Off to a flying start, or what? Not content with hosting the next in our series of international labour and employment law webinars http://www.squirepattonboggs.com/en/insights/events/2017/05/employment-law-worldview-webinar-series-focus-on-asia, our new L&E Asia hub partner Julia Yeo will shortly be treading the boards again with a starring role at the Tower Ballroom – but not dancing and, no doubt to her considerable chagrin, not in Blackpool.

Courtesy of leading Asian employee benefits publication humanresourcesonline.net, Julia is appearing as guest panellist and the only practising lawyer at the 2017 Employee Benefits conference in the Tower Ballroom at the Shangri La, Singapore on 18 May. Sharing a platform with high-profile regional employers including Deutsche Bank, Aon, Mitsubishi, Virgin and the Ministry of Health, she will tackle the vexed issue of how HR can square the particular demands of the gig (contingent) economy worker with best comp and bens practice.

This is apparently Asia’s largest Employee Benefits conference of 2017 and is absolutely not in Blackpool, so please do go along and say hello to Julia if you can.

We previously reported that all Arizona employers will be required to make paid sick leave available to their employees beginning on July 1, 2017. The law requires that businesses with 14 or fewer employees provide at least 24 hours of leave annually, and businesses with 15 or more employees provide at least 40 hours of leave annually, to employees to treat their their own illness or obtain preventive care, to care for a family member who is ill or needs preventive care, for certain circumstances associated with sexual or domestic violence, and for business closures precipitated by outbreaks or threatened outbreaks of communicable disease.

On May 10, 2017, over six months after the election, the Industrial Commission submitted a Notice of Proposed Rulemaking to the Arizona Secretary of State. The proposed rules answer a few open questions commonly held by Arizona employers, leave many other questions unanswered, and raise some new issues. We have prepared an alert for Arizona employers detailing their obligations under the Arizona statute, addressing the questions answered in part by the new proposed rules, and explaining what steps employers can take if they wish to submit further comment before the rules are finally adopted on June 5, 2017.

Through a long and not very relevant series of arguments, the Court of Appeal in De Souza – v – Vinci Construction (UK) Limited has just decided that in effect they are. This is not a surprising conclusion, since otherwise inflation would erode the value of such awards as either proper compensation for the employee or meaningful deterrent for the employer. However, this might be an opportune moment to look at some factors which can militate for or against material injured feelings awards.

Of course, the principal determinant is the nature of the act of discrimination itself. The first real scientific attempt to bring some order to injured feelings compensation was Vento – v – Chief Constable of West Yorkshire Police in 2003. This set out three “Vento” bands of seriousness running from about £500 to around £25,000 for the most serious and prolonged discrimination. In the interim, those parameters have nudged up to around £750-£30,000, and De Souza makes it clear that they are still on the move.

Respondent lawyers are well used to arguments that the impact of even minor acts of discrimination is so earth-shattering for the claimant that nothing less than £30,000 will properly assuage his hurt, but that is very rarely true. Relevant factors will include persistency (especially in the face of requests to stop), evident intention, any dishonesty in the employer’s conduct, any actual or threatened or physical assault, the relative hierarchical position of victim and perpetrator and the consequences for the employee’s future confidence and employability.

However, once the discriminatory event has happened, there is still an opportunity for HR to make the matter better or worse, since the Employment Tribunal will consider not just the act itself but also the employer’s response to it. Put at its most basic, for example, an act of discriminatory harassment which is then apologised for will probably attract a lesser injured feelings award than one which is not. So assuming that there has been an act of what looks like unlawful discrimination in your business, what might you be able to do, even afterwards, to reduce the company’s exposure?

• As a statement of general principle, do not defend the indefensible – it just adds insult to injury and only makes matters worse. An early admission that the employee’s feelings of hurt and unfairness are justified will itself go a long way towards resolving them.
• Apologise, but do it properly and not grudgingly. “I am sorry if I upset you” sounds sceptical that there was any genuine offence caused [subtext for ET – not only has this company discriminated but now it is accusing the complainant of lying]. On the other hand, “I am sorry that I upset you” sounds very different, especially if said promptly, at least outwardly voluntarily and accompanied by either explanation or retraction. This is why train operator apologies for disrupted services reduce you to such boiling fury – “We apologise for any inconvenience caused” implies that there are times when you really honestly don’t mind (in fact, quite enjoy) being stuck indefinitely at Farringdon with no idea of when you might get home.
• Be seen to investigate discrimination grievances scrupulously fairly, approaching the question with an open mind and not on the basis that it is for you to disprove or discredit what the employee says.
• Maintain appropriate confidentiality around the complaint, involving only those people who need to know by reason of their seniority or actual or alleged involvement in the discrimination. If the employee wishes you not to make any formal enquiry, perhaps for fear of retaliation, make a clear note of this.
• Resist the temptation to assume (and still more so to suggest) that someone who has potentially been discriminated against will necessarily want to leave with a heap of cash – remember that the protected conversations regime does not apply to discrimination cases. Instead, ask early what the employee would ideally want by way of resolution for his treatment. You are not bound by the answer, but it shows that you are taking his concerns and his wellbeing seriously, not merely as the trigger for a process aimed at defending the employer. Initially at least it may only be an apology or a commitment that the conduct will not recur, but by the time you have lawyers on both sides it could well become money and management heads on spikes which would be much harder to give.
• Think carefully before reacting to the discrimination complaint. Should someone be moved or suspended? How do you describe any resulting absence to the party’s colleagues without prejudicing either’s position? What does the complainant want in this respect (not that you are bound by this either)?
• Keep the employee informed of what is going on and why. Nothing fosters suspicion and fear and upset likes weeks or months of silence from your employer on your complaint.
• An employee who is acknowledged to have been discriminated against has no right to require the dismissal of the perpetrator or to know the specifics of what lesser action is taken against him. However, his injury to feelings will certainly be increased if there is no sign that anything at all happened as a result of his complaint. If remedial steps are taken, make sure that the employee knows this promptly.
• In writing, tell those accused of discrimination (whether justifiably or not) that any form of retaliation will be unlawful victimisation, will compound the injury to feelings, perhaps expose them personally to a claim and is potentially also serious misconduct on their part.

Think ahead to possible solutions. Has the employee suffered any financial loss from the discrimination? If so, it ill-behoves a discriminating employer to nickel-and-dime the amount of any financial offer, and that could be reflected in an increased award for non-financial loss. Is this a case where the discrimination is alleged to be deliberate or not? The more positive approach to the latter may be mediation to clear up misunderstandings or communications failures between the parties, so showing a commitment to the employee’s future happiness at work without risking all the reciprocal ill-will which could be generated by formal disciplinary action.

I have done my best to make this case report sound interesting and I like to think that even the most casual review of it will show that I have, well, failed. However, it is still important, especially for those involved in collective redundancy or TUPE consultations.

Employers may need to revisit the potential cost of unfair dismissal and failure to inform and consult claims following last month’s Employment Appeal Tribunal decision in University of Sunderland v Drossou. This held that the calculation of a “week’s pay” under s.221(2) Employment Rights Act 1996 should include employer pension contributions, and not just be the basic pay.

