emergency Motion for Preliminary Injunction and thereby enjoined the Department of Labor from implementing and enforcing the Overtime Final Rule on December 1, 2016.  The case was heard in the United States District Court, Eastern District of Texas, Sherman Division (State of Nevada ET AL v. United States Department of Labor ET AL No: 4:16-CV-00731). The rule updated the standard salary level and provided a method to keep the salary level current to better effectuate Congress’s intent to exempt bona fide white collar workers from overtime protections.

Since 1940, the Department’s regulations have generally required each of three tests to be met for the FLSA’s executive, administrative, and professional (EAP) exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”).  The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees.  The Department has updated the salary level requirements seven times since 1938.

At the request of 20 states, the federal District Court in Texas has issued a nationwide preliminary injunction blocking the U.S. Department of Labor’s rule increasing the minimum salary threshold for the “white collar” exemptions to overtime under the Fair Labor Standards Act (“FLSA”).  The Department of Labor rule requires that effective December 1, the minimum salary level for the exemption to apply would be increased from $455 per week ($23,660 per year) to $912 per week ($47,892 per year), and then automatically thereafter.   Our May 18, 2016 blog addressed this rule.

In State of Nevada, et al. v. U.S. Department of Labor, et al. (4:16-CV-00731), the United States District Court for the Eastern District of Texas, concluded that the states had demonstrated a likelihood of success on the merits of the lawsuit, and that a failure to preliminarily block the rule would cause irreparable harm to the states (and, presumably, private employers).  The court credited the states’ arguments that the Department of Labor exceeded its authority in increasing the minimum salary threshold, because it disregarded the requirements of the “duties” test under the FLSA.  The court also took issue with the Department of Labor’s automatic updating mechanism to increase the minimum salary threshold, because it does not require public notice and comment.  The updating mechanism was intended to ensure that the minimum salary level would be linked to the 40th percentile of weekly earnings of full-time salaried employers in the country’s lowest wage region.

The court’s decision comes at a time when most employers have already addressed the increase in salary thresholds that were originally set to take effect in a few days.  Nevertheless, the future viability of the Department of Labor rule, particularly the automatic updating mechanism, remains in question.

Over the last few years, we have written about misclassification issues arising out of the use of unpaid interns to perform work.  A recent case from a New York State court has just made it more difficult for such interns to assert class action claims for unpaid wages.  In Rodriquez v. 5W Public Relations, (N.Y.S. Supreme Ct., N.Y. Cty, Index No. 156571/14, July 26, 2016), a putative class of individuals sought to recover unpaid wages from 5W Public Relations, LLC and its CEO for work they performed as unpaid interns.  In seeking class certification, the plaintiffs were required to show, among other things, that common questions of law or fact predominated over any questions affecting only individual plaintiffs.  Such a showing would be necessary to permit the plaintiffs to sue as a class, instead of individually.

The plaintiffs argued that common questions of law and fact predominated because all of the putative class members were required to agree to a universal employment agreement; performed similar work; were all subject to the identical employee handbook policies; and were all uniformly misclassified as interns not entitled to minimum wage.  The court denied the plaintiffs’ motion for class certification despite that the interns appeared to all be subject to the same policies and work, because, according to the court, “the question of whether defendants’ internship program created employment relationships [could] only be answered with individualized proof as opposed to generalized proof.”  In other words, although the interns were all part of the same internship program and subject to the same policies, their individual circumstances would need to be considered on the ultimate issue of whether or not they were really employees.  The court did not state the precise test it would ultimately  apply in determining whether the interns were really employees, but stated that any such test would balance a number of factors that took into account both the benefit of the work to the employer and the individual intern’s experiences.

The court provided the following non-exclusive list of factors that would be relevant in determining whether an intern was really an employee entitled to wages:

Today, the U.S. Department of Labor (USDOL) issued its Final Rule modifying overtime requirements under the Fair Labor Standards Act (“FLSA”).  The Final Rule makes material changes to the application of overtime exemptions, and will take effect on December 1, 2016.

