Category Archives: Wage and Hour
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.
Moving beyond earned sick leave and safe time ordinances, it is very likely that this year the Minneapolis and St. Paul City Councils will take on the possibility of a $15 minimum wage ordinance. Such a municipal minimum wage exceeds state ($7.75 for small employers and $9.50 for large employers) and federal ($7.25) minimum wage, of course. The municipal earned sick leave and safe time ordinances passed by both cities in 2016 were the first wave in a national movement for employee rights that began in other major cities (such as San Francisco and Seattle) where the $15 minimum wage was then the next wave. Indeed, a task force on the $15 minimum wage ordinance has just formed in Minneapolis. State minimum wage initiatives stalled out in the last legislature sessions, so the major municipalities are taking the initiatives.
Arguments in favor of the $15 an hour minimum wage ordinances sound in quality of life and attraction of entry level employees in a high employment rate economy. And although $15 an hour may not be a realistic living wage, especially for a family, it reduces the need of low wage employees to work several jobs, creating a very human reason for metropolitan areas to have a higher minimum wage. Indeed, many Twin Cities metropolitan area employers already pay a minimum of $12 plus an hour, so the change is not extreme.
And the possibility of such ordinances passing as a second wave of employee rights municipal legislation has likely increased with the employer community’s inability to hold back the first wave sick leave and safe time ordinances in 2016. Having spent a lot of effort unsuccessfully in 2016 in broad opposition to the first wave, it is a strong possibility that employers opposing the second wave of the $15 minimum wage in 2017 will need to focus their efforts on exemptions and credits. Tip credits, student work study, training wages, gradual phase-in periods are examples of such possible exemptions in the ordinances that reduce the impact of this next wave.
Takeaway: Minneapolis and St. Paul employers are wise to anticipate in their business models, budgets for payroll and benefits and staff planning the passage of a $15 municipal minimum wage ordinance and follow closely the passage and specific provisions of this next wave of employee-protection ordinances. You don’t want to wind up like the old story of King Canute who tried to order the waves to hold back (unsuccessfully). Minnesota Employer will keep you updated.
The new Department of Labor (DOL) overtime regulations increasing the minimum salary threshold for white collar exemptions to an annualized $47,476 were set to become effective December 1, 2016. However, on November 22, 2016, a Texas Federal District Court issued a nationwide preliminary injunction blocking the new rules from becoming effective.
The DOL has now appealed the Court’s injunction decision to the Fifth Circuit Court of Appeals. The timing for such an appeal typically stretches over several months. The DOL does have the option, however, of requesting that its appeal be considered on an expedited basis, but such requests are not automatically granted. The DOL may also file a motion requesting that the injunction be stayed while its appeal is pending. Granting a stay would reinstate the new overtime regulations. Doing so would of course create a potentially cumbersome scenario of implementing significant overtime changes which might only be reversed once the 5th Circuit rules on the DOL appeal.
Takeaway: At least for now, and unless a motion to stay is made and granted, the DOL new overtime regulations remain without effect. Accordingly, employers are not at this time obligated to adjust employee salaries to maintain their exempt status.
Employees who believe they have been improperly denied payment of wages or commissions owed when separated from employment may make a claim against their employer seeking full payment. Particular statutory provisions apply depending on whether the employee was terminated or voluntarily resigned.
In either situation, the employee may be entitled to a penalty payment, in addition to full payment of the owed wages or commissions. That penalty is “equal to the amount of the employee’s average daily earnings at the employee’s regular rate of pay or the rate required by law, whichever rate is greater, for every day, not exceeding 15 days in all” until such payment is made. An employee is not entitled to the penalty payment unless the claim results in the employee obtaining an amount greater than the amount of wages or commissions already paid by the employer in good faith. Minn. Stat. § 181.14, subd. 3.
The Minnesota Supreme Court recently decided whether non-wage related amounts owed by the employee to the employer can be offset against the wages or commissions recovered in determining whether the employee is entitled to the penalty payment.
In Toyota Lift of Minnesota, Inc. v. American Warehouse Systems, LLC, a lawsuit resulted in the employee being awarded more than $100,000 in disputed commissions. However, the employer’s counterclaim resulted in a more than $800,000 unrelated judgment against the employee. The Minnesota Supreme Court held that the unrelated counterclaim judgment could not be offset against the employee’s wage claim recovery. While the statute is silent as to whether such an offset is expressly permissible or not, the Court concluded that, when each part of the statute is read in context, such an offset was not authorized by the Minnesota Legislature.
