On August 31, 2017, the United States District Court for the Eastern District of Texas (the “Court”) invalidated the United States Department of Labor’s (“DOL”) changes to the Fair Labor Standards Act’s (“FLSA”) overtime exemption rules (the “Final Rule”).  The Final Rule was scheduled to go into effect on December 1, 2016 before the Court issued a nationwide injunction blocking the implementation of the Final Rule.  In that case, captioned “State of Nevada, et al. v. United States Department of Labor et. al., Case No. 4:16-cv-00731-ALM”, the plaintiffs questioned, among other things, whether the Final Rule was lawful, whether the DOL had the authority to promulgate the Final Rule and whether the mechanism for automatic updates to the salary level under the Final Rule were permissible.  The Court agreed with the plaintiffs, finding that the Final Rule is invalid.

By way of brief background, the FLSA provides that unless an individual is subject to an exemption, employees must be paid overtime for all hours worked over 40 hours in a workweek.  There are, however, numerous exemptions to the FLSA’s overtime requirements including, but not limited to, the executive, administrative and professional exemptions (the “White Collar Exemptions”).  The FLSA has always set 3 requirements for application of the White Collar Exemptions: (1) the employee must earn a salary (or fee) that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”); (2) the salary or fee must be in the requisite minimum amount (the “salary level test”); and (3) the employee’s job duties must involve executive, administrative or professional duties as defined by the applicable regulations (the “duties test”).  The Final Rule sought to change the salary level test for the White Collar Exemptions; however, the salary basis and the duties tests were to remain unchanged.  The Final Rule sought to increase the minimum salary required from $23,660 to $47,476 annually ($913/week).  The Final Rule also sought to increase the required annual salary for highly compensated employees from $100,000 to $134,004.  Significantly, the Final Rule also provided for automatic updates to the salary and compensation levels every three years beginning January 1, 2020 to account for inflation.

The Court found that when enacting the relevant provisions of the FLSA, Congress unambiguously intended for the White Collar Exemption to apply to employees who perform bona fide executive, administrative or professional duties.  That said, the DOL did not have the authority to implement a salary level test that could effectively eliminate the duties test proscribed by the statute.   The Court also noted that the Final Rule more than doubled the DOL’s previous minimum salary level, and could make an employee’s actual duties irrelevant if his/her salary were below the new threshold.  Judge Mizzant was clear that the DOL “has exceeded its authority and gone too far with the Final Rule” and the Final Rule was found to be invalid.  The Court’s decision ends months of speculation about whether the Final Rule, heralded as a major accomplishment of President Obama’s administration, would survive Donald Trump’s presidency.

Now that the Final Rule has been invalidated and compliance is moot, barring appeal or further administrative action, employers should take the opportunity to check the requirements of state law to see if their states impose different exemptions than those imposed by the FLSA.  By way of example, New Jersey adopts the FLSA White Collar Exemptions, and the salary level test is the same.  New York, however, increased the executive and administrative salary exemption thresholds effective December 31, 2016.  In New York City “large employers” invoking a “white collar exemption” must meet the salary threshold of $825/wk.  For “small employers” the salary threshold is $787.50/week.  These levels, however, are set to increase over the next few years and the amounts will differ in other parts of the State.

Employers should check here often for additional updates concerning the FLSA and changes to the exemption rules in New York and New Jersey.

As set forth in its July 20, 2017 Regulatory Agenda, the United States Department of Labor (“USDOL”) has announced its intention to rescind the controversial 2011 regulation enacted by the Obama Administration (the “2011 Regulation”), which restricted employers from requiring employees to share tips even when no tip credit is taken and tipped employees are paid the full minimum wage.

The 2011 Regulation established that tips are the property of the employee and thus cannot be forcibly distributed to other workers even if no tip credit is taken and the employee receives the full hourly minimum wage.  29 C.F.R. § 531.52.  By way of background, the Fair Labor Standards Act (“FSLA”) contains a tip credit provision, which allows employers of tipped employees the option of paying a reduced hourly wage rate of $2.13 as long as employees receive sufficient tips to bring their hourly rate to the applicable federal minimum wage.  If an employee does not receive sufficient tips to meet the minimum wage, the employer must pay the difference but the employee is also permitted to retain all extra tips. 29 U.S.C. § 203(m). The tip credit provision has resulted in disparity in the incomes of tipped employees and non-tipped “back of the house” kitchen employees.  For this reason, many restaurants and hospitality associations have turned to “tip-pooling,” which many believe allows for a more uniform distribution of income.