In 2014, President Obama directed the Secretary of Labor to simplify and modernize the overtime rules to make them easier for employees and employers to understand and apply.  As we previously wrote, in July 2015 the USDOL issued its proposed rule changes to the “white collar” exemptions to overtime pay, which apply to Executive, Administrative, Professional, Outside Sales and Computer Employees.  The proposed rules addressed the salary basis test but not the duties test, both of which need to be satisfied in order for the exemption to apply.  The USDOL requested comments from the public on its proposed changes to the salary basis test and on whether the USDOL should consider changes to the duties test as well.

By the time the comment period ended on September 4, 2015, the USDOL had received approximately 270,000 comments on the proposed rules.  Among the concerns expressed was that the USDOL sought a substantial increase in the minimum salary threshold from $455 per week ($23,660 per year) to $970 per week ($50,440 per year), with automatic annual revisions/increases.

Although it is still unclear when the U.S. Department of Labor will finalize the proposed rules revising the white collar exemptions to overtime under the Fair Labor Standards Act, earlier this month a group of bipartisan members of Congress signed off on a letter to the Secretary of Labor, expressing “serious concern” over the proposed rules.

The February 9, 2016 letter, signed by 108 members of Congress, asserts that the proposed rule will adversely affect employers, including small businesses, as a result of its modification to the “salary test” portion of the exemption analysis.  Currently, employers must pay overtime to employees who make less than $23,660 per year, whether they are paid on an hourly or salary basis.  The proposed rule increases the salary threshold to $50,440 per year, which, according to the letter, would result in approximately 5 million employees becoming immediately eligible for overtime pay.  The letter also states that the increased threshold ignores the “geographic diversity of our country,” insofar as the purchasing power of a dollar varies both regionally, and between rural and urban areas.

The proposed rules focus on the salary test, and the letter raises concern over possible changes to the “duties test” portion of the exemption analysis.  Because no specific changes to the duties test are included in the proposed rules, the letter asks that the public be given an opportunity to comment on any proposed changes prior to their enactment.

Yesterday, we reported in our blog, What Happened to those Federal Rules Revising the White Collar Exemption to Overtime Pay?, that Solicitor of Labor, M. Patricia Smith, had announced at an American Bar Association conference that the proposed rules revising the salary levels for the white collar exemptions under the Fair Labor Standards Act would not be finalized earlier than late 2016.   Nevertheless, according to the semiannual regulatory agenda (Fall-2015) published by the Office of Management and Budget (OMB), the proposed rules are scheduled to be finalized in July 2016, thereby rendering it likely that they will be in effect at some point toward the end of the third quarter of 2016.  Did Solicitor Smith misspeak or is the OMB overly-optimistic?  We will know soon enough.

 

 

Our July 2015 blog, Department of Labor Publishes Long Awaited Proposed Rules Revising White Collar Exemptions to Overtime, reported that the U.S. Department of Labor had released for public comment modifications to the “white collar” exemptions to overtime pay under the Fair Labor Standards Act (FLSA).  The public comment period for these proposed rules ended on September 4, 2015, and resulted in approximately 270,000 comments, which the Wall Street Journal reported was more than three times the number of comments received during a prior rule change in 2004.  Employers and employees expected that the new rules would be finalized by the end of 2015 or at the latest, early 2016.  However, during the American Bar Association’s Labor and Employment Law conference held in Philadelphia this month, Solicitor of Labor, M. Patricia Smith, announced that the final rules would likely not be issued sooner than late-2016.  She attributed the delay to the large volume of comments received on the proposed rules, which the Department of Labor is still reviewing.

The proposed regulations provide for an increase of the minimum salary level required to qualify for the white collar exemptions to overtime pay.  Currently, to qualify for the exemption, a white collar employee must be paid a salary of at least $455 per week ($23,660 per year), in addition to satisfying a duties test detailed in the regulations.  The proposed modifications dispense with stating a set salary amount, and instead seek to tie the salary level requirement to the 40th percentile of weekly earnings.  Assuming that the rules became effective in 2016, although 2017 is becoming more likely,that would translate to a salary level of $970 per week ($50,440 per year).  The higher salary level will result in millions more employees being deemed non-exempt, and therefore entitled to overtime pay.

If you have any questions regarding the proposed regulations or issues relating to the FLSA, you can contact Salvatore Gangemi .

 

 

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