Yesterday, the United States Department of Labor Wage and Hour Division issued its final rule with updates to the Fair Labor Standards Act’s overtime requirements. The most-awaited update was the dollar amount for an employee to be considered exempt from overtime. DOL set the exemption at $684 per week — which is equivalent to $35,568 per year. Here is a link to DOL’s summary of the new rule: DOL Overtime Rule.
Regular readers may recall that DOL, under the Obama administration, proposed raising the exemption from $23,660 to $47,476 in 2016. Here is a link to a summary of that proposed rule: 2016 Overtime Post. Implementation of that rule was halted in court and the DOL under the Trump administration later rescinded it.
The new rule is effective January 1, 2020. Hopefully, Alabama employers have already reviewed their exempt employees to ensure that they comply with the imminent changes to the FLSA. If you have not done so, you need to immediately review all of your exempt employees to ensure that they comply with the new rule.
The federal government is in another shutdown. Obviously, there are many thorny political issues behind the shutdown. But, there are also practical and legal issues that arise for employers. In particular, government contractors have employees that want to work and be paid. One particularly difficult area involves payment of employees who are exempt from overtime. Contractors need to make sure that they do not accidentally lose the exemption for employees who only work part of a week because of the government shutdown.
In order to be exempt from overtime, executive, administrative and professional employees must paid on a “salary basis.” To be paid on a “salary basis,” an employee must receive in each pay period a predetermined amount that constitutes all or part of their compensation, and that compensation cannot be reduced because of variations in quality or quantity of work. In other words, you must pay an exempt employee their full salary for any week in which they perform any work regardless of the number of days or hours they actually work.
So, what if you have an exempt employee who is required to report to their government facility today, only to be told that they are non-essential and must return home. Do you have to pay that employee a full week’s salary, even though they reported to work for an extremely short period of time? In short: “Yes.”
But, what about next week? If the shutdown continues, and the exempt employee performs no work at all next week, are your required to pay them their full salary? In short: “No.” The Fair Labor Standards Act’s implementing regulations provide: “Exempt employees need not be paid for any workweek in which they perform no work.” Here, it is crucial that employees perform no work at all. In this electronic age, there is an argument that checking work e-mail can constitute “work.” Therefore, if government contractors want to ensure that they are not responsible for salary during the government shutdown, they should explicitly instruct exempt employees not to check e-mail or conduct any work-related activities during the shutdown.
Some of my clients believe there are exceptions for partial-week “furloughs” of employees. In the vast majority of cases you cannot “furlough” an exempt employee without risking loss of the exemption. If you want to require exempt employees to work for a partial-week, and only pay the for the partial week, you should consult with your employment attorney.
Many employers believe that all salaried employees are exempt from overtime: “I pay them a salary. So, I don’t owe them overtime.” That belief is dangerous. The salary requirement is only one part of the FLSA’s overtime exemption. The employee must also fit within the FLSA’s categories of Executive, Administrative or Professional (“EAP”) employees. The EAP analysis can be extensive, and that analysis is outside the scope of this blog post. For our purposes, assume that you have an employee who is an Executive, Administrative or Professional employee, and they are promised an annual salary of $23,660 or more. It may be possible to compute that employee’s salary “by the hour” without losing the overtime exemption.
On November 8, 2018 the U.S. Department of Labor’s Wage and Hour Division (“DOL”) published an opinion letter that provides some guidance. Here is a link to that opinion letter: FLSA2018-25.
The “salary basis” test is satisfied when an employee “regularly receives each pay period … a predetermined amount … not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.602(a). This is the key: a “salaried” employee must receive a guaranteed amount that is not subject to reductions based upon quality or quantity of work. So long as the employee receives that “predetermined amount,” employers have great discretion in their method for calculating the amount.
An exempt employee’s earning may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days, or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount earned.
Snipes v. Northeast Pharmaceuticals, Inc., No. 2:11-cv-1000-SRW, 2013 WL 757628 at * 6 (M.D. Ala. Feb. 27, 2013) (citing 29 C.F.R. § 541.604(b)).
DOL Opinion FLSA2018-25 goes a step further and analyzes whether an employee loses the overtime exemption by working too many hours beyond the guaranteed “predetermined amount.” In that opinion, an employer paid engineers a guaranteed weekly salary of $2,100, determined by multiplying $70 per hour by 30 hours per week. Even if the engineer worked less than 30 hours, he/she still received $2,100. The employer also paid the engineers an extra $70 per hour if they worked beyond 30 hours.
