Department of Labor Proposes New Salary Requirement for Exempt Employees

On March 7, 2019, the Department of Labor (DOL) announced a proposed rule to raise salary requirements for overtime exemptions for executive, administrative, and professional employees. Currently, the salary threshold for exempt employees is $455 per week, or $23,660 annually. Under the Fair Labor Standards Act (FLSA), employees below this salary threshold must be paid overtime for hours worked in excess of 40 hours per week.

Under the proposed rule, the salary threshold for the overtime exemption would raise to $679 per week, or $35,308 annually. In order to classify employees as exempt from overtime requirements, employers would need to meet this new requirement, in addition to the job duty requirements. This salary proposal is approximately $12,000 lower than the DOL’s proposed change in 2016.

The proposal also increases the total annual compensation for exempt “highly compensated employees” from the current annual salary of $100,000 to $147,414.

The DOL submitted the proposed rule to the Office of the Federal Register for public comment. If accepted, the DOL estimates that the new rule will take effect in January 2020.

More information regarding the proposed rule is available at https://www.dol.gov/whd/overtime2019/. In addition, the public is encouraged to submit comments about the proposal at https://www.regulations.gov/, in the rulemaking docket RIN 1235-AA20. The public has 60 days to comment on the proposed rule, beginning on the date of publication.

Takeaway: Employers may soon have to comply with new salary requirements for FLSA overtime exemptions. It is never too early to review current overtime policies and employee classifications to identify changes that may be needed when the proposed rule goes into effect.

Minneapolis $15 Minimum Wage Ordinance Upheld

On March 4, 2019 the Minnesota Court of Appeals upheld a Minneapolis city ordinance setting the minimum wage in the city at $15.00 per hour. Minneapolis company Graco, Inc. sued the City of Minneapolis in  November 2017, arguing that the minimum wage law was unlawful in light of state laws regulating the minimum wage.

In April 2018, the district court held that the Minneapolis ordinance was lawful. Graco appealed to the Minnesota Court of Appeals. The Court of Appeals affirmed, holding that state law does not prohibit cities from setting a higher minimum wage so long as employers pay employees at least the state minimum wage.

As of July 1, 2018, large employers were required to pay employees who work within Minneapolis at least $11.25 per hour, which will increase annually, eventually reaching $15.00 per hour in 2022. Small employers must currently pay employees $10.25 per hour, which will also increase annually, reaching $15.00 per hour in 2024.

Takeway: Minneapolis’s new minimum wage ordinance is active and enforceable. Employers should review the ordinance carefully to ensure compliance. On July 1, 2019, the Minneapolis minimum wage will see another annual increase on its way to $15.00 per hour. Large employers will be required to pay at least $12.25 per hour and small employers will be required to pay $11.00 per hour.

Independent Contractor Misclassifications in Minnesota

One area of employment law that often trips up Minnesota companies is whether a worker should be considered an “employee” or an “independent contractor.” In general, independent contractors are considered to “be their own bosses.” In other words, because employers have less control over them, independent contractors are not subject to employment laws relating to wages, workplace health and safety, and withholding taxes. But the line between an independent contractor and an employee can be hard to draw, and federal and state agencies have been stepping up enforcement of the laws prohibiting misclassification of workers as independent contractors.

One mistake we frequently see is that when an agency, such as the U.S. Department of Labor or the Minnesota Department of Revenue, initiates an inquiry or enforcement action based on potential misclassification of a worker as an independent contractor, the company tries to respond informally, without involving their employment attorney. This can lead to unnecessary difficulties. For example, as the company tries to explain to the investigator why the worker is an independent contractor, the company may inadvertently provide information that the investigator can use against the company. Or, the company may not understand the impact of the investigation—misclassification can result in significant taxes, fines, or other liabilities. And, the company may not know the best practices for how to resolve the dispute. The last thing the company needs is for the result of one agency’s investigation to spur other agencies into undertaking their own investigation. Briggs and Morgan, P.A. has experience working with the Minnesota Department of Revenue and other relevant agencies to conclusively resolve misclassification inquiries.

