Wage and Hour

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On Monday, May 21, 2018, the U.S. Supreme Court issued what is widely regarded as the most important decision for U.S. employers this year.  In a 5-4 decision, in Epic Systems Corporation v. Lewis (and two other related matters), Justice Neil Gorsuch, writing for the majority, held that workplace employment agreements that bar employees from participating in class and collective action litigation against their employers do not violate federal labor laws.  In so holding, the Court rejected the position of the National Labor Relations Board (“NLRB”) and other courts that such agreements violate the National Labor Relations Act’s (“NLRA”) protection of employees’ Section 7 rights to engage in “concerted activity.”

“The policy may be debatable but the law is clear:  Congress has instructed that arbitration agreements . . . must be enforced as written” wrote Justice Gorsuch, who went on to state that the Supreme Court was compelled to abide by “a congressional command requiring us to enforce, not override, the terms of the arbitration agreements before us.”  Citing the Federal Arbitration Act’s (“FAA”) “emphatic directions” that require courts to enforce arbitration agreements, the Court overturned NLRB and multiple courts’ decisions that found class and collective action waivers inequitable, and held that only employment agreements procured by fraud, duress, and unconscionability will not be enforced.

Leading up to the Epic Systems decision, the NLRB originally held in 2012, in D.R. Horton, Inc., that arbitration programs that include class and collective action waivers ran afoul of the NLRA,  which nullified the FAA’s policy favoring arbitration agreements. Numerous courts around the country have followed the NLRB including the Sixth, Seventh and Ninth Circuits, while others including the Second, Fifth and Eighth Circuits, have not so held.  Epic Systems now resolves this Circuit split.

Importantly, the Court also held that a state law attempting to circumvent the FAA’s mandates will not stand. States, therefore, cannot try to enact their own legislation to circumvent Epic Systems.

Following Epic Systems, and absent Congressional intervention, employers are permitted to enter into and enforce individual arbitration agreements containing class and collective action waivers.  Even employers who do not currently have individual arbitration agreements containing such waivers with their employees can modify their current employment agreements to include such terms.

It is important for all employers to carefully review their employment agreements and put considerable thought into whether an arbitration agreement with a class and collective action waiver is appropriate.

As the winter months bear down on us, many of us find our thoughts wistfully drifting to sun, sand, and all things summer.  Summer months, however, also bring (for most employers) summer interns and one of the more befuddling employment issues: do I have to pay my summer intern?  Stated another way: is my intern, in actuality, an “employee” under the Fair Labor Standards Act (“FLSA”) and therefore entitled to wages?

This confusion concerning the scope of the FLSA with respect to interns has been driven by the lack of any uniform standard for assessing whether an intern is an “employee.”  Although comprehensive, the FLSA does not define “employee” in any meaningful fashion.  To the contrary, an “employee” is defined in a circular, broad fashion as “any individual employed by an employer.”  29 U.S.C. § 203(e)(1).  To cope, both the courts and the United States Department of Labor (“DOL”) have relied upon a variety of competing analytical frameworks to analyze whether an individual falls within the foregoing definition.  By way of example, the DOL previously relied upon a “rigid” six-factor all-or-nothing test while the Second, Ninth, and Eleventh Circuit Courts (to name a few) have relied upon a more flexible balancing of seven factors, an analysis, referred to as the “primary beneficiary test,” to determine employee status.

Earlier this month, however, some much-needed clarity and uniformity on the issue arrived.  As of January 5, 2018, the DOL abandoned its previous approach to the issue and accepted the “primary beneficiary test” as the standard for determining whether an individual is an employee under the FLSA.  See Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act.  Reminiscent of the colloquial “if it looks like a duck, quacks like a duck, then it’s a duck” mentality, the primary beneficiary test focuses on seven factors aimed at ascertaining the true “reality” of a relationship between the employer and the intern/employee.  As set forth in the DOL’s January 2018 Fact Sheet, these factors include:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee, and vice versa;
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

No single factor is dispositive; rather, the test is flexible and intended to accommodate the unique circumstances of each case.  The DOL’s acceptance of this test will likely usher in the beginning of more wide-spread acceptance, use, and perhaps uniformity with regard to the treatment of interns.

