Periodically a case comes along to remind us that underneath all good dismissal practice, Acas guidance and the rest is The Law, and that The Law is sometimes less rigid in its requirements of a fair dismissal than all that guidance might suggest.

Moore -v- Phoenix Product Development Limited is today’s such case, an everyday tale of dirty deeds and foul language in the world of water-efficient toilets.  Mr Moore was the original creator of the product and founder of the business, but by the time we enter the story he was no longer CEO and his shareholding was just 10% and heading south.  He had found the transition hard, as one might expect, but had unfortunately let that show in his behaviour.  His resentment of the new CEO was self-evident and manifested itself in repeated public criticisms of him, his performance, his management and essentially of the whole business, which Moore persisted in calling “my company” even though it clearly no longer was.

Moore and the new CEO had their heads politely but unmistakeably banged together by a Phoenix Board increasingly concerned that their fractious relationship was distracting from more important issues of corporate performance.  Though unquestionably a very zeitgeisty product, sales of the water-efficient loos were not where the company needed them to be. He was told that “it was the last meeting which would be held to discuss performance“, so not a final written warning in terms, but quite clearly so in intention.

Undaunted, Moore continued to criticise the new CEO and the business to people both within and outside it, including key investors. Investors also passed through his cro

ss-hairs – they were described by him as “leeches” but with more Fs. A meeting about this was convened at which Moore came out swinging – the ET found that he had shown “no insight, no regret, no contrition, admitting no fault and blaming others, particularly [the new CEO].”  He did not deny the conduct allegations against him, instead arguing that he was entitled to act as he did because of the performance of the new CEO. Following that meeting Moore was dismissed for a heady combination of performance, relationship breakdown and particularly misconduct.  Among a substantial number of other issues, his unfair dismissal claim majored on the fact that no right of appeal had been offered.  As we know, Acas guidance is clear that there should be a right of appeal, but both the ET and then the Employment Appeal Tribunal nonetheless dismissed Moore’s claim.  How so?

• The EAT went back to The Law, Section 98(4) Employment Rights Act 1996.  That lays down no requirement that there be scope for an appeal, only that the employer act reasonably in all the circumstances of the case.  The Acas guidance says only that the employee should be allowed to appeal, not that the employer has to tell him of that right.  Therefore the absence of any reference to an appeal in the dismissal letter was not enough to make the termination unfair.
• Moore had himself not actually tried to appeal against either his dismissal or the rejection of a parallel grievance.  He told the Tribunal that he would have appealed if he had known why he had been dismissed.  However, since he had not asked that question either and it was completely obvious in any case, the EAT was unconvinced.
• In particular, both the ET and the EAT concluded that there was no possibility that even if an appeal had been expressly offered and made, it would have made the slightest difference to the outcome.  Phoenix’s trust and confidence in Moore was so corroded by his blatant failure to heed the head-banging session, his continuing refusal to accept that he no longer held the reins of the business and in particular his overwhelming lack of any acknowledgement or self-awareness around the problems caused by his behaviours, that there was simply no scope for any other conclusion.  Had Moore at least claimed to understand the problem, apologised for the past and vowed to mend his ways, found the EAT, the position might have been different.  Even then, however, Moore had said the same thing to that effect before without its making any actual impact on his conduct, and so Phoenix would potentially still have been within its rights to disregard it.
• Moore’s seniority in a relatively small company was also very important to this against-the-run-of-play outcome.  It meant that much less prior warning of the problems caused by his performance and behaviours was necessary, and that the issues caused by them were that much greater.  His position also required that the decision to dismiss was taken by the upper levels of management, and so there was no-one left to hear any appeal except the people who had just decided he had to leave.
• Overall, the appeal would have been a waste of time.  In all honesty most appeals are, at least in retrospect, so that by itself does not dispense with the need for one.  Here the facts of Moore’s behaviour were largely undisputed, and in those circumstances, said the EAT, “it is no part of a fair procedure to be conducted for the sake of it if the procedure is truly pointless”.
• This is potentially a helpful case for employers, but should be treated with a fair degree of caution.  An appeal isn’t “truly pointless” just because the employer says it is.  There will need to be unarguable facts, usually (not always) a lack of hierarchical headroom permitting an appeal to someone more senior, an absence of contrition or other obvious mitigating factors and in particular, objective grounds on which the employer could conclude at the time (not merely in retrospective justification of its position) that there would be nothing the employee could realistically say if given his head at an appeal which would alter the position.
• It probably also helps if the ET can be persuaded to take a dislike to the employee – here the Employment Judge made sure all the bases were covered by finding that even if the appeal could not be said to be sufficiently without merit to be truly pointless in the legal sense, Moore was still guilty of contributing to his dismissal to such an extent that there should be a 100% deduction from any compensation he might otherwise have been awarded.
• One other possibility arises which was not mentioned in the decision, i.e. the possibility of Phoenix suggesting that Moore enter some form of mediation with the new CEO and/or other board members.  If this had worked, all to the good, but if he had refused to participate or the process had failed, then Phoenix’s hand would have been still stronger because there would be the proof beyond argument that the necessary working relationship between Moore and the rest of the Board had finally, categorically and irretrievably gone down the pan.