Following the enactment of the 2011 Regulation, courts have split as to the proprietary of the Regulation with the Tenth Circuit (covering Colorado, Kansas, New Mexico, Oklahoma, Wyoming and Utah), Fourth Circuit (covering Maryland, North Carolina, South Carolina, Virginia and West Virginia) and Eleventh Circuit (covering Alabama, Florida, and Georgia), holding that the Regulation is not valid and does not apply where an employee is paid the applicable minimum wage.  In contrast, in February 2016, in Oregon Restaurant and Lodging Association v. Perez, the Ninth Circuit held that the FLSA is silent on the question of whether employers who do not take a tip credit can use tip-pooling and, therefore, the USDOL could impose a regulation to fill the gap, thus finding the Regulation to be valid. The National Restaurant Association and other hospitality groups have asked the United States Supreme Court to grant certiorari to resolve this issue and that request is pending.

As the USDOL’s proposal to rescind the 2011 Regulation is subject to the rulemaking process, it will take some time to actually rescind the rule. Accordingly, employers outside of the Tenth, Fourth and Eleventh Circuits, including those in the Tristate Area, should continue abiding the 2011 Regulation until further notice.

Importantly, employers must also be mindful of similar state laws.  For example, New York employers in particular should note that New York’s Hospitality Wage Order and Labor Law restricts tip-pooling participation.

Last week, a bill was advanced by the State’s Senate Budget and Appropriations Committee to the Senate for discussion and vote.  If passed, the new bill will increase the benefits and protections currently afforded under the State’s Family Leave Act and Family Leave Insurance (a component of the New Jersey Temporary Disability Benefits Law) and allow employees to take paid time off to care for infants or sick family members without losing their job.

While New Jersey is currently one of the few U.S. states to offer paid family leave, benefits are currently limited to 53% of the State’s average wage with a weekly payout capped at $633 per week (in 2017).  Under the proposed legislation, an eligible employee would be entitled to double the time of paid time off within a one-year period, increasing from 6 weeks under current Family Leave Insurance up to 12 weeks under the new proposed legislation.  In cases of intermittent leave, the bill would likewise double the maximum number of days from 42 to 84 days.

The benefit would also increase from two-thirds of an employee’s average weekly wage to 90% — subject, however, to the maximum of 78% of the statewide average wage for all workers making the new maximum benefit under the proposed legislation approximately $932 per week.

Finally, the proposed legislation would also increase the number of employees eligible for benefits under the new family leave provisions.  While current legislation requires employers with 50 or more employees to provide family leave without risk to the employee’s employment, the new legislation would reduce that number to 20 or more employees.  The new law would also expand the definition of family members to include siblings, grandparents, grandchildren, and parents-in-law.  Under the current legislation, only an employee’s spouse, children, and parents are included under the family leave provisions.

We will continue to post updates about the status of the bill and, if passed, the new law’s effective date.

New York City Mayor Bill de Blasio recently signed a package of legislation known as the “Fair Workweek” bills, which will take effect on many of the city’s fast-food chains and retailers starting in November 2017.  The package, comprised of five separate bills, includes the following (the first four of which apply specifically to fast-food eateries, and the last to retailers more generally):

  • 1396-A: When new fast-food employees are hired, employers will be required to provide them with good faith estimates of their work schedules.  For both new and existing employees, employers will also have to provide all workers with 14 days’ notice of their actual schedules.  In addition to providing the schedule directly to the individual employees, employers must clearly post that schedule in the workplace.  If changes are subsequently made to the schedule, the impacted employees must be paid a bonus ranging between $10 and $75 per instance depending upon how close in time to the shift the change occurs and whether the change is increasing or decreasing the shift time/hours.  Notably, an employee is not required to work additional hours that were not included in the initial schedule, and any consent to do so must be memorialized in writing.
  • 1388-A: Fast-food employees will no longer be forced to work consecutive shifts where they close one day and open the next unless at least 11 hours have elapsed between the conclusion and the start of the shifts.  However, in the event that an employee consents in writing to work such a consecutive shift, the employer will be required to compensate the employee an additional $100.
  • 1384-A: Fast-food employees will be able to direct their employers, in writing, to take deductions from their paychecks in order to make voluntary contributions to non-profit organizations.  It will be the employer’s obligation to then remit payment directly to the selected non-profit.  Employers, however, are not required to honor an employee’s request for such contributions unless the amount designated by the employee is at least $3 per week.
  • 1395-A: Fast-food employers will be required to offer additional work shifts to existing workers before hiring new employees to fill those shifts.  Notice of such shifts must be visibly posted in the workplace for a minimum of 3 days.  Only if the extra shifts are rejected by existing employees or would subject the employer to paying existing employees overtime can the employer hire additional employees.
  • 1387-A: For retailers employing at least 20 employees in NYC, “on-call” shifts will be banned.  Absent specific exceptions (such as natural disasters or requests by employees for time-off or to swap shifts with other employees), retailers will also be prohibited from cancelling or altering work schedules within 3 days of the start of the shift, and such employee schedules will need to be posted at the workplace at least 3 days before the start of the shift.