Takeaway: Unrelated amounts owed to the employer cannot be offset against wages or commissions owing to the employee to avoid the statutory penalty payment. Employers should be aware that the possibility of such a penalty remains regardless of the merits of their counterclaims against the employee.
In May 2016, the federal Department of Labor issued its final rules amending the overtime regulations applicable to white collar exemptions. In principal part, these new regulations increase the minimum salary threshold amount necessary for the exemptions to apply from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The DOL also increased the minimum salary threshold amount applicable to the highly compensated employee exemption from $100,000 per year to $134,004 per year. These minimum salary amounts are subject to automatic updates every three years. The new overtime rules become effective December 1, 2016.
The DOL estimates that these new regulations will affect at least 4.5 million workers and employers are scrambling to determine whether to significantly increase the base salary paid to those white collar workers or to forfeit the applicable overtime exemption.
In an effort to block enforcement of the new DOL rules, two lawsuits were filed in Texas federal court on September 20, 2016. In Nevada v. United States Department of Labor, 21 states have sought a declaratory judgment that the new regulations were improperly implemented and an injunction preventing their enforcement. In Plano Chamber of Commerce v. Perez, several Chambers of Commerce and other business organizations filed a similar lawsuit seeking the same type of relief.
Congress is also seeking to block enforcement of these new overtime regulations. On September 28, 2016, the House of Representatives voted 246 to 177 in favor of the “Regulatory Relief for Small Businesses, Schools, and Nonprofits Act” to delay enforcement of the new DOL rules until June 1, 2017.
Takeaway: While efforts are fast and furious to block – or at least delay – enforcement of the new DOL overtime rules, the current December 1, 2016, effective date is fast approaching. Employers should reach out to their legal counsel with any questions they have regarding how to comply with these new rules and any updates on the above-noted actions.
On August 31, 2016, the Minnesota Supreme Court issued an order agreeing with the Minneapolis City Attorney that a ballot initiative could not be used to enact a new minimum wage in the City of Minneapolis.
In late July of this year, the Minneapolis City Attorney issued a legal opinion that concluded that a petition with 20,000 signatures in support of a ballot initiative to amend the City Charter to include a $15 minimum wage was not a proper subject for a ballot initiative. Following the City Attorney’s advice, the City Council agreed not to include the ballot initiative on the ballot for the upcoming election in November. Labor activists then challenged the City’s position in Hennepin County District Court. Last week, the district court disagreed with the City and ruled that the $15 minimum wage should be included on the ballot in this November’s election. The City appealed the district court’s decision.
On appeal, the Minnesota Supreme Court reversed the district court and sided with the City. The Court reasoned that city charters may or may not provide for the enactment of an ordinance through the ballot initiative and that the Minneapolis City Charter does “not authorize the proposed charter amendment.” Vasseur et al. v. City of Minneapolis, et al., No. A16-1367 (Minn. Aug. 31, 2016).
Takeaway: The $15 minimum wage ballot initiative for the City of Minneapolis will not appear on the ballot this November.
Do Employees Need to Have Final Hiring and Firing Authority to Qualify for the FLSA’s Executive Exemption?
Not necessarily – a recent decision from the Eighth Circuit Court of Appeals illustrates that employees may qualify for the executive exemption under the Fair Labor Standards Act (FLSA) even if they do not have final authority over hiring and firing decisions.
In Garrison v. ConAgra Foods Packaged Foods, LLC, the issue before the court was whether the plaintiffs’ recommendations relating to hiring and firing decisions were given sufficient weight to qualify for the executive exemption. Nos. 15-1177, 15-1428 (8th Cir. Aug. 15, 2016). It was undisputed that the other requirements of the executive exemption were satisfied.
The parties agreed that the plaintiffs did not have final authority over hiring and firing decisions, but disputed whether they nevertheless qualified as exempt because their “recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.” 29 C.F.R. § 541.100(a)(4). The court held that the evidence established that the plaintiffs’ recommendations concerning hiring and firing decisions were given “particular weight” because:
- The plaintiffs were responsible for appraising performance and reporting good or poor performance for probationary employees;
- Two of the plaintiffs recommended the discharge of one probationary employee and that recommendation was followed;
- Some employees were demoted based on evaluations and feedback from the plaintiffs;
- The plaintiffs were able to fill temporary vacancies by moving employees from one classification to another; and
- The plaintiffs recommended discipline for employees and management followed those recommendations most, if not all, of the time.