The calculation of a week’s pay is relevant to unfair dismissal claims like Drossou as the maximum compensatory award is the lower of a fixed statutory amount (£80,541 since 1 April 2017) and 52 weeks’ pay, where “a week’s pay” is calculated in line with s.221(2). In the Employment Tribunal’s view, when calculating the latter limit, the employer’s pension contributions should be included because:

• S.221(2) does not state that the amount payable by the employer has to be payable to the employee (i.e. it could be payable to a third party such as a pension provider); and
• if you take the word back to its Latin origins, “remuneration” as used in s.221(2) means a reward in return for services. Employer pension contributions are no less a reward for service than basic pay. [Left unaddressed here is the question of why that argument would not extend to the cash value of other benefits like insurances, discounts or equity schemes provided as part of the employment relationship].

The EAT agreed with the Tribunal’s reasoning and, clearly having a little time on its hands, also drew a largely gratuitous distinction between s.221(2) and s.27(1) ERA (the definition of “wages”). Section 27(1) specifies that the sums must be payable “to the worker” whereas those words are absent from section 221(2), that omission implying (one would hope) a reasoned decision by the draftsmen that that section should not be construed as requiring payment solely to the employee. [We can debate at some other point whether it is sensible that decisions of this potential financial significance are made on the basis of what statutory provisions don’t say rather than what they do – the ERA has 245 sections covering a wide variety of topics and it is tempting to conclude that some omissions relative to other sections on other points are just omissions and do not necessarily signify any conscious thought process of that type. Anyway, another day].

Yes but so what?

This decision will affect employers facing unfair dismissal claims where the claimant’s base salary is below the current statutory cap for unfair dismissal compensation of £80,541, i.e. where the calculation of a week’s pay becomes relevant. It will also increase the basic award where the employee earns less than the statutory cap of £489/week and all other awards based on the s221 definition such as the 8 weeks’ pay for a flexible working rules breach, etc.

However, both the compensatory and basic unfair dismissal awards are capped, so the additional cash for ex-employees with salary/pension entitlement totals below those caps may be limited. Of potentially greater significance is the impact of this decision on protective awards. Employers which fail to inform and consult under TUPE or in a redundancy process under the Trade Union and Labour Relations (Consolidation) Act 1992 will also be affected by this decision. Depending on the number of affected employees, the generosity of the pension provision and the size of protective award made up to the 13 week maximum, the increases generated by this decision in the amounts payable in either circumstance could be substantial. If you take a 10% employer pension contribution and go down for the full 13 weeks, for example, that is well over an extra week’s salary per head.

The Fair Labor Standards Act (“FLSA”) provides that employers ordinarily must pay their non-exempt employees at least the federal minimum hourly wage of $7.25.  However, employers may pay “tipped employees” as little as $2.13 per hour if they regularly earn more than $30 per month in tips, and then make up the difference between the tipped employee’s lower hourly rate and the federal minimum wage via a “tip credit” made up of the tips earned by their tipped employees.  (Note that applicable state laws may require a higher hourly rate, even when applying the tip credit.) 

The Department of Labor (“DOL”), charged with enforcing the FLSA, has issued interpretative regulations regarding the “tip credit.” Employees who perform more than one job for a single employer, where one or more of the jobs does not regularly result in the payment of tips to the employees, are referred to as holding “dual jobs.” The FLSA regulations prohibit employers from using the tip credit to reduce such an employee’s hourly rate below the statutory minimum wage when they are performing non-tipped jobs.  By way of example, the regulation provides that a hotel employee who works as both a restaurant server and maintenance person, and who meets the minimum $30 per month tip requirement when working in the restaurant, may not be paid the lower “tipped employee” hourly rate when performing the maintenance job, which is not a tip-earning position.  By contrast, the regulation suggests a server who occasionally performs side duties during their worktime as a server, such as cleaning tables or filling salt dispensers, is not employed in “dual jobs,” because the side duties are related to the tip-originating job duties.

In a recent consolidated case, Marsh v. J. Alexander’s, brought by a group of former servers and bartenders against several former employer restaurants, the plaintiffs argued they worked “dual jobs” and were not paid the full minimum wage when performing non-tipped job duties, such as cleaning bathrooms or soda dispensers.  In support of this argument, plaintiffs relied upon the DOL’s Field Operation Handbook (“FOH”), which states that employees who spend 20% or more of their time performing duties that are not specifically designed to originate tips are performing “dual jobs,” and must be paid the full minimum wage when performing such duties.   The FOH does not have the effect of law or regulation, but courts often rely upon guidance issued by an agency charged with enforcing a law when that law is found to be ambiguous.

In Marsh, however, the Ninth Circuit found that it was not required to defer to the FOH interpretation of “dual jobs” because the interpretation was inconsistent with the regulation, which was clear on its face.  The Ninth Circuit reasoned that the regulation refers to situations in which employees perform completely separate jobs, while the FOH would require employers to parse job duties performed by an employee while acting in a single job and pay them differently depending on which duties they perform during their shifts.  The Ninth Circuit found this to be an unwieldy, impractical approach unintended by the “dual jobs” regulation.  Accordingly, the Ninth Circuit held that the FOH was essentially an improper, backdoor attempt to make a new “de facto regulation” without going through the proper channels that include notice and public comment.  The Ninth Circuit acknowledged it created a split among the circuits with this decision; previously, the Eighth Circuit Court of Appeals considered the same issue but found the FOH was entitled to deference because the “dual jobs” regulation was ambiguous.  The Ninth Circuit remanded the consolidated cases back to the trial court to allow plaintiffs to amend their complaint in light of the Ninth Circuit’s opinion.

For now, employers in the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam, N. Mariana Islands) can comfortably rely on the definition of “dual jobs” set forth in the FLSA regulations and not the more restrictive FOH definition, and continue to apply a tip credit to tipped employees who occasionally perform non-tipped duties.

On Friday, January 5, 2018, the United States Department of Labor (“DOL”) issued a statement that it will no longer follow its six-factor test in determining whether an individual is a non-employee intern (rather than an employee) under the Fair Labor Standards Act (“FLSA”), and instead will apply a broader analysis commonly referred to as the “primary beneficiary” test.  Four federal circuit courts of appeal, including most recently, the Ninth Circuit, have already adopted this test. 

Under the DOL’s prior test, a for-profit employer had to meet all of the following six factors to properly classify an individual as an intern and thereby avoid the FLSA’s minimum wage and overtime compensation requirements as to that individual:

1. The internship, even though it includes actual operation of the facilities of the employer, must be similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern and not the employer;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Many courts believed this test was too rigid, particularly the requirement that the employer derive no immediate advantage from the intern’s activities.  The Second, Sixth, Ninth, and Eleventh Circuits have held that the six-factor test fails to take into account economic realities, and that the intern analysis should focus on who is the primary beneficiary of the relationship – the employer, or the purported intern.

