FLSA: Restaurant Owners Can Take Tips From Employees

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The FLSA does not prohibit restaurant owners from taking the tips of employees who are otherwise paid the minimum wage.

In a one-sentence opinion, the Eleventh Circuit Court of Appeals recently held that the Fair Labor Standards Act (“FLSA”) does not prohibit restaurant owners from taking the tips of their employees:

Having carefully considered the written submissions and the arguments of the parties and of the amicus curiae, we conclude there is no free standing claim for relief under Section 203(m) of the Fair Labor Standards Act, 29 U.S.C. § 203(m), where, as here, there is no allegation that the employer does not pay the minimum wage.

Aguila v. Corporate Caterers IV, Inc., No. 16-15838, 2017 W 1101081 (11th Cir. Mar. 24, 2017).

With that one sentence, the Court affirmed the decision of the trial court in Auguila v. Corporate Caterers, II, Inc., 199 F.Supp.3d 1358 (S.D. Fla. 2016).  In that case, the plaintiffs were delivery drivers who claimed that they were supposed to receive tips, but their employer retained some or all of those tips.  They did not claim that their employer failed to pay them minimum wage.

At its heart, the FLSA is designed to ensure that employees are paid:  (1) minimum wage; and, (2) applicable overtime.  Section 203(m) of the FLSA deals with the minimum wage for tipped employees.  It allows employer to pay less than the federally-mandated minimum wage by using the employees’ tips as part of wages.  In short, the employer-paid wage, plus tips, should exceed minimum wage.  This “tip credit” is frequently misused by employers, who are then sued under the FLSA for failing to pay the correct minimum wage.

But, the employees in Aguila did not claim that they were paid less than minimum wage.  Instead, they argued that Section 203(m) of the FLSA gave them an independent right to retain their tips.  The employees were asking the Court to expand the scope of the FLSA beyond minimum wage and overtime to include a new right to retain tips.  They based their arguments on 2011 regulations issued by the United State Department of Labor and a decision from the Ninth Circuit Court of Appeals (traditionally one of the most liberal federal courts).  Despite those arguments, the trial court and the Eleventh Circuit in Aguila declined to expand the FLSA.

Aguila should not be taken as carte blanche authorization for employers to seize their employees’ tips.  Aside from morale problems, employees could potentially sue in state court for fraud and conversion — both of which carry the possibility of punitive damages.  Instead, Aguila should merely be read as a decision limiting the scope of federal power over employers.

Birmingham’s Minimum Wage Ordinance Suffers Another Setback

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A federal judge rejected an effort to enforce Birmingham’s minimum wage ordinance.

On February 1, 2017, United States District Court Judge David Proctor rejected an attempt to force businesses to comply with Birmingham’s minimum wage ordinance. In February 2015, the Birmingham City Council passed an ordinance requiring all businesses to pay a minimum wage of at least $10.10 per hour.  The federally-required minimum wage is $7.25 per hour, and Alabama does not have a state-mandated minimum wage.

In response to Birmingham’s ordinance, in 2016 the Alabama Legislature enacted the Alabama Uniform Minimum Wage and Right-to-Work Act.  That Act establishes the Legislature’s “complete control” over minimum wage policy in the State.  After passage of that Act, Birmingham declined to enforce the minimum wage ordinance, and Alabama Attorney General Luther Strange advised Birmingham businesses on the enforcement of the ordinance.

The NAACP, Greater Birmingham Ministries and several individuals sued the State of Alabama, the City of Birmingham, Attorney General Strange and Birmingham Mayor William Bell.  Primarily, this was a race-based challenge to the Alabama Act.  The plaintiffs claimed that the purpose and effect of the Act was to transfer control over minimum wages and all matters involving private sector employment in the City of Birmingham from municipal officials elected by a majority-black local electorate to legislators elected by a statewide majority-white electorate.

Judge Proctor dismissed the law suit primarily under the legal doctrine of standing.  Essentially, Judge Proctor found that the City and State officials were not responsible for any damages that the individual plaintiffs might suffer.  Instead, local employers who refuse to comply with the Birmingham minimum wage ordinance would cause the damage:  “[N]othing this court could order Attorney General Strange or the City Defendants to do will affect Plaintiffs’ wages.  Plaintiffs’ employers set those wages and it is the courts who will determine whether there is any violation of law with respect to the setting of those wages.”

Judge Proctor’s decision provides some reassurance to Birmingham employers that they are only subject to the federally-mandated minimum wage.  Nevertheless, his decision leaves open the possibility that individual employees might sue their employers for violating the Birmingham minimum-wage ordinance.  Undoubtedly, any employers sued under the ordinance will raise the Alabama Uniform Minimum Wage and Right-to-Work Act as a defense.