Because the Eighth Circuit agreed that the plaintiffs’ recommendations concerning hiring and firing decisions were given particular weight, the court affirmed summary judgment in favor of the employer on the grounds that the employees were exempt from the FLSA.
Takeaway: Employees may qualify for the FLSA’s executive exemption even if they do not have final authority over hiring and firing decisions, provided that their recommendations concerning hiring and firing are given particular weight.
The Department of Labor’s new salary basis rules, which are set to go into effect in December of 2016, permit employers to use bonuses, incentives, and commissions to satisfy part of the salary requirements for exempt employees under the Fair Labor Standards Act (FLSA). Here’s what employers need to know about this aspect of the DOL’s new rules:
- Employers can use nondiscretionary bonuses, incentives, and commissions to satisfy up to 10% (or $91.30 per week) of the new $913 per week salary requirement for exempt employees.
- To qualify, the nondiscretionary bonuses, incentives, or commissions must be paid quarterly or more frequently.
- Because the employer can only take credit for up to 10% of the $913 per week salary requirement, the employer still must pay affected employees a minimum of $821.70 per week to ensure the salary basis requirements are satisfied.
- If by the last pay period of the quarter, the employee’s salary plus his or her nondiscretionary bonuses, incentives, or commissions do not equal at least 13 times the weekly salary requirement (or $11,869), the employer may make one final “catch-up” payment sufficient to achieve the required amount.
- Any catch-up payment made by an employer must be paid no later than the next pay period after the end of the quarter and must count only toward the prior quarter’s salary amount (not toward the salary amount for the quarter in which it was paid).
Takeaway: Employers may use nondiscretionary bonuses, incentives, and commissions to satisfy up to 10% of the FLSA’s salary basis requirements for exempt employees, provided that they follow the above-listed rules.
No – the Minneapolis City Attorney recently published a legal opinion stating that a ballot initiative cannot be used to enact a new minimum wage in the City of Minneapolis.
In June of 2016, a group called 15 Now Minnesota submitted a petition with 20,000 signatures to the City of Minneapolis. The petition sought to include a ballot initiative in the upcoming November election, which would amend the Minneapolis City Charter to increase the minimum wage. The proposed amendment would have gradually raised the minimum wage in Minneapolis over time so that it would reach $15.00 per hour by August of 2022.
On July 28, 2016, the Minneapolis City Attorney issued a legal opinion that concluded that the proposed amendment to the city charter was not a proper subject for a ballot initiative. The City Attorney reasoned that, under Minnesota law, city charters may only be used for the “establishment, administration or regulation of city government.” See Minn. Stat. § 410.07. In contrast to a charter amendment governing the administration of city government, a legislative ordinance may only be implemented through ballot initiative if specifically authorized by the city charter. See Minn. Stat. § 410.20.
The City Attorney concluded that the proposed minimum-wage amendment was “legislative in nature” and did not relate to the establishment, administration or regulation of city government. Because the Minneapolis City Charter does not specifically authorize the implementation of legislative ordinances through the ballot initiative process, the City Attorney further concluded that “the proposed amendment is not a proper subject for a charter amendment and the Council should decline to place the provision on the ballot.”
Takeaway: The 20,000 signature petition seeking to amend the Minneapolis City Charter to increase the minimum wage is likely not a valid means of enacting a higher minimum wage within the City of Minneapolis.
On May 27, 2016, the Minneapolis City Council passed the “Sick and Safe Time” Ordinance. Prior to its passing, several amendments were incorporated into the ordinance. The final ordinance, as amended, is available here.
Here are the key points that employers should know about the final ordinance:
When will the paid sick leave ordinance take effect? The effective date of the ordinance will be July 1, 2017.
What employers will be subject to the ordinance? The ordinance will apply to all employers. For employers with 5 or less employees, the sick and safe leave required by the ordinance may be unpaid. For employers with 6 or more employees, the sick and safe leave required by the ordinance must be paid. For established businesses, the number of employees will be determined based on the average number of employees during the previous year. For new businesses, the number of employees will be determined based on the average number of employees during the first 90 days after the business’s first employee begins to work.