In conjunction with its statement announcing its new policy, the DOL issued a Fact Sheet that articulates seven factors to be considered under the primary beneficiary test.  However, none of these factors are mandatory; rather the DOL states each situation must be determined on a case-by-case basis.

The DOL indicated it would be updating its field guidelines to reflect the new test, which will allow DOL investigators to analyze each situation “holistically.”  The DOL’s policy is effective immediately, however, employers should note that this agency guidance does not have the force of law, and some jurisdictions where the federal courts that have not formally adopted the primary beneficiary test may vary in their interpretations of the intern exception to the FLSA.

On January 5, 2018, the Wage and Hour Division of the U.S. Department of Labor (DOL) reissued 17 advisory Opinion Letters that were published during the final months of former President George W. Bush’s administration, but were subsequently rescinded by the Obama administration.  Opinion Letters do not establish new law, but instead are vehicles through which employers can ask the DOL for formal answers to specific compliance questions pertaining to the Fair Labor Standards Act (FLSA) and for the DOL to provide guidance to employers on a wide range of topics regarding oftentimes complex or perplexing wage and hour issues.  Opinion Letters are intended to be “fact-specific” based on the facts presented in the individual inquiry, but the information set forth in them provide valuable insight into how the DOL interprets specific provisions of the FLSA.  These interpretations are frequently cited by courts when resolving FLSA lawsuits.  The Obama DOL had discontinued the practice of issuing Opinion Letters in favor of publishing more (and less helpful) Administrator Interpretations.

The reinstated letters cover a wide variety of topics.  Many of the reissued Opinion Letters concern the exempt status of specific job positions in specific industries under section 13(a)(1) of the FLSA, as defined in the Part 541 of the Code of Federal Regulations.  For example, some address questions about the exempt status of civilian helicopter pilots, client service managers of an insurance company, residential construction project supervisors and consultants, clinical coordinators, and business development mangers of a healthcare placement company.  Of broader relevance, however, two of the reinstated Opinion Letters address inquiries about the salary basis test for exempt status, as defined in 29 C.F.R. § 541.602.  Also of note is a reinstated Opinion Letter addressing on-call scheduling – FLSA2018-1 – in which the agency concluded that on-call hours of employees of an ambulance service are not compensable under the FLSA.

Other topics included in the reissued Opinion Letters include whether certain bonuses or other payments should be included in calculating employees’ regular rates of pay pursuant to section 7(e) of the FLSA, whether a plumbing repair and service business qualifies as a retail or service establishment exempt from overtime under section 7(i) of the FLSA, and whether a non-profit company and for-profit company are joint employers of volunteers of the non-profit.  For a complete list of the re-issued Opinion Letters, see here.

Employers should take appropriate steps to ensure they are in compliance with reissued Opinion Letters.

Information on how to request an Opinion Letter from the DOL can be found on the DOL’s website, including what to include in an Opinion Letter request, and where to submit an Opinion Letter request.    It is unlikely, however, that the DOL will issue any new Opinion Letters until the currently vacant Wage and Hour Division Administrator is in place.

Uber, Lyft, Airbnb, Postmates, DoorDash.  All are companies participating in what has been labeled the “gig economy,” where tasks are performed by workers on a short-term or freelance basis rather than through long-term or permanent employment.  As more people participate in this new, mostly smartphone application or Internet-based work model, litigation has followed centering on whether those performing the work are independent contractors or are employees.  The ramifications of gig workers being classified as employees rather than contractors are substantial; not only would it likely upend the economic model of most gig economy businesses, classifying gig workers as employees would mean that federal, state, and local employment laws – such as those relating to minimum wage, overtime compensation, workers’ compensation, protection against discrimination, tax withholdings, etc. – would apply where, as of now, they currently do not.

In one of these cases involving the employee versus independent contractor issue, a California federal judge ruled on February 8, 2018 that drivers for GrubHub, Inc. – a restaurant meal delivery service – are independent contractors and not employees.  The ruling in Lawson v. GrubHub Inc., No. 15-cv-05128, U.S. District Court, Northern District of California, is being hailed as an important victory for gig economy companies.

In this case, the judge ruled for Grubhub largely because the question of whether the plaintiff, Lawson, was an employee turned on how much control GrubHub exerted over the work life of its drivers.  The company argued that Lawson decided when, where, and how frequently he performed door-to-door deliveries, and thereby controlled not only when he worked, but also how much he earned.  Mr. Lawson alleged that GrubHub misclassified him as an independent contractor in violation of California’s minimum wage, overtime, and expense reimbursement laws.  The judge however found that although some factors weighed in favor of concluding that Lawson was an employee of GrubHub, the balance of factors weighed against an employment relationship, concluding that Lawson was instead an independent contractor.

The court’s decision was guided by the California Supreme Court’s multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989), which focuses on “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”  Among other things, the court found that Grubhub did not control how Lawson made the deliveries he decided to make or even his appearance when providing delivery services.  GrubHub also did not require Lawson to undergo any training nor did it control when or where Lawson worked – that is, Lawson had complete control of his schedule and territory.  And, Grubhub did not control how or when Lawson delivered the restaurant orders he chose to accept.  Whereas GrubHub controlled some aspects of Lawson’s work, such as determining the rates he would be paid, the court gave those minimal weight.  The court concluded that “the right to control factor weighs strongly in favor of finding that Mr. Lawson was an independent contractor.”

The celebration by California gig economy companies may however be short-lived.  The California Supreme Court is expected to rule soon in a pending employment case in a way that is likely to upend the Borello standard.  Two days before Judge Corley ruled in Grubhub, the justices of the state’s high court heard argument in Dynamex Operations v. Superior Court of Los Angeles concerning whether to replace the Borello standard with a test that would make it easier for workers to show that they are employees rather than independent contractors.  The anticipated ruling will be significant for any entity using independent contractors in California and may have broader implications to other companies whose business models are built on pairing customers with products and services through smartphone or Internet-based platforms.  For now, employers should be aware that there is not one factor to determine independent contractor status, but that the court will look at a combination of factors, which ultimately come down to the level of control an employer exerts over the worker.

On March 6, 2018, the U.S. Department of Labor (“DOL”) announced a new, nationwide pilot program which it claims will facilitate quick and efficient resolutions of Fair Labor Standards Act (“FLSA”) minimum wage and overtime violations by allowing employers to promptly pay back wages to employees and at the same time avoid time consuming litigation and fines.  Cleverly named the PAID program (which stands for Payroll Audit Independent Determination), it will permit employers to self-report if they believe they have made errors in wage payments to employees under the FLSA.  The DOL’s Wage and Hour Division will then assess the potential violations to determine how much the employer owes in back wages, and oversee the payments to any current or former employees to whom these payments are owed.

Under the program, employers will be expected to pay 100% of all outstanding wages owed.  In other words, the PAID program does not provide an opportunity for employers to reach a compromise with employees on disputed wage claims.  However, employers who participate in the program and resolve outstanding underpayments will be exempt from paying liquidated damages (which under the statute are an amount equal to the wage underpayment), penalties, and attorneys’ fees, which can often result from an enforcement action for FLSA violations.