Usually, the agency looks at a variety of factors to determine whether it believes the classification is correct. A company’s honest belief or good faith intent regarding classification of its workers as independent contractors is generally irrelevant, which is why so many companies may face liability for misclassifications. Instead, the agency will look at certain factors regarding the relationship between the worker and company. Another factor often working against the company is that the agency has an interest in finding an employee-employer relationship, so the scales may often tip in that direction when there is uncertainty.

Takeaway: When an employer receives notice of an investigation relating to misclassification of a worker as an independent contractor, it should not try to respond on its own—that can often make the situation worse. Instead, the employer should contact its employment law counsel right away so that a response strategy can be developed.

Authored by: Andrew Carlson and Kristin Emmons

Eighth Circuit Reiterates Presumption for At-Will Employment under Minnesota Law

Last week the Eighth Circuit Court of Appeals held in Ayala v. CyberPower Sys. (USA), Inc. that an employee’s compensation agreement did not modify his status as an at-will employee. No. 17-1852, 2018 WL 2703102, at *1 (8th Cir. June 6, 2018). In Ayala, the plaintiff entered into an agreement with defendant CyberPower that detailed the salary and bonus structure for his position as Executive Vice President of CyberPower. The agreement provided that it “outlines the new salary and bonus structure to remain in place until $150 million USD is reached. It is not a multiyear commitment or employment contract for either party.” The plaintiff was terminated before sales reached $150 million.

In 2015, the plaintiff sued CyberPower for breach of contract, claiming that the agreement secured his employment until the $150 million sales threshold was met. CyberPower argued that the agreement did not modify the plaintiff’s status as an at-will employee, so it had the right to terminate him at any time. The United States District Court for the District of Minnesota agreed with CyberPower and dismissed the lawsuit. The plaintiff appealed.

On appeal at the Eighth Circuit, the court stated that there is a strong presumption under Minnesota law in favor of at-will employment, and to alter the plaintiff’s status as an at-will employee, CyberPower “must have ‘clearly intended’ to do so by entering the Compensation Agreement.” Because the agreement stated that it only governed compensation and did not create a multi-year employment contract for either party, the court held that the plaintiff’s employment was at-will. Importantly, the court stated that “Minnesota law does not require a clear statement to continue at-will employment—it presumes such employment.”

Takeaway: This decision is a win for employers who have at-will employees, as it reiterates the strong presumption under Minnesota law in favor of at-will status, even if the employment agreement is silent on the issue. Employers should still be cautious, however, when drafting compensation agreements to ensure they are not unintentionally creating employment for a definite term.

Minnesota Legislature Considers Changes to Sexual Harassment Law

The Minnesota Legislature has been considering H.F. 4459, “a bill for an act clarifying the definition of sexual harassment” under the Minnesota Human Rights Act (MHRA). The bill would amend Minn. Stat. § 363A.03, subd. 43, which defines sexual harassment in employment, education, housing, and public service contexts.

Currently, Minnesota courts require that sexual harassment be “severe or pervasive” to be actionable under the MHRA. See Rasmussen v. Two Harbors Fish Co., 832 N.W.2d 790, 796 (Minn. 2013). This definition of actionable sexual harassment also mirrors the definition of sexual harassment under Title VII of the Civil Rights Act of 1964.

The proposed bill would add language to Minn. Stat. § 363A.03 providing that “an intimidating, hostile, or offensive environment … does not require the harassing conduct or communication to be severe or pervasive.” If passed, the amendment would apply to sexual harassment claims after August 1, 2018.

If the bill is successful, it will arguably lower the bar for actionable claims in Minnesota which could in turn significantly increase the number of claims faced by employers. Recent reports state that the bill is stalled in the Senate due to concerns from the business community.

Takeaway: Stay tuned for updates to Minnesota’s sexual harassment law. If you want to express concerns about this proposed legislation, contact your legislators.

New Tip-Pooling Rules on the Horizon

Yesterday the comments period ended on a proposal from the U.S. Department of Labor (DOL) regarding tip-pooling regulations under the Fair Labor Standards Act (FLSA). On December 5, 2017, the DOL published a news release regarding a proposed rule which would give employers greater freedom to allow tip pools and to determine how tips should be distributed to staff, including non-wait staff.