Is there an exception for new businesses? During the first 5 years after the ordinance goes into effect, new businesses (other than chain establishments) will only be required to provide unpaid sick and safe leave during their first 12 months after the hire date of the employer’s first employee, but will not be required to provide paid sick and safe leave during that time. This exception does not apply to “chain establishments,” which is defined to include any establishment doing business under the same trade name used by two or more establishments, or under the same ownership and doing the same business, whether such other establishments are located in the city or elsewhere and regardless of the type of ownership of each individual establishment.
What employees will be covered by the ordinance? Any employee (exempt, non-exempt, part-time, or temporary) who performs work for an employer within the geographic boundaries of the City of Minneapolis for at least 80 hours in a year will be covered by the ordinance. To administer this requirement, the ordinance will require that employers with employees who occasionally work in Minneapolis must track and keep records of the hours that those employees work within the City. The ordinance will not apply to independent contractors. For the construction industry, the ordinance states that employers can satisfy the ordinance by paying employees the required prevailing wage or apprentice wages. For health care employees (such as doctors, nurses, and emergency room personnel) who are paid at least four times the federal minimum wage, sick and safe leave may only be used when the employee is scheduled to work.
How much sick and safe leave will the ordinance require? The ordinance will require that employees must accrue a minimum of one hour of sick and safe leave for every 30 hours worked, up to a maximum of 48 hours in a calendar or fiscal year. Employees may carry over unused sick leave from year to year, but may not accrue more than a total of 80 hours of sick and safe leave unless the employer agrees to a higher amount. The sick leave begins to accrue at the beginning of an employee’s employment (or July 1, 2017 when the ordinance will take effect), but it may not be used until 90 calendar days after the commencement of employment.
When can employees use sick and safe leave? Employees may use sick and safe leave for a variety of reasons, including but not limited to: (i) an employee’s health condition or need for treatment or preventive care; (ii) the care of a family member with a health condition or who requires treatment or preventive care; (iii) absences due to the domestic abuse, sexual assault, or stalking of the employee or an employee’s family member; (iv) the closure of a business by a public official due to a health issue; (v) the closure of the school of an employee’s family member’s school or place of care by a public official due to a health issue; or (vi) the closure of the school of an employee’s family member’s school or place of care due to inclement weather, loss of power, loss of heating, loss of water, or other unexpected closure. The ordinance will prohibit employers from retaliating against employees for the use of sick and safe leave.
Can employers require advance notice or documentation for sick and safe leave? For foreseeable leave, an employer can require up to seven days advance notice of the need to use paid sick leave. For unforeseeable leave, the employer can require the employee to provide notice as soon as practicable. The employer may require reasonable documentation of the need for paid sick leave only if paid sick leave is used for an absence of more than three consecutive days.
How will the ordinance be enforced? The ordinance will be enforced by the Minneapolis Department of Civil Rights. An employee may report a violation to the Department within one year of its occurrence. After receiving a report, the Department will investigate and determine whether a violation occurred. During the investigation, the employer will have the opportunity to provide a written position statement in response to the alleged violation. If the Department determines that a violation occurred, the employer will have a right to appeal by requesting a hearing with an administrative hearing officer within 21 days. After that, the employer may seek a writ of certiorari to appeal the matter to the Minnesota Court of Appeals. The Department of Civil Rights may also refer the matter to the Minneapolis City Attorney, who can seek to enforce the ordinance through a civil lawsuit in district court.
What are the potential penalties for violations? During the first 12 months after the ordinance takes effect, the Department of Civil Rights will only have authority to mediate disputes, issue warnings, and issue notices to correct. After the first 12 months, the Department will be able to impose the following forms of relief and penalties: (i) reinstatement and back pay; (ii) crediting of sick time accrued but not credited plus payment for that sick time multiplied by two, or $250, whichever is greater; (iii) payment of sick pay unlawfully withheld plus payment for that sick time multiplied by two, or $250, whichever is greater; (iv) a $1,500 administrative penalty payable to the employee; or (v) an administrative fine payable to the City of up to $50.00 for each day during which the violation continued following written notice to the employer of the violation with a period of no less than 5 business days to comply.