Wage underpayments that are resolved through the PAID program will be considered final, and employees who elect to participate will be required to waive their rights to private legal action for the period of time addressed by the program.  (There remains an open issue, however, as to whether the waiver will be as to all potential back pay claims, including those that could be brought under state law, or only under the FLSA.)  However, employees are not required to resolve their wage underpayments through the PAID program, and they may choose to forgo any payments offered and thereby retain their private right to action against the employer (including any right to penalty payments).  Furthermore, participation in the program will not foreclose a subsequent DOL investigation into an employer’s pay practices for other periods of underpayment not resolved through the program.  Wage claims already subject to threatened or existing litigation, or under DOL investigation, may not be resolved through the PAID program, however, those employers may self-report about other potential violations not involved in those disputes.

Critics of the program express concern that employees will not get their statutorily-owed remedies, however, the DOL counterargument is that the PAID program serves to encourage employer compliance with the FLSA and ensure employees are promptly paid all wages owed.  Secretary of Labor Alexander Acosta emphasized the PAID program serves to encourage employers to remedy existing underpayments to their employees, who without this program have no way of ensuring such resolutions without risking the potential of a legal battle and significantly more expense.

The program is only temporary at this point; it is set to last, initially, for just six months.  At the end of this period, the DOL has said it will evaluate the program’s success and determine whether to continue it in the current or some modified form in the future.  The program does not have an official start date, but check back here on our blog for updates once the DOL releases additional information.  You may also subscribe here to receive email updates directly from the DOL.

As we blogged earlier this year, in March 2018, the United States Department of Labor (DOL) announced a new program, referred to as PAID (or, Payroll Audit Independent Determination), under which employers may voluntarily apply for DOL assistance in resolving potential claims for wage underpayment under the federal Fair Labor Standards Act (FLSA).  As previously discussed in our blog post, this pilot program will last six months, during which time the DOL will analyze how well the program meets the DOL’s desired goals, which include seeking to resolve wage claims faster, more thoroughly, and more cost effectively. 

The DOL began accepting applications for the program on April 3, 2018.  Also on that date, the DOL posted additional details on its website about the program.  Some of the key points are:

• The application process begins on the DOL website and requires employers to first participate in an on-line review of FLSA compliance materials. To gain access to these materials, employers must provide identifying information, including company name.
• The DOL states that applicants not accepted into the program will not become subject to DOL investigation as a result of the information provided in the application unless there is a “health or safety risk.”
• The DOL anticipates applicants will have a final claims determination within 90 days. Any employees to whom the DOL determines back wages are due must be paid by the end of the employer’s next pay period following the determination.
• Any back wages owed to former employees that cannot be located will be sent to the United States Treasury.
• Employers who participate in PAID but choose to privately resolve any related wage claims outside of the DOL process will not be able to obtain effective waivers of those employee’s FLSA claims, as such waivers require DOL approval.
• Employers cannot resolve state wage claims simultaneously through PAID but may seek to resolve those claims separately with each employee.
• Records pertaining to the PAID program, including applications and resolution documents, are not confidential and may be subject to the same Freedom of Information Act requests (and defenses) as other DOL investigation documentation.

Despite these clarifications, many employers are understandably wary about participating in the PAID program.  As we mentioned previously, employees are not required to accept wage payments offered by employers through the PAID program, and may instead choose to pursue their federal claims in court, and thereby seek additional financial remedies.  Employers also are concerned that notification to employees of past federal wage law violations may trigger mirrored claims against them under applicable state laws, which may have longer statutes of limitations than the FLSA’s two-year or three-year filing periods (e.g., state wage claims in New York and California, respectively, have six-year and four-year limitations periods).  In any event, employers are advised to consult with legal counsel before engaging in an internal wage audit, which will help ensure the audit’s accuracy, legality, as well as allow employers to seek privileged legal advice on these issues.

On July 26, 2018, the California Supreme Court ruled in Troester v. Starbucks Corporation that the federal de minimis doctrine does not apply to a California employee’s class action wage claims.  This ruling will have widespread impact, particularly on those employers with large numbers of non-exempt employees such as retailers and food service providers, as employers are now required to pay employees for even the small amounts of time spent on incidental work that occurs prior to clocking in or after clocking out.

The employee in Troester, a non-exempt Starbucks supervisor, argued that Starbucks should pay him for the roughly 4 to 10 minutes each day he spent on tasks related to closing the store after clocking out.  These tasks included activating the alarm, exiting the store, locking the front door, walking coworkers to their cars pursuant to Starbucks’ safety policy, and other occasional tasks such as letting an employee back into the store to retrieve a forgotten item.  The Court noted that over the 17 month period of employment, Troester’s time spent performing these unpaid tasks totaled approximately 12 hours and 50 minutes or about $102.67 in lost wages.

Starbucks argued that the federal Fair Labor Standards Act’s de minimis doctrine applied to this case and excused Starbucks’ nonpayment of wages for these small amounts of otherwise compensable time.  The Court first rejected Starbucks’ argument, finding that the Labor Code and the Industrial Welfare Commission’s (IWC) wage orders had not adopted the federal de minimis doctrine.  In support of its findings, the Court pointed to the language contained in these statutes and regulations which emphasize that hours worked includes “all the time the employee is suffered or permitted to work.”  By emphasizing that it includes “all” time, the Court found that California law is more protective than federal law when it comes to payment of wages.

Second, the Court rejected Starbucks’ argument that the Court should recognize the de minimis rule in light of the fact that it is part of the “established background of legal principles” upon which the Labor Code and IWC wage orders have been enacted.  In its ruling, the Court found that the Labor Code and the IWC wage orders are clearly concerned with small amounts of time given that employees receive 10 minute rest breaks.  Along with this observation, the Court noted that it implicitly rejected a de minimum intrusion of such time in Augustus v. ABM Security Services, Inc.  The Court also found support for its holding because the IWC wage orders amended its language demonstrating an intent to depart from the federal standard for waiting time and other forms of travel time.  The federal Portal-to-Portal Act relieves employers from paying minimum wages or overtime for certain activities such as walking to the actual place of performing the principal activity for the employer and other preliminary or postliminary activities.  In response, the IWC amended its wage orders such that hours worked included these activities.  In doing so, the Court found that the IWC intended for employers to pay employees for these small amounts of time.  Finally, the Court noted that the modern availability of class action lawsuits and technology advances in employer timekeeping methods both undermine the de minimis doctrine.

This case will spark a new wave of California class action lawsuits focusing on those previously uncounted minutes and perhaps even seconds of time worked by an employee.  With this risk of increased exposure, employers should review their timekeeping policies and procedures.  Employers should also analyze each non-exempt employees’ duties and responsibilities and minimize the risk of any off-the-clock work.