Migrant Farm Workers and the Fair Labor Standards Act

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Migrant workers and the FLSA
Migrant workers and the FLSA

For purposes of the Fair Labor Standards Act, migrant farm workers can be joint employees of the farm where they work and the company which supplies their services to the farm.  See Garcia-Celestino v. Ruiz Harvesting, Inc., No. 16-10790, 2016 WL 7240150 (11th Cir. Dec. 15, 2016).  The issue of joint employment is raising its head frequently as companies try to limit their liability to the people providing services to them.  As I previously discussed, the issue is frequently whether an employer possesses control over the worker: MY ACHING “JOINTS” – JOINT EMPLOYEES UNDER THE FLSA

In Garcia-Celestino, Basiliso Ruiz provided migrant workers to pick oranges for Consolidated Citrus.  Consolidated paid based upon the number boxes of fruit picked by each worker.  If the worker did not pick enough boxes of fruit to achieve minimum wage, Consolidated Fruit paid additional “build-up pay” to raise the worker to minimum wage.  Unfortunately, Mr. Ruiz then deprived the migrant workers of minimum wage by requiring them to hand-over the “build-up pay” to him under threat of deportation.  Ultimately, the migrant workers sued both Mr. Ruiz and Consolidated Citrus for failure to pay minimum wage under the FLSA.

The primary issue in Garcia-Celestino was whether the migrant workers were joint employees of Consolidated Citrus for purposes of breach of contract and FLSA claims.  The trial court found that Consolidated Citrus was a joint employer for both claims, and relied upon the FLSA’s “suffer or permit to work” standard of “employer” to reach that conclusion.  Under that definition, the ultimate question is whether, as a matter of “economic reality,” the hired individual is “economically dependent” upon the hiring entity.

The Eleventh Circuit found that the trial court incorrectly applied the “suffer or permit to work” standard to the migrant workers’ breach of contract claims.  As a result, the Eleventh Circuit remanded the case for the trial court to determine whether the migrant workers were Consolidated Citrus’s employees under the common-law standard — which focuses mostly on control.  Nevertheless, for purposes of the FLSA minimum wage claims, the Eleventh Circuit found that the trial court correctly applied the “suffer or permit to work” standard, and concluded that Consolidated Citrus was a joint employer for purposes of the minimum wage claims.

Garcia-Celestino provides a cautionary tale for all employers — not just farmers.  If you are contracting-out labor, you run the risk of liability as a joint employer of the contract laborers.

The Dangers of Christmas Hams And Other Workplace Holiday Issues

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Christmas is only three days away.  So, I decided to provide a review of three somewhat amusing cases in Alabama involving the interplay of the holidays and the workplace.

Don’t Give Employees Heavy Christmas Hams

Many employers give Christmas hams to employees.  Be warned:  if the ham is too heavy you might wind up paying workers’ compensation.  See Moesch v. Baldwin County Elec. Memb. Corp., 479 So.2d 1271 (Ala. Civ. App. 1985).  In Moesch, the employee injured her back at the end of the work day, when she picked up a 20-pound Christmas ham given by her employer.  The Court found that giving Christmas hams “would tend to boost the morale of employees, which would be beneficial to defendant.”  Moesch, 479 So.2d at 1273.  As a result, the court found that the employee’s injury “arose out of and in the course of” her employment, entitling her to workers’ compensation benefits.

It’s OK to Allow Dancing at Christmas Parties

While ham-based injuries appear to be compensable, dance injuries are not.  See Anderson v. Custom Caterers, Inc., 185 So.2d 383 (Ala. 1966).  In Anderson, an employee was injured as a result of a fall she sustained while dancing at a Christmas party.  The party was held at the employer’s place of business and alcohol was served.  The employee argued, like the employee in Moesch, that the employer received a benefit from the morale boost to employees.  Nevertheless, the Court found that the injury did not arise out of or in the course of employment, and the employee was not entitled to workers compensation.

Holiday Pay Can Save You From an Unemployment Claim

In Etowah County, a steel foundry closed for two weeks over the holidays.  A collective bargaining agreement provided that employees received “holiday pay” and were paid a full day’s wage for Christmas Day and New Years day, even though the foundry was closed.  Despite that generosity, employees claimed that they were unemployed during the two-week closure and sought unemployment benefits.  See Autwell v. State Dept. of Indus. Rel., 249 So.2d 625 (Ala. Civ. App.)  Nevertheless, they could only be considered unemployed if they did not receive “wages” as defined by the unemployment compensation statute.  The Autwell court found that the holiday pay was sufficient “wages” and affirmed denial of the claim for benefits.

 

Merry Christmas and Happy New Year!