Although some have pontificated that this change in the DOL’s position may “revive” unpaid internships, the true effect of the shift in position remains to be seen.  While there is now greater uniformity in how the government and courts may view an “employee” under the FLSA, the matter is far from settled.  Indeed, courts have yet to determine a uniform approach to the issue and, as a result, the framework under which an internship program is assessed will still depend on the jurisdiction.  Employers utilizing unpaid internship programs should continue to familiarize themselves with the analysis utilized in their state as well as the primary beneficiary test.  Employers must also remember that each case is, of course, fact-specific and context-driven.

New York employers should be ready to kick-off 2018 with a slew of updated policies and procedures to ensure compliance with the State’s changing legal landscape.  As we say “goodbye” to 2017, New York must say “hello” to the following laws, whose impact will surely be felt in the coming year:

  • The New York Salary History Law went into effect on October 31, 2017, making it illegal for an employer to inquire into a prospective job applicant’s salary or to rely on that history during the hiring process. We previously blogged about The New York Salary History Law (posts available here 4-7-17, 5-17-17, and 10-27-17), and its potential effect on the gender pay gap will certainly be watched with interest by those both within and outside New York.
  • The controversial New York City Fair Workweek Laws went into effect on November 26, 2017, consisting of 5 bills that directly impact New York City fast food restaurants and retailers by curtailing employers’ flexibility to establish and modify employee work schedules. We previously blogged about the New York City Fair Workweek Laws (posts available here 11-6-17 and 6-19-17), and this is another law to keep a close eye on given its wide ranging potential to affect an entire industry.
  • In accordance with legislation signed by Governor Andrew Cuomo in April 2016, effective December 31, 2017, small and large employers in New York City will see minimum wages rising to $12.00 and $13.00 per hour, respectively. Likewise, employers in Westchester, Nassau and Suffolk Counties will be subject to a $1.00 per year increase of the minimum wage to $11.00 per hour until it reaches the $15.00 per hour threshold on December 31, 2021.  Additionally, all other employers in New York will be required to raise the minimum wage another $0.70 (to $10.40) until it reaches the minimum wage of $12.50 per hour in December 2020.  We previously blogged about this legislation last year (post available here 4-28-16).
  • Perhaps the most highly anticipated law affecting employers and employees alike is the New York Paid Family Leave Benefits Law, effective on January 1, 2018. The law provides eligible employees with 8 weeks of paid leave per calendar year (increasing to 10 weeks in 2019 and 12 weeks in 2021) for events including: (i) participation in providing care, including physical or psychological care, for a family member with a serious health condition; (ii) bonding with a child during the first 12 months after the child’s birth, or the first 12 months after the child is placed with an employee for adoption or foster care; or (iii) any qualifying exigency as interpreted under the federal Family and Medical Leave Act (FMLA), relating to when a spouse, domestic partner, child, or parent of the employee is on covered active duty or called to active duty status.  The benefits are funded through employee payroll deductions, and employees are entitled to job protection and continuation of certain benefits during family leave.  The impact of the New York Paid Family Leave Benefits Law will surely be felt immediately by employees and employers alike.
  • On May 5, 2018, New York City will expand the types of leave covered by the Paid Sick Leave Law, which will soon be known as the “Earned Safe and Sick Time Act”. The Act will be expanded to cover “safe time” leave which can be used by an eligible employee to: (i) obtain services from a domestic violence shelter, rape crisis center, or other shelter or services program; (ii) participate in safety planning, temporarily or permanently relocate, or take other actions to increase the safety of the employee or employee’s family members; (iii) meet with a civil attorney or other social service provider to obtain information and advice on, and prepare for or participate in, any criminal or civil proceeding, including, but not limited to, matters related to a family offense matter, sexual offense, stalking, human trafficking, custody, visitation, matrimonial issues, orders of protection, immigration, housing, or discrimination in employment, housing or consumer credit; (iv) file a complaint or domestic incident report with law enforcement; (v) meet with a district attorney’s office; (vi) enroll children in a new school; or (vii) take other actions necessary to maintain, improve or restore the physical, psychological, or economic health or safety of the employee or the employee’s family member or to protect those who associate or work with the employee.  The law will still require employers to provide up to 40 hours of paid leave, which employees can now use for “safe time” in addition to sick time under the Act.