On August 28, 2018, the Wage and Hour Division of the United States Department of Labor (“WHD”) issued four new opinion letters interpreting various aspects of the federal Fair Labor Standards Act (“FLSA”).  In addition, the WHD has announced plans to analyze and consider changes to the FLSA’s white collar overtime exemption regulations applicable to executive, administrative, professional, and outside sales employees.  To support this effort, the WHD has scheduled five public listening sessions in various locations across the country (a list of which you can find here), which it invites the public to attend and provide comment.   The key questions to be addressed at these sessions surround the pros and cons of adjusting the salary basis – the salary level employees must meet in order to be deemed exempt under the white collar overtime exemptions.   We will be sending representatives and encourage you to contact us with any questions or feedback you would like us to raise at these sessions.

Regarding the opinion letters, as you may recall from our prior blog posts (for example, here and here), the WHD resumed issuing opinion letters in mid-2017.  Opinion letters are official written interpretations of the FLSA, as those laws apply in specific factual situations.  Although the opinion letter topics are generally brought to the WHD by a specific person or entity, as you will see from below, many of the situations they present have broader applicability to a range of employers.  Keeping abreast of the WHD’s opinions can help employers avoid the pitfalls embedded in the nuances of the laws it enforces.  Below is a summary of these new opinion letters, and a link their text:

• Voluntary employer-sponsored wellness events not compensable time under the FLSA. Employees who voluntarily participate in employer-sponsored wellness activities, such as biometric screening, health and gym classes, or benefits fairs that are designed to lower an individual employee’s health insurance policy premiums and provide other benefits to employees that does not relate to the performance of their job, and from which the employer obtains no financial benefit, predominately benefit the employee, therefore they are not compensable work time under the FLSA.
• Non-profit professional credentialing organization graders are “volunteers” under the FLSA. A non-profit organization who administers professional exams necessary for professional credentialing selects a group of its credentialed members to serve as exam graders for a period of 1 or 2 weeks, whereby they travel to testing locations to perform these services.  The organization pays the direct expenses related to the graders’ travel.  Graders report they perform the services willingly in the effort to give back to their professional community and to the credentialing organization.  Under the FLSA, individuals who provide services to non-profit organizations may be properly classified as volunteers if they offer their services willingly without any expectation of compensation, free from any coercion or undue pressure.  Under the circumstances presented by the credentialing organization employer, exam graders meet this standard and can be unpaid volunteers.
• Internet payment software platform sales employees may be exempt from FLSA overtime. Employees may not be entitled to overtime if they 1) work in retail or service establishment, 2) earn a regular rate of pay that is more than 1 ½ times the applicable minimum hourly wage in a given workweek in which they work overtime, and 3) derive more than half of their earnings from sales commissions.  This is known as the “retail and service establishment” exemption to the FLSA’s overtime provisions.  The WHD found that an employer whose business is selling internet payment software platforms to retailers and others who sell products online, was considered a “retail sales entity” because it sold its platform directly to the user, in small quantities, for the user’s own use in business, rather than re-sale (such as wholesale sales).  This was not changed by the fact that the employer’s sales are made predominately online.  Accordingly, the organization’s employees who meet the earnings requirements above may be exempt from overtime.
• Movie theater overtime exemption applies to in-theater-restaurants. The FLSA exempts from overtime all employees of establishments that are primarily engaged in the exhibition of motion pictures (the WHD defines “primarily engaged” to mean at least 50% of the available operation time is spent showing movies).  The exemption applies to all employees of a qualified establishment, regardless of the work they perform.  This recent opinion letter clarifies that movie theaters with in-theater dining, and even some with onsite, full-service restaurants, may qualify for the movie theater exemption if the food service is “functionally integrated” with the theater operations.  Based on the facts presented in the letter, movie theaters with in-theater dining will qualify for this exemption if the food service and theater operations share common:  1) physical premises without a distinct barrier or separation; 2) business, financial, and other record keeping, such as entity name, taxes, and payroll; and 3) employees, and their primary source of revenue is showing movies.

For years – spanning two Presidential administrations – employers have been awaiting long-anticipated updates to the overtime exemption regulations to the Fair Labor Standards Act (FLSA).  Since 2004, to be exempt from the FLSA’s overtime compensation requirements under the so-called “white collar” exemptions (e.g., executive, administrative, professional employees), employees must be paid on a salary basis at least $455/week as well as perform specific, defined exempt duties.  In 2016, during the latter stages of the Obama administration, the Department of Labor announced that it was implementing new regulations that would raise the salary threshold requirement to $913/week, a substantial increase that would have resulted in as many as four million exempt workers being reclassified to non-exempt overnight.  But on November 22, 2016, shortly after the Presidential election, a federal district court judge in Texas enjoined the new salary threshold rule and, despite some further (and still ongoing) appellate skirmishing, effectively invalidated its implementation.

Since then, employers have looked to the present administration wondering whether, when, and to what extent the FLSA regulations may change.  After much speculation, the Department of Labor released on March 7, 2019 a proposed rule to amend the overtime regulations.  Under the proposed rule, workers who earn less than $679 per week ($35,308 per year) would be automatically eligible for overtime for all hours worked beyond 40 hours per workweek.  This is an increase from the current threshold, but not as high as the threshold proposed by the Obama administration.  Further, the salary threshold would be revisited every four years through new proposed rulemaking, rather than subject to an automatic annual lockstep increases as the Obama administration had endorsed.

The new proposed threshold incorporates methodology used in 2004, under the Bush administration, for determining which workers should, based on wages alone, be treated as overtime-eligible, but has been adjusted to reflect current average wages.  Because the methodology has survived scrutiny for so many years, the new proposed rule may be less susceptible to judicial challenge for overreach than the Obama-era proposal.  And, although not as sweeping as the prior proposed rule, if enacted, the amended regulations may result in as many as one million workers becoming overtime-eligible.  There is no anticipated change to the duties tests, so reclassification – if any – will be based on salary alone.  After a period of notice and comment rulemaking, a final version is expected shortly before the 2020 election.  We will continue to update you as the rule advances and if and when it is adopted, along with advice on how to implement cost-effective business solutions to minimize the added costs associated with this change.

Minimum Wage Updates

On January 17, 2019, New Jersey’s governor and state legislators agreed to a deal that will raise the state’s minimum wage to $15.00 by 2024. The current minimum wage in New Jersey is $8.85 an hour.  Under the new law, the state’s minimum wage will increase to $10.00 an hour on July 1, 2019, and to $11.00 on January 1, 2020, with a steady one-dollar increase occurring every January 1 until 2024.

In addition, on February 19, 2019, Illinois’s governor signed a law that will raise the state’s minimum wage to $15.00 by 2025.  The current minimum wage in Illinois is $8.25 an hour, but under the new law it will increase to $9.25 an hour on January 1, 2020, and $10.00 on July 1, 2020. The minimum wage will then increase by one dollar per year every January 1 until 2025

Further, the City Council of Fremont, California unanimously voted to increase its minimum wage to $15.00 per hour by July 1, 2020 for employers with more than 26 employees and July 1, 2021 for employers with 25 of fewer employees.  Similarly, Pasadena, California’s City Council voted to raise the city’s minimum wage to $15.00 an hour by July 1, 2020 for larger employers and July 1, 2021 for smaller employers.