DOL found that the extra pay beyond 30 hours was permissible, so long as there was a “reasonable relationship” between the guaranteed amount and the amount actually earned. “A ‘reasonable relationship’ exists when ‘the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly … rate for the employee’s normal scheduled workweek.'” Ultimately, the DOL found that an employee can earn up to 1.5 times the guaranteed “predetermined amount” without losing the exemption. But, if an employee received as much as 1.8 times the guaranteed “predetermined amount,” they might be considered an hourly employee who is not exempt.
Obviously, these issues are complex. If you want to compute your salaried employees’ pay “by the hour,” you should consult with your employment attorney.
Are you paying employees for the time they spend on meal breaks? Most employers don’t. That’s because the Fair Labor Standards Act and its implementing regulations clearly provide: “Bona fide meal periods are not worktime.” 29 C.F.R.§ 785.19(a). Some employers rely upon that general regulation and simply refuse to pay employees who take a meal break. That over-generalization can be costly, because it ignores the requirement that a meal period be “bona fide.” A meal break is only bona fide if the employee is “completely relieved from duty for the purposes of eating regular meals.” Id.
The United States Department of Labor provides some guidance on this issue here: Breaks and Meal Periods. Typically, a bona fide meal period lasts at least 30 minutes. Short breaks of 5 to 20 minutes are generally considered compensable work time.
The key issue here is whether the employee is “completely relieved from duty” during meals. That was the focus of the Eleventh Circuit’s recent opinion in Cooley v. HMR of Alabama, Inc., No. 18-10657, 2018 WL 4232041 (11th Cir. Sep. 6, 2018). In Cooley, the plaintiffs were nursing assistants and licensed practical nurses. They claimed that during meal breaks they “cared for patient needs” and “tended to patients,” but were not paid for that time. They sued under the FLSA, but a trial judge dismissed their complaint — finding that it failed to adequately state a claim under the law.
The Eleventh Circuit reversed that decision. The court found that the employees’ allegations stated a plausible claim that they were not “completely relieved from duty.” Even so, the employer raised an additional defense. In order to be compensated, the nurses needed to be performing an activity that was a “principal activity” or “integral and indispensable to the principal activities that an employee is employed to perform.” The employer argued that the nurses’ allegations were so vague that it could not determine if they were performing a “principal activity” during the meal breaks. The Eleventh Circuit quickly rejected that argument, finding that “[i]t is reasonable to assume that caring for and tending to patients during the workday is a ‘principal activity’ of a nursing home employee, especially when that employee is employed in at least some capacity as a nurse.”
The Eleventh Circuit’s opinion does not mean that the nurses have won their lawsuit. Instead, they are simply being given the chance to proceed and prove their case. The employer still might win if it can demonstrate that the employees were “completely relieved from duty,” or not performing a “principal activity” during the meal breaks. Nevertheless, Cooley provides an important reminder that employers should carefully review their meal break policies and ensure that employees are “completely relieved from duty” if they are not being paid.
Just because you’ve got the right to arbitrate a claim doesn’t mean that you have to arbitrate that claim. If you’ve read my blog before, you know that arbitration is a great form of alternative dispute resolution for many claims. But, employers should think carefully before arbitrating employment disputes: Arbitration Isn’t Always Good for Employers. In conducting that analysis, one factor for employers to consider is the amount of fees that they will pay to an arbitrator in comparison to the value of the employee’s claim.
In Hernandez v. Acosta Tractors, Inc., No. 17-13057, 2018 WL 3761126 (11th Cir. Aug. 8, 2018), the Eleventh Circuit Court of Appeals confronted an employer who was having second-thoughts about the wisdom of arbitrating a claim under the Fair Labor Standards Act. (“FLSA”). Julio Hernandez claimed that his employer, Acosta Tractors, failed to pay him overtime. Mr. Hernandez sued in federal court and Acosta Tractors moved to dismiss the case because he signed an arbitration agreement. The judge agreed, and dismissed Mr. Hernandez’s case in favor of arbitration.
Acosta Tractors soon began to experience sticker-shock with the arbitration process. Mr. Hernandez was one of three employees who were arbitrating FLSA claims. Acosta Tractors asked the arbitrator to consolidate the three proceedings into one, but the arbitrator refused. The arbitrator also ordered 29 depositions to be taken in the three separate proceedings.
At this point, I need to be clear: an arbitrator is essentially a paid judge. Every time the arbitrator works on a case, he bills the parties for his work — usually at rates of $350.00 per hour or more. Additionally, if a third-party organization, like the American Arbitration Association is involved, they will charge for their work on the case. As a result, administrative fees quickly add up.