DOL Appeals Order Halting Overtime Regulations

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DOL Appeals Overtime Regulation Order
The Department of Labor has appealed an order which halted new overtime regulations

Yesterday, the United States Department of Labor filed an appeal challenging an order which halted DOL’s new overtime regulations.  Those new regulations were scheduled to go into effect on December 1, 2016 and would have raised the minimum salary for exempt employees to $47,476.00.  I previously wrote about the injunction which stopped the new regulations here:  Federal Judge Halts New Overtime Regulations!

In a “normal” case, an appellate court can take a year or longer to issue a decision on an appeal.  Most likely, this appeal will be fast-tracked by the Fifth Circuit Court of Appeals.  Even so, employers should not expect a decision any earlier than some time in the first quarter of 2017.  Here is the DOL’s press release concerning the appeal: https://www.dol.gov/whd/overtime/final2016/litigation.htm

Fluctuating Workweek Overtime: An Alternative to Time and a Half

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The fluctuating workweek provides an alternative method for calculating overtime.

Many of my clients are calling with questions about the new overtime regulations, which become effective on December 1, 2016.  Those calls and a recent decision from the Eleventh Circuit Court of Appeals merit a discussion of the “fluctuating workweek” method of calculating overtime.  See Garcia v. Yachting Promotions, Inc., No. 16-10095, 2016 WL 6276046 (11th Cir. Oct. 27, 2016).  In summary, an employee with a fluctuating work schedule can be paid:  (1)  a fixed weekly salary; and (2) half-time (instead of time-and-a-half) as overtime compensation for all hours over 40.

This methodology should only be applied to employees who work irregular work hours.  Most importantly, their hours must fluctuate both above and below 40 hours per week. 

If an employee truly works a fluctuating workweek, then it is possible to pay them overtime at half-time rather than time-and-a-half.  But, there are numerous requirements that must be satisfied.  Critically, the employee must be paid a fixed weekly salary as straight time pay.  The employee receives this amount if they work less than 40 hours in a week, or more than 40 hours.  Additionally, the Department of Labor’s regulations provide:

  1. The employee clearly understands that the straight-salary covers whatever hours he or she is required to work;
  2.  The straight-salary is paid irrespective of whether the workweek is one in which a full schedule of hours are worked;
  3.  The straight-salary is sufficient to provide a pay-rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours worked is greatest; and
  4. In addition to straight-salary, the employee is paid for all hours in excess of the statutory maximum at a rate not less than one-half the regular rate of pay.

In Lopez-Garcia, the issue was whether there was a clear mutual understanding between the employer and the employee to apply the fluctuating workweek methodology.   “The employee does not have to understand every contour of how the fluctuating workweek method is used to calculate salary, so long as the employee understands that his base salary is fixed regardless of the hours worked.”  Lopez-Garcia, 2016 WL 6276046 at *2.  In Lopez-Garcia, the plaintiff possessed limited proficiency in English.  Nevertheless, he signed a memorandum acknowledging his understanding of the fluctuating workweek, and he knew that he was a “salary employee who did receive overtime.”  Id.  Those facts were sufficient for the Court to find that the employee was properly paid under the fluctuating workweek method.

The Department of Labor is concerned that employers might attempt to use the fluctuating workweek methodology to limit overtime paid to employees — particularly employees who do not truly work a fluctuating schedule.  Thus, application of this methodology should be approached very carefully.  But, if you have employees whose schedule truly fluctuates over and under 40 hours per week, this is a potential alternative method for calculating overtime.

Bad News For Lawyers: No Overtime For You!

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No overtime for attorneys.
Attorneys are not entitled to overtime.

The Eleventh Circuit Court of Appeals recently ruled that attorneys are not entitled to overtime under the Fair Labor Standards Act (“FLSA”).  Okonkwo v. The Callins Law Firm, No. 16-10192, 2016 WL 4916850(11th Cir. Sep. 15, 2016).

This ruling really should come as no surprise to any attorney who practices wage and hour law.  The FLSA expressly exempts those employees who are “employed in a bona fide … professional capacity.”  29 U.S.C. 213(a)(1).  Moreover, the United States Department of Labor (“DOL”) has defined a “bona fide professional” as “[a]ny employee who is the holder of a valid license or certificate permitting the practice of law … and is actually engaged in the practice thereof.”  29 C.F.R. 541.304(a)(1).

Nevertheless, the plaintiff in Okonkwo argued that, as a matter of policy, she should receive overtime because she was paid an hourly wage instead of on a salary basis.  The Eleventh Circuit rejected that argument because DOL regulations expressly provide that the salary basis test does not apply to licensed attorneys.  29 C.F.R.  541.304(d).  The Court deferred to those regulations.

Okonkwo simply reinforces that professionals like doctors and lawyers are not entitled to overtime.