Lastly, on March 1, 2019, the minimum wage in both the city and county of Santa Fe, New Mexico increased to $11.80 per hour.

Michigan Paid Sick Leave

As we previously reported here, Michigan’s new Paid Medical Leave Act is scheduled to go into effect soon.  Employers with non-exempt employees working in Michigan have until March 29, 2019 to get their policies and recordkeeping systems ready for the new law.

New York City Prohibits Hair Discrimination; Requires Employers to Provide Lactation Room  

The New York City Commission on Human Rights recently released legal enforcement guidance regarding race discrimination on the basis of hair. The guidance specifies that New York City employers with four or more employees cannot discriminate against Black employees by prohibiting “twists, locs, braids, cornrows, Afros, Bantu knots, or fades which are commonly associated with Black people.”  Further employers cannot have grooming policies that require employees to alter the state of their hair to conform to the company’s appearance standards (including requiring employees to straighten or relax their hair), and policies cannot ban hair that extends a certain number of inches from the scalp, thereby limiting Afros.  Covered employers that choose to enact grooming or appearance policies should be aware that they cannot prohibit or discourage such hairstyles, either explicitly or implicitly, and cannot discriminate against and/or harass Black employees based on their hair texture or hairstyle.

As we previously mentioned here, effective March 18, 2019, New York City employers with four or more employees must provide a sanitary “lactation room” for employees needing to express milk.  The room cannot be a restroom, and both the lactation room and a refrigerator suitable for breast milk storage must be within a close proximity to the work area of the employee using it.  The lactation room must have an electrical outlet, a chair, a surface on which to place a breast pump and other personal items, and nearby access to running water. Further, by the same date, covered New York City employers must implement a written lactation accommodation policy, which must state that employees have the right to request a lactation room and identify the process for requesting a lactation room.

New Jersey Expands Employee Leave and Benefits Laws

On February 19, 2019, New Jersey’s governor signed Assembly Bill 3975, which significantly broadens the reach of the New Jersey Family Leave Act (“NJFLA”) and the New Jersey Temporary Disability Benefits Law (“NJTDBL”). This new law imposes additional obligations on smaller employers who were previously exempt from the NJFLA.  Moreover, the law amends the state’s Security and Financial Empowerment (“SAFE”) Act by granting paid family temporary disability leave benefits for covered time off involving domestic and sexual violence.

The new law extends coverage of the NJFLA to employers of 30 or more employees beginning June 30, 2019 (previously only covered employers with 50 or more employees).  Additionally, the following changes to the NJFLA are effective immediately:

• The law expands the once restrictive definition of “family member” to also include parent-in-law, sibling, grandparent, grandchild, domestic partner, or any other blood relative as well as any other individual with which the employee has a close, family-equivalent relationship; the new definition matches that in other New Jersey leave laws;
• The law revises the definitions of “family leave,” “child,” and “parent” to provide broader protections for foster parents and people who become parents through a gestational carrier;
• The law broadens the leave period for employees taking reduced-schedule FLA leave from 24 consecutive weeks to 12 consecutive months; and
• The law requires employers to allow employees to take intermittent leave for birth or adoption of a child, placement of a foster child or the birth of a child via a gestational carrier.

Further, the new law expands the monetary benefits that are available under the NJFLA and the NJTDBL for leaves beginning on or after July 1, 2020. First, the law will increase the number of weeks for which benefits are available from 6 to 12 weeks in any 12-month period, and will increase the amount of intermittent leave available for covered employees from 42 to 56 days. In addition, employees who take leave under the NJTDBL will be entitled to 85% of their average weekly wage, subject to a maximum of $860 per week.

Finally, as the new law provides for penalties for failure to post required notices and provides money for public outreach to inform employees of their rights, New Jersey employers should promptly review and update their leave policies to comply with these new requirements.

On March 4, 2019, a federal court issued an order lifting the stay implemented by the White House Office of Management and Budget (“OMB”) regarding the pay data collection component of the EEO-1 report, holding that the OMB failed to demonstrate good cause for the stay.

As we previously reported here, in 2016, the U.S. Equal Employment Opportunity Commission (“EEOC”) changed the pay data reporting requirements under the EEO-1 report, requiring employers with 100 or more employees to annually report employees’ IRS Form W-2 compensation information and hours worked.  However, in 2017, following President Trump’s election, the OMB indefinitely stayed the deadline for employers to comply with the Obama-era revisions to the EEO-1 form, pending review of the potential burdens of such data collection under the Paperwork Reduction Act. (See our prior post here).

The stay remained in place until Judge Chutkan of the U.S. District Court for the District of Columbia released her March 4 order rejecting the OMB’s decision to stay the pay data collection requirement.    The court reasoned that the OMB failed to prove either that relevant circumstances regarding the data collection had changed, or that the original burden estimates were materially in error.  Further, the court held that the stay was arbitrary and capricious.  Therefore, the judge ordered that “the previous approval of the revised EEO-1 form shall be in effect.”

The order leaves many open questions concerning how or when employers will be required to respond.  The EEOC’s EEO-1 survey will open on March 18, 2019, and the deadline to submit EEO-1 data has been extended to May 31, 2019.  It is still unclear whether the EEOC will require employers to submit the pay data information on that deadline, or if the pay data reporting will begin in a future filing cycle.  Also, an appeal of the judge’s order lifting the stay is likely, and with that appeal could come a reinstatement of the stay.  As this issue is ongoing, we will keep you updated as more developments arise.

On March 28, 2019, the United States Department of Labor (“DOL”) issued a Notice of Proposed Rulemaking announcing proposed updates to the rules that govern how employers calculate overtime payments under the Fair Labor Standards Act (“FLSA”).  As a reminder, the FLSA requires employers to pay additional compensation to non-exempt employees for work that exceeds forty hours in a work week.  Overtime is paid at a rate of time-and-one-half, usually using an employee’s “regular rate” of pay.  The “regular rate” is a statutorily-defined term that includes all forms of remuneration paid by the employer in exchange for employment, subject to certain exclusions set forth in 29 CFR Part 778.  The DOL’s last comprehensive update to this rule was in 1968.  The DOL’s proposed changes seek to clarify the regular rate exclusions in the context of today’s workplace and thereby encourage employers to provide additional benefits to their employees.