In Acosta Tractors’ case, it received bills for administrative fees in the amount of $33,100 and $43,640 in the other two cases, and $25,875 in Mr. Hernandez’s case. At this point, faced with over $100,000 in administrative fees, Acosta Tractors cried “uncle,” and tried to go back to federal court. It refused to pay the arbitration fees, and asked the federal judge to re-assert control over the case. But, the judge was not pleased. He found that Acosta Tractor defaulted in arbitration, and thus was also in default in federal court. Ultimately, the judge entered a default judgment in Mr. Hernandez’s favor in the amount of $7,293.00.
On appeal, the Eleventh Circuit vacated the judge’s ruling for further consideration. The Eleventh Circuit found that the trial judge should not have entered a default judgment based solely upon the failure to pay administrative fees in arbitration. Instead, the Eleventh Circuit directed the trial judge to determine whether Acosta Tractors “acted in bad faith in choosing not to pay its arbitration fees.” The court suggested that a “good faith inability to afford the arbitration fees” would be a factor in Acosta Tractors’ favor, but also noted that its decision “to abandon arbitration after getting adverse rulings from the arbitrator certainly looks like forum shopping.”
To me, the biggest lesson for employers to learn from Hernandez is: “look before you leap.” Arbitration is going to be expensive for everybody involved. In Mr. Hernandez’s case, Acosta Tractors was billed $25,875 in administrative fees on an overtime claim that was worth $7,293. With the benefit of hindsight, it looks like Acosta Tractors could have saved money by keeping this FLSA case in federal court.
Some British playwrite once wrote: “That which we call a rose by any other name would smell as sweet.” I’ve always interpreted that line to suggest that names are not nearly as important as substance or context. The Eleventh Circuit recently issued an entertaining opinion recognizing this important issue in the employment law arena. See Garcia-Celestino v. Ruize Harvesting, Inc., No. 17-12866, 2018 WL 3652010 (11th Cir. Aug. 2, 2018)(“Garcia-Celestino II“). In Garcia-Celestino II, the Court was required to examine the intricacies of the term “employer” — and discuss the differences in that term under the Fair Labor Standards Act (“FLSA”) and the common law.
Judge Rosenbaum began his opinion: “The English language contains many examples of homonyms — ‘words that have the same sound and often the same spelling but differ in meaning’ ….” He then suggested that the terms “employer” and “control” are “legal homonyms” that have “different meanings under the FLSA and the common law.”
Judge Rosenbaum also noted that this was the second time that the case came before the Eleventh Circuit. Indeed, I wrote about the first Garcia-Celestino opinion, and the significance of control over contract labor here: Migrant Farm Workers and the FLSA. In the first Garcia-Celestino opinion, the Eleventh Circuit found that orchard owner Consolidated Citrus was a joint employer under the FLSA with Ruiz Harvesting — the company from which it contracted migrant labor. But, the court remanded the case to the trial court to determine if Consolidated Citrus was also a joint employer for breach-of-contract purposes under the common law. The trial court concluded that Consolidated Citrus was an “employer” for purposes of the common law.
Judge Rosenbaum’s opinion in Garcia-Celestino II reversed the trial court and found that Consolidated Citrus was not a joint employer under a breach of contract theory. In short, Consolidated Citrus was an “employer” for purposes of the FLSA, but not for breach of contract. Under both the FLSA and the common law, “control” over a worker is important for determining whether her or she is employed. But, the FLSA created “one of the broadest possible delineations of the employer-employee relationship.” In contrast, a common law analysis “results in a much narrower analytical approach.” “Under the common law, we must look at only who controls ‘the manner and means’ and ‘the details of the work,’ giving no consideration to ‘mere economic control or control over the end result of the performance.'”
Judge Rosenbaum then conducted an extensive analysis which largely focused on control over the “manner and means” of the migrant workers’ labor. At the end of that analysis, he (along with Judge Tjoflat and Judge Ungaro) concluded that Consolidated Citrus was not a joint employer of the migrant workers for purposes of the common law.
The Garcia-Celestino saga is a nice microcosm of employment law. Facts matter. Claims matter. The applicable law matters. Under a single set of facts, a company can be liable as an “employer” under one claim (FLSA), but not liable under another (breach of contract). With a good understanding of these intricacies, some employers can emerge from a lawsuit smelling like a rose.
The Eleventh Circuit has found that law enforcement officers are not entitled to pay for certain activities that occur before and after their work shifts. See Llorca v. Sheriff, Collier County, No. 17-11377, 2018 WL 3134544 (11th Cir. Jun. 27, 2018). In particular, the Fair Labor Standards Act (“FLSA”) does not require compensation to law enforcement for: (1) putting on and taking off protective equipment (“donning and doffing”) before and after a work shift; or, (2) commuting to and from work in a marked patrol vehicle.