The approaching holiday season is a good time for employers to carefully review their handbooks, policies, and procedures to ensure compliance with the labyrinth of New York requirements.  Companies should, at a minimum, ensure that their human resources, benefits coordinators, and other key administrators are familiar with the above laws and their attendant requirements, and that the information is timely communicated to their workforces.

The controversial New York City Fair Workweek laws are scheduled to go into effect on November 26, 2017 at the conclusion of Thanksgiving weekend.  We previously blogged about the new laws shortly after their enactment earlier this year (post available here).  The legislation package, consisting of 5 bills, will directly impact New York City fast food restaurants and retailers by curtailing employers’ flexibility to establish and modify employee work schedules, among other limitations.

Some of the key changes impacting operators in the fast food industry include the following:

  • Employers will be required to provide “good faith estimates” of anticipated work schedules for all new hires.
  • Employers will be forced to provide all fast food workers with at least 14 days’ notice of their actual work schedules. Those schedules must then be conspicuously posted and displayed in the workplace.  Subsequent modifications will subject the employer to a range of monetary penalties payable to the affected employee(s).
  • Absent written consent by the employee (and an additional $100 in compensation), “clopen” schedules (closing a restaurant one night and opening the following morning) will be banned unless at least 11 hours have elapsed between shifts.
  • Employers will be required to offer additional work shifts to existing employees before hiring new workers to fill those shifts.
  • Fast food employees will be permitted to voluntarily direct employers, in writing, to take deductions from their paychecks (of at least $3 per week) in order to make contributions to non-profits; it will then be the employers’ obligation to remit payment to the designated non-profit .

In addition to the changes specific to the fast food industry, after November 26 all New York City retailers with at least 20 employees will be barred from scheduling “on-call” shifts and cancelling/altering work schedules within 72 hours of an employee’s scheduled shift start.

With the Fair Workweek legislation becoming effective only a few weeks from now, New York City fast food restaurateurs and retailers are strongly encouraged to consult with their legal advisors and reform their scheduling protocol and procedures.  Failing to do so may unnecessarily expose them to otherwise avoidable fines and penalties for violating the new laws.

On October 19, 2017, the Court of Appeals for the Third Circuit ruled that New Jersey based Mary Kay consultants could not bring a claim in New Jersey federal court against Mary Kay for alleged violations of the New Jersey Wage Payment Law (“NJWPL”).  The court relied upon the broad forum-selection clause in the consulting agreements between the parties, which mandated that “any dispute or controversy . . .  concerning any matter relating to this Agreement . . . be submitted to the jurisdiction of the courts of the State of Texas.”

The consultants – New Jersey residents who performed their work under the agreements in New Jersey – argued that their statutory-based NJWPL claim did not fall within the scope of the forum-selection clause.  The court, applying Texas law in accordance with the contracts’ choice-of-law provisions, concluded that because the claim related to the working relationship between the consultants and Mary Kay, the claim necessarily implicated the contents of the consulting agreements.  Because the consultants did not overcome their exceptionally heavy burden of avoiding the enforcement of the Texas forum-selection clause, the Third Circuit affirmed the lower court’s dismissal of the action.

While the decision represents a strong win for employers and the freedom to contract, its implications are not without limitation.  Parties are not at liberty to select forums and governing laws that have absolutely no relationship to the parties and the dispute.  Here, the parties’ choice of Texas law and the Texas forum undoubtedly had the requisite connection to the parties and the dispute, as Mary Kay is headquartered in Texas.

Additionally, as the court took pains to point out, the consultants did not challenge the enforceability of the forum-selection clause, and instead limited their arguments to the scope of the clause.  Cognizant of the “predicament” for plaintiffs seeking the substantive protections of the employment laws of their home state, where they perform substantially all of their work, the court explained that it is incumbent on plaintiffs to challenge the enforceability of the clause itself, not merely its scope.

Parties to employment contracts are strongly encouraged to carefully consider the ramifications of choice-of-law and forum-selection clauses before litigation arises, lest they find themselves in a foreign jurisdiction with laws which may be unfavorable to their interests.