The comments period was originally scheduled to end 30 days after the DOL announced the proposal on December 5, 2017, but was extended to February 5, 2018 after the proposal gained widespread attention. The proposed regulation received 374,064 comments.

The current FLSA tip-pooling regulations prohibit redistribution of tips by the employer to an employee other than the one who originally earned and received the tips. The new DOL proposal would rescind these regulations to allow employers to make different rules regarding the distribution of tips to employees who do not traditionally receive tips. If the DOL adopts the proposal, employers could only take advantage of the new rule if they pay the full minimum wage to their employees and do not take a tip credit against payment of minimum wage.

The DOL release is available at https://www.dol.gov/newsroom/releases/whd/whd20171204.

Takeaway: Employers may see changes to federal regulations regarding tip-pooling in the near future. However, employers should be aware that specific state laws may still govern their business and may provide for separate regulations regarding tip pools.

Does the MHRA Require an Employer to Engage in an Interactive Process to Determine an Appropriate Reasonable Accommodation?

The Minnesota Court of Appeals recently held that the Minnesota Human Rights Act (MHRA) does not require an employer to engage in an interactive process with an employee to determine whether an appropriate reasonable accommodation is necessary.

In McBee v. Team Industries, Inc., the plaintiff, a machine operator, received medical attention for back and neck pain, including numbness in her hand and arms. No. 03-CV-15-1470 (Minn. Ct. App. Jan. 16, 2018). Her doctor placed her on a lifting restriction and she subsequently notified her employer of the restriction. The employer terminated her due to concerns related to her medical restrictions. The plaintiff brought suit alleging disability discrimination and reprisal in violation of the MHRA.

In deciding the case, the Minnesota Court of Appeals first analyzed whether the plaintiff was a qualified individual with a disability. Because she could not perform the essential functions of her job – the ability to lift ten pounds – the court determined that she was not qualified. The court also held that the plaintiff was unable to be accommodated because “an employer is not required to reallocate or eliminate essential functions of a job to accommodate an employee with a disability.”

Notably, the court also held that, unlike the American with Disabilities Act (ADA), the MHRA “does not require an employer to engage in an interactive process to determine an appropriate reasonable accommodation.” The court noted that this holding runs contrary to Eighth Circuit case law holding the MHRA require an interactive process, similar to the ADA. However, the court explained that the Eighth Circuit cited “federal law for this ruling based on language in the ADA, not language in the MHRA.” And the plain statutory language of the MHRA, unlike ADA regulations, makes no mention of a required interactive process.

Takeaway: The MHRA, which applies to all employers who employ at least 1 employee in Minnesota, does not require the employer to engage in an interactive process to determine an appropriate reasonable accommodation for a disabled employee. The ADA however, which applies to employers with 15 or more employees, may still be applicable to certain companies and does require an interactive process.

2018 Cost-of-Living Adjusted Amounts for Employee Benefit Plans

On October 19, 2017, the Internal Revenue Service announced the 2018 cost-of-living adjusted amounts for certain retirement plan and fringe benefit limitations. Earlier in 2017, the Internal Revenue Service announced the 2018 cost-of-living adjustments affecting health savings accounts and high deductible health plans, and on October 13, 2017, the Social Security Administration announced the 2018 cost-of-living adjustments related to Social Security benefits.

A list of the cost-of-living adjusted amounts that most commonly affect employer-sponsored benefit plans is available here.

OMB Stays Use of New EEO-1 Form

In 2016, the Equal Employment Opportunity Commission (EEOC) proposed and then approved a new EEO-1 Form for the collection of certain workforce data. In particular, the new form would require all employers with 100 or more employees, and federal contractors with 50 or more employees, to now annually report certain pay and hours worked data, in addition to data regarding workforce ethnicity, race, and gender. This new form was set to become effective with a March 31, 2018, filing date deadline.

The required submission of compensation data was received by employers with expected controversy. In addition to the increased administrative burden, employers recognized that the compensation data could be used by the EEOC to charge and investigate allegations of discriminatory practices.