The Portal-to-Portal Act of 1947, as amended by the Employee Commuting Flexibility Act of 1996, provides that an employer is not required to pay employees for time travelling to and from work, or for activities that are “preliminary to or postliminary to” the “principal activity” of the job. The United States Supreme Court has further found that preliminary or postliminary work is only compensable if it is an “integral and indispensable part of the principal activities.” The Eleventh Circuit’s decision in Llorca focused on the “integral” and “indispensable” standards.
The employees in Llorca were Deputy Sheriffs in Collier and Lee County, Florida. They were required to arrive at work wearing the following protective gear: a “duty belt,” a radio case, pepper mace, a baton strap, a magazine pouch, a radio, a flashlight, handcuffs, a holster, a first-responders pouch, and a ballistics vest. They also commuted to and from work in marked patrol vehicles. The Sheriffs required their deputies to listen to radio calls while commuting, and respond to major calls and emergencies. The deputies were also required to observe the roads for traffic violations and engage in general traffic law enforcement. While the deputies were compensated for any time responding to emergencies and enforcing traffic laws, they were not compensated for time commuting while listening to their radios and observing the roads.
The Eleventh Circuit found that donning and doffing protective gear is not “integral” to a law enforcement officer’s principal activities. The gear itself might be “indispensable” to a deputy. But, the donning and doffing process is not an intrinsic element of law enforcement. The Court was particularly persuaded by a 2006 Department of Labor memorandum finding that donning and doffing might be compensable “where the changing of clothes on the employer’s premises is required by law, by rules of the employer, or by the nature of the work.” But, “if employees have the option and the ability to change into the required gear at home, changing into that gear is not a principal activity, even when it takes place at the plant.”
The Eleventh Circuit found that listening to the radio for calls and general traffic monitoring were not “indispensable” activities for deputies. The court first relied upon a policy argument, noting that “traffic violations multiply if there is an appearance among the public that traffic enforcement is law. Thus, it would be highly inappropriate for uniformed officers to drive to and from work in marked patrol vehicles without observing the roads for traffic violations and other incidents.” The Court also relied upon a DOL regulation holding that a police officer “is not working during the travel time even where the radio must be left on so that the officer can respond to emergency calls.” 29 C.F.R. § 553.221(f).
The Llorca opinion is a significant win for employers in law enforcement. Additionally, it provides additional guidance to all employers on “donning and doffing” requirements.
My firm helps government contractors comply with a broad array of regulations imposed by the federal government. Here is a link to our firm’s new Government Contracts Lawyers web site: Wilmer & Lee Government Contracts. Within our government contracts group, I am frequently tasked with assisting government contractors in their efforts to comply with the McNamara-O’Hara Service Contract Act (“SCA”).
The United States Department of Labor (“DOL”) enforces the SCA. Frequently, the DOL issues press releases when companies agree to pay for violations of the SCA. Following are a series of press releases issued by DOL this Spring. Hopefully, they can provide you with some guidance on what not to do in administering an SCA contract. The title of each release links to the DOL web site.
18-630-ATL. May 8, 2018. A company based in my hometown of Huntsville, Alabama agreed to pay $95,000 in back wages to 12 employee for failure to pay prevailing wage rates for work performed on a federal contract. Y-Tech Services, Inc. categorized employees as aircraft workers when they actually performed the duties of sheet metal employees, which required higher rates.
18-625-BOS. May 8, 2018. This is actually a Davis-Bacon Act case and not an SCA case. Gilliam Co. LLC of Franklin, Connecticut was debarred from future federal construction contracts. Gilliam failed to make required fringe-benefit payments — primarily 401(k) contributions. Gilliam also took payroll deductions from a non-existent vacation fund, failed to pay employees for their last two weeks of work, and submitted falsified payroll records. The total amount paid to 12 employees was $125,348.
18-0658-SAN. May 1, 2018. United States Auto Club, Inc. (“USAC”) provides emergency roadside assistance to the United States Postal Service. The SCA contract required that employees be paid $20.84 per hour. USAC subcontracted the work to Norbert’s Towing Service, which only paid employees half that rate. As a result, USAC owed 29 employees $377,512 in unpaid prevailing wages; $165,116 in required health and welfare benefits; and, $107,367 in overtime.
