Category Archives: Wage and Hour

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.

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.

The Next Wave: Minnesota Metro and the $15 Minimum Wage

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.

Department of Labor Appeals Overtime Injunction

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.

Minnesota Supreme Court Affirms Wage Claim Penalties

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.

Lawsuits and Congress Attempt to Stop New DOL Overtime Rules

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.

Minnesota Supreme Court Rejects Minneapolis Minimum Wage Ballot Initiative

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.

How To Take Credit For Bonuses and Commissions Under the DOL’s New Salary Basis Rules

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.

Can Minneapolis Voters Raise The Minimum Wage By Ballot Initiative?

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.

Minneapolis Passes Paid Sick Leave Ordinance

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.