The Equal Pay Act Does Not Prohibit Discriminatory Job Assignments

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Equal Pay Act Wage Discrimination
The Equal Pay Act Does Not Prohibit Wage Discrimination Resulting from Job Assignments

Recent decisions from the United States District Court for the Northern District of Alabama demonstrate that the Equal Pay Act cannot be used to sue employers for wage disparities caused by discriminatory work assignments.  See Crosby v. Massey Hauling, Co., No. 2:16-cv-00383-RDP, 2016 WL 6082047 (N.D. Ala. Oct. 18, 2016).

Generally, the Equal Pay Act prohibits wage discrimination on the basis of gender.  An employer cannot discriminate “between employees on the basis of sex by paying wages to employees … at a rate less than the rate at which he pays wages to employees of the opposite sex …for equal work ….”  29 U.S.C. 206(d)(1).  In Crosby, the plaintiff was a female truck driver.  Her employer paid truck drivers based upon the materials hauled in the trucks.  Most of the employer’s trucks were coal trucks, but the employer also used about seven dump trucks. The coal truck assignment were more lucrative for drivers than dump truck assignments.  The Plaintiff alleged that she suffered wage discrimination because her employer always assigned her to dump truck jobs, while allowing men to drive the coal trucks.

United States District Court Judge R. David Proctor dismissed the plaintiff’s Equal Pay Act claim.  He relied heavily upon an earlier opinion by Senior United States District Court Judge C. Lynwood Smith, Jr. in Caetio v. Spirit Coach, LLC, 992 F.Supp.2d 1199 (N.D. Ala. 2014).  Judge Smith found that “the Equal Pay Act does not provide relief for allegations of discriminatory work assignments.”  Caetio, 992 F.Supp.2d at 1213.  Because the Plaintiff in Crosby was seeking to recover for disparities in pay caused by discriminatory work assignments between coal trucks and dump trucks, Judge Proctor dismissed the Equal Pay Act claim.

Judge Proctor’s decision was only a minor win for the employer.  The plaintiff also filed a claim under Title VII of the Civil Rights Act of 1964 which generally prohibits gender discrimination. Potentially, discriminatory work assignments could violate Title VII.  The employer in Crosby did not seek dismissal of the Title VII claim, and that claim will proceed through the discovery process.

Federal Contractors: Minimum Wage Increases to $10.20

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The minimum wage for employees of federal contractors will increase on January 1, 2017

The minimum wage for employees of many federal contractors will increase to $10.20 per hour effective January 1, 2017.  President Obama’s Executive Order 13658 established a minimum wage for contractors working under four major categories of federal contracts:

  1. Procurement contracts for construction covered by the Davis-Bacon Act (DBA);
  2. Service contracts covered by the Service Contract Act (SCA);
  3. Concessions contracts, including any concessions contract excluded from the SCA by the Department of Labor’s regulations at 29 CFR 4.133(b); and
  4.  Contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

Effective January 1, 2015, the minimum wage was set at $10.10 per hour, and that wage has seen five cent increases over the last two years.  On September 20, 2016, the United States Department of Labor announced the increase for 2017.  The notice of wage increase and an updated workers’ rights poster can be found here:  Minimum Wage Increase

 

Holding Last Paycheck Does Not Make Exempt Employees Overtime-Eligible

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Check

Frequently, employers will refuse to issue a final paycheck to a terminated employee.  Usually, this occurs because the employee has caused damage of some kind (property or financial) to the employer.  The Eleventh Circuit Court of Appeals recently held that holding a final paycheck does not convert an overtime-exempt employee into a “non-exempt” overtime-eligible employee.  Pioch v. IBEX Engineering Svcs., No. 15-10845, 2016 WL 3254138 (11th Cir. Jun. 14, 2016).

In Pioch, the employee was paid by the hour, but was exempted from overtime by the FLSA’s “computer employee exemption.”  Over a four-year period, the employee collected $147,230 in per diem payments for time allegedly traveling from IBEX’s main office in Nevada to a location in Florida.  In actuality, the employee had purchased a house in Florida, was not traveling from Nevada and was not eligible for the per diem payments.  Thus, IBEX withheld his pay for the last three weeks prior to his resignation.

The employee sued and argued that withholding his pay converted him to a non-exempt, overtime-eligible employee during the three weeks his pay was withheld.  After an extensive analysis, the Eleventh Circuit held that an employee’s exempt status “does not evaporate simply because the employer withholds a final paycheck.”  Pioch, 2016 WL 3254138 at *6.

In short, holding a final paycheck does not magically confer overtime eligibility on an employee.  Nevertheless, this does not mean that employers are immune from all types of liability.  In fact, the Eleventh Circuit’s Pioch opinion repeatedly emphasized that Pioch might possess a breach of contract claim against his employer.  Such a claim is resolved in state court instead of federal court.