The proposed changes include clarification that the following are properly excluded when computing an employee’s regular rate of pay (and therefore are not factored into that rate when computing the 1.5x overtime rate):

• An employer’s cost of providing wellness programs (g., health risk assessments, biometric screenings, vaccination clinics, nutrition and weight loss programs, smoking cessation programs, and health coaching); onsite specialist treatments (e.g., chiropractors, massage therapists, personal trainers, counselors, EAPs, or physical therapists); gym and fitness memberships; and employee discounts on the employer’s goods and services
• Payments to employees for unused paid leave, including paid sick leave (whether such payments are made in the pay period in which the employee forgoes the leave or in some other pay period in a lump sum)
• Reimbursed business expenses that are incurred for the mutual or combined benefit of employer and employee (versus, those “solely” for the employer’s benefit)
• Reimbursed business travel-related expenses, such as flights and living expenses, that meet certain regulatory requirements
• Discretionary bonuses, when not expected regularly
• Tuition reimbursement and debt repayment programs
• Payments for bona fide meal periods, which are not considered hours worked unless agreed upon by the parties

The proposed rule changes also include additional examples of the types of employee benefit plans that would be excluded from the regular rate calculation, such as accident, unemployment, and legal services, provided these benefits meet other regulatory requirements of an excluded “benefit plan.”  The Department’s notice specifically invites comment on this modification to determine whether other types of benefit plans should be included as examples.  Note, however, that the proposed changes also include a new statement that examples provided in Part 778 (both old and new) are not an exhaustive list of permissible or impermissible exclusions from overtime rate calculation.

The proposed changes additionally include a revision to the section excluding “show up” pay (i.e., pay made in addition to pay for hours worked when the employer provides less than a set minimum number of work hours), “call back” pay (i.e., additional compensation paid to employees for showing up to work to perform extra work after regularly scheduled hours have ended), and similar types of pay.  This change would replace the requirement that such categories of work hours be “infrequent and sporadic,” with the statement that they must simply be “without prearrangement.”

The public may submit comment at www.regulations.gov until May 28, 2019.  We will keep you apprised of any modifications to this process or the dates for comment.

Expanding on their previous post on the subject, on April 3, 2019, Law360 published the following article authored by Squire Patton Boggs labor and employment attorneys Laura Lawless Robertson and Melissa Legault.

The U.S. Department of Labor recently issued a trio of opinion letters offering employers guidance in implementing the Family and Medical Leave Act and the Fair Labor Standards Act.

The letter with the broadest application to U.S. employers is FMLA2019-1-A which deals with the issue of whether an employer may delay the designation of FMLA-covered leave, and whether employers can expand FMLA leave beyond an employee’s 12-week (or in the case of military caregiver leave, 26-week) entitlement.

The opinion letter is intended to address a frequently occurring scenario in which an employee who has accrued paid time off anticipates an upcoming leave of absence for an FMLA-qualifying reason (e.g., his or her own serious health condition, their spouse, child, or parent’s serious health condition, birth or placement of a child for foster care or adoption) and wants to take off more than the presumptive 12 weeks he or she is allowed under the FMLA.

The employee notifies the employer that she plans to exhaust her accrued PTO bank first for what is unquestionably an FMLA-qualifying absence, and only when that bank of time has run out does she want her 12 weeks of FMLA leave to begin. Depending on the employer’s policy on PTO accrual, carryover and the employee’s prior PTO usage, this could result in an absence considerably longer than the already-challenging 12-week absence the FMLA anticipates. Put in this position, well-meaning employers may permit the employee’s consecutive use of PTO and FMLA-covered leave, electing to defer the designation of FMLA leave until after the employee has drained her PTO bank.

The DOL rejected this practice in FMLA2019-1-A, finding that the deferred designation of time off as FMLA-qualifying interferes with employees’ rights under the act. Although the DOL confirmed that an employer may require, or an employee may elect, to substitute accrued paid leave to cover any part of an unpaid FMLA leave, the DOL clarified that the substitution-of-paid-leave option is not intended to permit employees to take paid and unpaid leave consecutively, but rather that paid leave, if available, must run concurrently with unpaid FMLA leave.

Although this may seem paternalistic — the DOL substituting its wisdom for that of generous, well-meaning employers — the rationale is that delaying the start of FMLA leave may ultimately disadvantage employees. During the period in which such employees exhaust their PTO banks, they lack the job-restoration and other substantive protections of the FMLA. Therefore, the DOL requires that employers designate leave as FMLA-qualifying as soon as the employer becomes aware of the basis for the FMLA-qualifying leave and give notice of such designation to the employee within five business days thereafter. Employers must be vigilant to make the correct designation quickly so that employees partake in the full measure of the act’s protections as soon as they are eligible for and entitled to leave, and must count time off for covered reasons against the employee’s annual FMLA leave allotment.

The DOL further opined that an employer may not treat more than 12 (or in the case of military caregiver leave, 26) weeks of time off as “FMLA-qualifying.” The letter explains that the 12- and 26-week limits constitute a congressional mandate reached after balancing the various interests of business and employee-advocacy groups, and employers are not free to dispense with the minimum or maximum limitations that the FMLA leave allotment represents simply because they choose to offer more generous PTO policies. Therefore, while nothing in the letter discourages providing employees with PTO, the DOL does express its clear intent that FMLA-qualifying job-protected time off from work is limited to 12 (or 26) weeks — nothing more, nothing less.

For employers in the Ninth Circuit (those in Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Northern Mariana Islands, Oregon, and Washington state), the opinion letter marks a sharp departure from a 2014 decision, Escriba v. Foster Poultry Farms Inc. (743 F.3d 1236, 1244 (9th Cir. 2014)).  In that case, the U.S. Court of Appeals for the Ninth Circuit held that an employee who declined to take FMLA leave to visit a sick parent and instead specifically requested vacation time was not covered by the FMLA’s protections, regardless of the impetus for her request for time off, and therefore the employer did not err when it refused to reinstate her to her prior position when she returned from her visit.

The takeaway from Escriba was that an employee may decline to use FMLA leave, even when she has put her employer on notice that the requested time off is for an FMLA-qualifying reason, in order to preserve FMLA leave for future use, but she does so at her own risk. After this recent DOL opinion letter, employees may not defer time off, at least according to the DOL; rather, employers must designate leave as FMLA-qualifying leave once they are on notice. Although the opinion letter does not have the force of law so as to reverse the Ninth Circuit’s opinion, employers in the Ninth Circuit should be cautious that a court revisiting this issue may defer to the DOL’s guidance on this subject.

Managers should be alerted to the DOL’s position and reminded that any requests for time off for health or family reasons should be escalated to human resources to ensure that requests are treated consistently. As a practical matter, savvy employees may simply keep their reasons for using PTO to themselves so that they can take serial PTO and unpaid FMLA leaves, but if they do disclose the reason, companies should act promptly to make the proper designations.

Having said that, employers should not read this opinion letter to mean that their responsibilities to employees end after 12 weeks. They must still be mindful of their obligation under the Americans with Disabilities Act and analogous state law to provide additional leave when requested as a reasonable accommodation if doing so would not present an undue burden and would enable the employee to perform the essential functions of his or her job.

The DOL also released two additional opinion letters, though on narrower topics related to the FLSA. The first FLSA-related opinion letter, FLSA2019-2, discusses whether participation in an optional community service program should be treated as compensable time when participation may result in the award of a bonus.

The employer implemented a voluntary community service program. Employees were in no way required to participate, but could do so during working hours (for which they would be paid) or outside business hours (for which they would not). The employee teams that did the volunteer work with the greatest community impact were awarded a bonus and the team’s manager could distribute the bonus among the team members as he or she saw fit. The DOL concluded that this program was a bona fide volunteer program, without undue pressure to participate, with management discretion whether to award a bonus and in what amount, and therefore the time spent on such activities was not compensable.