The Fair Workweek legislation will largely be enforced by the New York City Department of Community Affairs’ Office of Labor Policy and Standards.  In certain instances, employees will also have standing to pursue private complaints in court.

While the legislation will not become effective until November, the New York State Restaurant Association has already expressed strong concerns about the impact it will have on the fast-food industry.  Not only does it fear that employees may lose flexibility and the ability to maximize their earning potential, but also that employers will likely face increased costs, penalties and administrative complications.

Memorial Day weekend has come and gone, the weather is getting warmer, colleges are out of session, and high schools are winding down towards final exams.  More than just the start of Summer, this means Summer Intern season has officially arrived.  As students and job applicants are entering an ever-increasingly competitive job market, resumes beefed up with internship experiences are almost essential in most industries.  Today, many go-getters are often willing to accept unpaid internships in return for the educational and first-hand learning experience they will (hopefully) receive in exchange for their labors.  On the other side of the table, many employers utilize such internship programs to expose the up-and-coming members of the workforce to their companies and recruit top talent for future full-time employment opportunities.

The rise of unpaid internships, however, has left many employers in hot water by inadvertently misclassifying workers as “unpaid interns” when they are in reality being treated like any other employee of the company – but for the fact that they are not being paid.  Many groups of these misclassified unpaid “interns” are suing those employers (often in high-profile class and collective action lawsuits) for wages under the federal Fair Labor Standards Act (the “FLSA”) and corresponding state wage and hour laws.  It is therefore essential for savvy employers to understand who may lawfully qualify for unpaid intern positions and how employers should best structure their internship programs.

The FLSA, as a general matter, mandates that all individuals who are “employed” must be compensated for their labors.  However, exemptions apply to “trainees,” or people who receive internship training while on the job which furthers their own education.  According to the test established by the United States Department of Labor (“DOL”) (see DOL Fact Sheet #71), an internship may be unpaid if:

  1.  The internship provides training similar to that obtained in a vocational school setting;
  2.  The purpose of the internship is to benefit the intern;
  3.  The intern does not displace any regular employee;
  4.  The employer does not enjoy any immediate advantage from the intern’s work;
  5.  There is no entitlement to a job at the internship’s conclusion (though this does not mean that a job cannot ultimately be offered or earned); and
  6.  Both the employer and intern understand that the intern is not entitled to wages.

In addition to the “trainee” test established by the DOL, many states have established their own criteria that employers must consider with respect to unpaid internships.  Two such states (and where I focus my practice) are New Jersey and New York.  New Jersey, for example, employs the following nine-factor “trainee” test that asks whether:

  1.  The training is for the primary benefit of the trainee;
  2.  The employment for which the trainee is training requires some cognizable trainable skill;
  3.  The training is not specific to the employer (that is, is not exclusive to its needs), but may be applicable elsewhere for another employer in  another  field or endeavor;
  4.  The training, even though it includes actual operation of the facilities of the employer, is similar to that which may be given in a vocational school;
  5.  The trainee does not displace a regular employee on a regular job or supplement a regular job, but trains under close tutorial observation;
  6.  The employer derives no immediate benefit from the efforts of the trainee and, indeed, on occasion may find his or her regular operation  impeded  by the trainee;
  7.  The trainee is not necessarily entitled to a job at the completion of training;
  8.  The training program is sponsored by the employer, is outside regular work hours, the trainee does no productive work while attending and the  program is not directly related to the worker’s present job (as distinguished from learning another job or additional skill); and
  9.  The employer and trainee share a basic understanding that regular employment wages are not due for the time spent in training, provided that  the trainee does not perform any productive work.

Similarly, New York applies a multi-factor test (as to for-profit businesses) that fully incorporates the federal DOL test, but then adds the following supplemental criteria:

  • Whether the trainee is clearly notified, in writing, that he/she will not receive wages and is not considered an “employee” for purposes of minimum wage;
  • Any clinical training must be performed under the supervision and direction of people knowledgeable and experienced in the activity;
  • The trainee receives no employee benefits (e.g., health insurance, pension);
  • The training is general and qualifies the trainee to work in any similar business;
  • The screening process for the internship program is different than that for employees; and
  • Advertisements, postings or solicitations for the internship program clearly discuss education or training, rather than employment.

With these multi-factor, fact-sensitive tests in mind, companies offering unpaid internships this Summer are well-advised to engage in a self-audit (preferably with the assistance of counsel) to ensure that their programs are in compliance with the law.  If companies do not undertake that analysis, their unpaid programs may quickly lead to rather substantial and expensive litigation, penalties and fines.  The “penny wise, pound foolish” concept could not be more apropos.