What notice requirements will apply? The ordinance will require employers to post a notice of employee rights relating to paid sick leave in the workplace. The notice will be developed and published by the Department of Civil Rights. Employers who provide employee handbooks also must include in their handbooks a notice of employee rights and remedies under the ordinance. In addition, each time an employer pays wages to an employee, the employer must provide a written statement to the employee regarding the amount paid sick leave available to them and the amount of paid sick leave that they have used. The employer can include this information on a pay stub or may develop an online system for employees to access the information.
What recordkeeping requirements will apply? Employers will be required to maintain accurate records of accrued and used paid sick leave and must allow an employee to inspect the records relating to that employee at a reasonable time and place. In addition, an employer with employees who occasionally perform work within the City of Minneapolis will need to track hours worked in the City by each employee to determine whether they are covered by the ordinance.
Will paid sick leave need to be paid out to terminated employees? No. The ordinance does not require employers to pay terminated employees for accrued, but unused paid sick leave.
Department of Labor regulations allow employers to round the calculation of work hours to the nearest quarter hour for purposes of counting hours worked under the Fair Labor Standards Act, as long as the rounding is done neutrally; i.e., the employer rounds up and also rounds down. See 29 C.F.R. § 785.48(b). The idea behind permissible rounding is that neither employee nor employer are favored if there is neutral rounding up and rounding down. This gives employers a practical and efficient way to calculate hours worked and wages paid under the FLSA.
The U.S. Court of Appeals for the Ninth Circuit, in a case involving permissible rounding at a call center for Time Warner, issued the first reported case upholding and applying the DOL’s neutral rounding policies in interpreting the FLSA. The Federal Court also held that under California’s own FLSA, the federal interpretation would apply since nothing in California’s law prohibited neutral permissible rounding. Corbin v. Time Warner Entm’t-Advance/Newhouse P’ship, No. 13-55622, 2016 WL 1730403, at *1 (9th Cir. May 2, 2016).
Minnesota also has a state FSLA and, for Minnesota employers, it is likely that the state FLSA will be interpreted according to the DOL policies. As in the Time Warner case, Minnesota’s FLSA overtime law does not have requirements that would counter allowing for neutral permissible rounding.
Takeaway: Minnesota employers using rounding up or rounding down payroll software based upon neutral principals and neutrally applied can likely look to the DOL regulations as providing guidance and safe harbor under federal and state law. Golfers round down, taxi cab drivers round up, and now employers can do both.
Here are four potential ways that employers can respond to the DOL’s new overtime rule with respect to exempt employees who currently earn less than the new $913 per week threshold:
- Increase the Employee’s Pay To Maintain the Exemption: One way to deal with the DOL’s new overtime rule is to increase exempt employee’s pay to make sure that the new $913 per week threshold will be satisfied when the new rule takes effect on December 1, 2016. This approach will ensure that the employee remains exempt from the FLSA’s overtime provision.
- Treat the Employee As Non-Exempt and Prohibit Overtime: If an employer wants to avoid giving an employee a raise to meet the new threshold and wants to avoid paying overtime, the employer can begin treating the employee as non-exempt, monitor his or her worktime closely, and prohibit the employee from working more than 40 hours per week. The potential downside of this approach is that it may reduce the employee’s productivity and could require the employer to hire additional staff.
- Treat the Employee As Non-Exempt and Adjust His or Her Pay Rate To Avoid Increased Costs: Another way that employers can keep their costs equal following implementation of the new rule is to begin treating the employee as non-exempt, but adjust his or her pay rate so that, even with overtime, the employee’s annual earnings are approximately the same as when he or she was exempt. One potential downside of this approach is that the employee’s weekly pay may decrease below his or her prior salary level during weeks when no overtime work is performed. These fluctuations in pay should even out over time provided that the employee’s work hours stay roughly the same, but they may create retention issues for the employer.
- Treat the Employee As Non-Exempt and Start Paying Overtime: The final way for employers to respond to the DOL’s new overtime rule is for employers to keep the employee’s rate of pay approximately the same, but also start paying time-and-a-half overtime. This is likely the most costly approach for employers to respond to the DOL’s new overtime rule. For employees who will earn at least $913 per week on average with this additional overtime, it likely makes more sense for the employer to increase the employee’s salary and keep the employee as exempt.