The second FLSA-related opinion letter, FLSA2019-1, addressed the narrow issue of whether janitors who live in the buildings they maintain are exempt from the FLSA’s minimum wage and overtime requirements. The DOL concluded that the janitors are not exempt under federal law (even though state wage law exempts them from overtime eligibility), but could reach reasonable agreements with building owners with respect to the hours in which they are and are not working, so long as these generally coincide with their actual hours worked.

A fairly narrow opinion letter, but one of interest to those in real estate management. More interesting to employers is the DOL’s position expressed in the opinion letter that employer reliance on a state law exemption to minimum wage or overtime requirements will not constitute a good faith defense to noncompliance with the FLSA, at least so far as the agency is concerned. Employers are free to argue good faith to a court, but the DOL will not find that reliance on state law is a defense to federal wage-and-hour noncompliance.

The opinion letters offer little in the way of telegraphing a consistent DOL enforcement strategy. It will take more time, and more opinion letters, before the current agency’s philosophical identity crystallizes.

As we previously reported here, on March 4, 2019, a federal court issued an order lifting the stay implemented by the White House Office of Management and Budget (“OMB”) regarding the pay data collection component of the EEO-1 report, finding that the OMB failed to demonstrate good cause for the stay.  The order left many open questions concerning how and when employers would be required to respond with pay data in their EEO-1 filings.  At a March 19 status conference, the court requested that the government come up with a plan to comply with its order.

In response, OMB informed the court in a brief filed on April 3, 2019 that the EEOC is able to undertake and complete collection of the required 2018 EEO-1 pay data forms by September 30, 2019.  However, the proposed deadline is contingent upon the EEOC’s use of a third party data and analytics contractor, and the agency estimates that the collection by September 30 will “cost in excess of $3 million.”  Further, the EEOC warns that “there is a serious risk that the expedited data collection process may yield poor quality data because of the limited quality control and quality assurance measures that would be implemented due to the expedited timeline.”

The court must approve the government’s proposed plan before it becomes effective.  OMB’s brief did not provide information regarding when pay data collection would begin, and notably, the proposed September 30 deadline is also the expiration date for OMB’s approval of the pay data collection report.

We will keep you updated on further developments on EEO-1 pay data reporting.  In the meantime, as a reminder, the EEOC’s EEO-1 survey opened on March 18, 2019, and the deadline to submit all other EEO-1 data, such as race and gender information, is still May 31, 2019.

As we previously reported here, on April 3, 2019, the White House Office of Management and Budget (“OMB”) filed a brief with the U.S. District Court for the District of Columbia proposing a September 30, 2019 deadline for the EEOC to complete collection of the required 2018 EEO-1 pay data forms. The brief was filed in response to a March 4, 2019 court order lifting a 2017 stay of pay data collection, which had been implemented to allow for further review of the burdens associated with pay data collection.

On April 25, 2019, in a ruling from the bench, a federal judge approved the September 30, 2019 deadline.  This means that employers with 100 or more employees (and federal contractors with 50 or more employees) will be required to report their employees’ 2018 W-2 compensation information and hours worked by September 30, 2019.  The goal of the collection is to reduce pay gaps based on sex, race, and ethnicity.  Remember, the deadline to submit all other EEO-1 data, such as race and gender information, remains May 31, 2019.

On Monday, April 29, 2019, the United States Department of Labor (“DOL”) Wage and Hour Division issued an opinion letter in response to an inquiry from an anonymous “virtual marketplace company” (“VMC”) concerning whether individuals who provide services through the VMC (“service providers”) are employees or are independent contractors for purposes of federal wage and hour laws.  As defined by the DOL, a virtual marketplace company is “an online and/or smartphone-based referral service that [through a technology platform] connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services.”  VMCs are part of the expanding “gig economy,” and include familiar companies such as Uber, Lyft, Postmates, Fiverr, and others. 

The DOL’s analysis cited “economic dependence” as the key criterion in evaluating whether an individual is an employee or an independent contractor.  The opinion letter identified six factors the DOL considers when analyzing whether a worker is economically dependent on a potential employer, noting, however, that no one factor is determinative, and that, instead, the analysis is holistic, based on the totality of the circumstances.  These six factors are:

• the nature and degree of the potential employer’s control;
• the permanency of the worker’s relationship with the potential employer;
• the amount of the worker’s investment in facilities, equipment, or helpers;
• the amount of skill, initiative, judgment, or foresight required for the worker’s services;
• the worker’s opportunities for profit and loss; and
• the extent of integration of the worker’s services in to the potential employer’s business.

Through a detailed analysis of each of these factors, the DOL opined that in the case of the VMC requesting its opinion, its service providers are properly characterized as independent contractors rather than employees.  The DOL’s conclusion was based on several key facts relating to the arrangement between the VMC and its service providers, including that:

• service providers set their own schedules; they determine when and how much work they provide, and are not required to accept a minimum amount of service opportunities (service providers may become “inactive” if they do not accept jobs within a certain time period, but may be reactivated upon request);
• by determining their own schedules and which job opportunities they accept, service providers are directly responsible for their own profit and loss;
• service providers may work outside of the VMC’s platform, including for competing VMCs (the VMC even allows service providers to “multi-app,” or simultaneously run the VMC’s app and a competitor’s app and choose the best service opportunities on a job-by-job basis);
• service providers can decline, reject, or cancel accepted jobs; only cancellations within a certain window of the job start time generate a penalty to the service provider (to maintain the integrity of the VMC’s platform);
• the VMC does not train service providers, and it is not present for, and does not inspect nor rate the service provider’s work; only consumers can rate their experience through the service platform;
• service providers provide all of their own equipment and other items necessary to perform the job;
• service providers are paid directly by the consumer (through the VMC’s platform), and the VMC does not provide any additional compensation; the VMC reports service provider earnings through IRS Form 1099s, which are used for nonwage compensation, not Form W-2 wage reports; and
• the VMC’s primary purpose is to provide the referral platform, not to provide the end-market service; only service providers provide the consumer with the sought-after service.

(If you think, based on these facts, you know which VMC requested the opinion, you’re probably right.)

The DOL’s opinion letter is seen as a boon for “gig economy” companies, which typically classify workers using their platforms as independent contractors.  Indeed, the flexibility and independence for workers – which are the benefits typically associated with independent contractor relationships – appear to be the hallmark features of this growing sector of the workforce.

Although the DOL’s opinion letter illustrates a shift in policy from the previous presidential administration, it is not clear that state courts and state wage and hour enforcement agencies will follow suit.  For example, as we reported to you previously, the California Supreme Court recently adopted the “ABC” test in Dynamex Operations West, Inc. v. Superior Court.  Under this test, workers are presumed to be employees unless they meet all three elements of this test, in which case they may be properly classified as independent contractors.  Other jurisdictions have also defined standards that tend to classify more workers as employees than independent contractors.