18-04650-ATL. March 29, 2018. Insight Global, LLC worked as a subcontractor for Hewlett Packard on an information technology contract with the U.S. Department of the Navy. Insight Global erroneously categorized and paid 14 employee as computer operators, when they actually performed the work of personal computer support technicians. As a result, Insight Global agreed to pay $354,978 in back wages.
Recent discussions inside the Office of Federal Contractor Compliance Programs (“OFCCP”) indicate that compensation audits of federal contractors might become more fair for employers. On April 19, 2018, Bloomberg News released an article indicating that OFCCP was contemplating significant changes to its audit rules. Here’s a link to the Bloomberg article: Bloomberg OFCCP Article. The OFCCP conducts audits of government contracts and federal contractors to ensure that employers are complying with federal laws and regulations prohibiting pay discrimination. Under the Obama Administration, the OFCCP issued Directive 307, which allows auditors to compare compensation of employees even if they perform different work. For example, auditors might find discrimination by comparing the compensation of two “managers,” even though one manager works in accounting and the other in human resources.
Comparisons of dissimilar employees are generally not permitted in discrimination cases arising under Title VII of the Civil Rights Act of 1964. Instead, an employee suing for pay discrimination must usually compare themselves to another employee doing the same work, in the same location, with the same supervisors. Because of the discrepancies between OFCCP’s enforcement efforts and traditional employment law, the U.S. Chamber of Commerce released a report in late 2017 critical of the OFCCP. It’s report, “OFCCP, Right Mission, Wrong Tactics” can be found here.
The Bloomberg article indicates that the OFCCP is about to scrap or significantly change Directive 307. That’s good news for federal contractors, who need consistency in the law to succeed in business. Unfortunately, the Bloomberg article caused some concern among civil rights groups, and an article from the Society for Human Resource Management (which can be found here) indicates the OFCCP’s plans may be delayed. Even with the delays, the information coming from OFCCP is good news for government contractors, because it indicates a willingness by OFCCP to address employer concerns.
How do you compensate employees who are working overseas? And, how do you pay for their international travel time? Let’s consider a hypothetical: an employee takes a 16-hour flight from Nashville to China. Because of changing time zones, he leaves at 4:00 a.m. on a Sunday and arrives at 11:00 p.m. on a Monday. International travel can cause difficulties in complying with wage and hour laws.
1. The FLSA Does Not Apply to Work in a Foreign Country
From a purely legal perspective, the Fair Labor Standards Act (“FLSA”) does not apply to employees whose services are performed in a workplace in a foreign country. 9 U.S.C. § 213(f). Thus, if an employer really wants to be a jerk, it can argue that it is not required to pay overtime (or even minimum wage) for work overseas. I strongly advise against this heavy-handed approach because of employee morale, and the possibility of subjecting yourself to foreign wage and hour laws. In short, you don’t have to pay overtime for work in China, but you probably should pay it. Notably, many U.S. territories, like Puerto Rico and the Virgin Islands, as well as Kwajalein Atoll (frequented by many Huntsvillians) are not considered foreign countries.
2. The FLSA Does Apply if the Employee Works Part of the Week in the U.S.
There is always an exception to almost any rule. According to the United States Department of Labor, an employee who works any part of a week in the United States is covered by the FLSA, even if he or she spends part of the week working overseas. See DOL Wage & Hour Opinion Letter #1563 WH-510 (Jun. 29, 1981). Thus, even if an employer wants to take the heavy-handed approach, it will be required to pay overtime for work in China if the employee performs any work in the U.S. during the same week. On this issue, employers should be mindful of their declared work week. Let’s assume that my hypothetical employer’s work week is Sunday to Saturday. As discussed below, time traveling can be compensable. Because part of the travel occurred in the U.S., all work in China during the week of travel would be subject to the FLSA’s overtime requirements.
3. Time in the Air May Be Compensable
The issue of pay for time-in-the-air is also a difficult one. First, employees are entitled to pay for any time actually worked in international travel. So, if the employee works on his computer for the entire 16-hour flight, then he is entitled to be paid for 16 hours of work. But, what if he just kicks-back and watches movies for the entire flight?
The DOL considers travel away from home to be compensable “when it cuts across the employee’s workday.” 29 C.F.R. 785.39. Thus, if your employee normally works 8:00 to 5:00, he or she is entitled to pay while flying, even if just watching movies, from 8:00 to 5:00. Importantly, even if the travel occurs on a Saturday or Sunday, pay would required from 8:00 to 5:00. The DOL does not consider time on a plane to be compensable if it occurs outside of regular working hours. So, time in the air before 8:00 and after 5:00 would not be compensable.