Well, those employer concerns are now tabled. On August 29, 2017, the Office of Management and Budget (OMB), issued a Memorandum to the EEOC Acting Chair, Victoria Lipnic, stating that OMB is “initiating a review and immediate stay of the effectiveness of those aspects of the EEO-1 form that were revised on September 29, 2016.” In doing so, OMB noted that the EEOC had released data file specifications for employers to use in submitting the new data, but these specifications were not part of the prior public comment process and were not accounted for in previous burden estimates.  Further, the OMB Memorandum stated:

OMB has also decided to stay immediately the effectiveness of the revised aspects of   the EEO-1 form for good cause, as we believe that continued collection of this information is contrary to the standards of the PRA (Paperwork Reduction Act).  Among other things, OMB is concerned that some aspects of the revised collection of information lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.

So for now employers should continue to use the prior EEO-1 form, rather than the new form. The March 31, 2018, filing deadline remains the same.

Takeaway: OMB has stayed indefinitely the EEOC’s use of its new EEO-1 form. Employers should instead continue to submit data under the prior form.

Does an Employment Discrimination Claim in Minnesota Survive the Death of the Claimant?

Given the length of discrimination litigation and the sometimes shortness of life, the following question can arise: Will an employment discrimination claim go on if the person bringing the claim dies while the claim is pending? A recent federal case for the circuit governing Minnesota employers addressed this question as to Americans With Disabilities Act claims.

In Guenther v. Griffin Construction Co., 846 F.3d 979 (8th cir. 2017), the U.S. Court of Appeals for the Eighth Circuit held that the ADA claim of an employee who died while the ADA charge was pending survived his death and his estate could carry on with the claim. State claim survival laws did not control this federal ADA claim and the U.S. Court found that “federal common law” allowed survival of the claim. The Court pointed to the fact that a disability can involve a terminal condition (as here) and so it seemed that that claim’s survival was intrinsic to ADA protections and to the deterrence goals of the ADA.

Minnesota employers already are subject to certain types of discrimination claim survival statutes, (for example, special damages under Minnesota Human Rights Act claims survive death) and now the Guenther case establishes that federal ADA claims can continue through the  decedent’s estate.

Takeaway: The law of survival of claims is complicated, but Minnesota employers can anticipate that a claimant’s death will not necessarily end a claimant’s pending discrimination charge or suit. That’s a fact of life, so to say.

For Minnesota Employers: All Quiet on the 2017 Capitol Front

The 2017 Regular and Special Sessions ended with an almost record lack of impact for Minnesota employers. There were no changes to Minn. Stat. § 181.01 et seq the state general employment statute or Minn. Stat. § 363.01, the State Human Rights Act. Stability is a good thing.

The one potential change – a law that would have restricted municipalities from setting their own workplace standards (such as regarding sick leave) was vetoed by Governor Dayton as promised.

Takeaway: Minnesota Employers do not need to update policies or handbooks due to any changes in state law coming out of this legislative session. Now, that’s good news!

DOL Withdraws Independent Contractor and Joint Employer Guidance

The United States Department of Labor (DOL) issued a press release on June 7, 2017, announcing the withdrawal of two significant guidance statements issued during the Obama Administration.

In July 2015, the DOL released Administrator’s Interpretation No. 2015-1 regarding the potential misclassification of employees as independent contractors. This guidance emphasized the applicability of the economic realities test to determine proper classification under the Fair Labor Standards Act (FLSA) and noted that most workers are employees under the FLSA’s broad definitions.

In January 2016, the DOL released Administrator’s Interpretation No. 2016-1 emphasizing the potential applicability of joint employer status. This guidance analyzed both horizontal and vertical joint employment. Horizontal joint employment generally involves the relationship between related corporate entities, such as a parent company and a subsidiary. Vertical joint employment generally involves the relationship between unrelated companies upon both of which the employee may be economically dependent. The DOL emphasized that joint employment should be defined expansively under the FLSA.

Despite withdrawing both of these guidance statements (they are no longer posted on the DOL website), the press release stated that the DOL will continue to fully and fairly enforce all laws within its jurisdiction.

Takeaway: By withdrawing its previously issued guidance on independent contractors and joint employment, the DOL may be signaling more relaxed enforcement in these areas. Nonetheless, employers should continue to follow applicable law in assigning independent contractor status and assessing joint employer responsibility.