On October 28, 2021, the U.S. Department of Labor (DOL) issued its Final Rule on tipped wages. As Presidential administrations have changed through the years, so too has the DOL’s view regarding the circumstances under which employers can pay tipped workers less than the federal minimum wage. [See this 2019 post for the immediately prior administration’s position.] In the latest iteration of DOL policy on this issue – which goes into effect on December 28, 2021 – the Biden administration comes out firmly on the side of tipped employees.

Although the Fair Labor Standards Act (FLSA) generally requires that employers pay workers a minimum wage of $7.25/hour (see 29 U.S.C. § 206(a)), the law permits employers of tipped employees to take a “tip credit,” only paying employees who customarily receive at least $30/month in tips from customers a cash wage as little as $2.13/hour, as long as the employer ensures that the aggregate of cash wages paid directly by the employer plus tips paid to the worker by customers results in the tipped worker earning at least $7.25/hour (see 29 U.S.C. § 203(m)(2)(A)). However, the long-standing tip credit model presumes that tipped employees receive a steady flow of tips and spend nearly all of their working hours engaged in tip-generating labor, a presumption that does not always align with reality.

Recognizing that many tipped workers are tasked with time-consuming duties for which they are not tipped, under the Final Rule (also known as the “80/20 principle”), employers will be required to pay the full federal minimum wage of $7.25/hour to a tipped worker who spends more than 20% of the workweek on tasks not directly engaged in tip-producing work. For example, if a purportedly tipped worker spends more than 20% of their workweek on tasks such as cleaning, mopping, bookkeeping, or other duties that do not result in payment of tips from customers, the employer will be required to pay that employee at least $7.25/hour. This is true even if the non-tip-producing tasks “directly support[ ] work” that does produce tips. Furthermore, if an employee performs dual jobs for the same employer – one tipped and one non-tipped – only the hours in which the employee performs their tipped job are considered in the 80/20 analysis. For example, if an employee works 10 hours per week as a non-tipped maintenance worker and 30 hours per week as a tipped server, at least 80% of the 30 hours worked as a server must be spent performing tip-producing work in order for the employer to claim the tip credit for all 30 server hours, or else the employer will be required to pay the minimum wage for all hours worked.

In addition, and expanding the 80/20 principle beyond prior administration’s interpretation, the Final Rule requires employers to pay at least $7.25/hour to tipped workers once they spend more than thirty (30) minutes of uninterrupted time on side work that directly supports tip-producing activity but does not itself generate tips. For instance, even if an employee spends more than 80% of their workweek on tip-producing activity (and is thus properly treated as a tipped worker), if he or she is assigned to wipe down tables and fill salt shakers or vacuum floors for more than thirty (30) continuous minutes, the employer is required to pay the employee $7.25/hour for the time in excess of 30 minutes spent working on the ancillary, tip-supporting-but-not-generating activities. Likewise, if a tipped employee spends thirty (30) or more minutes waiting for a customer to come in, that excess idle time must be compensated at the rate of $7.25/hour, regardless of how the employee spends their time. Employers can avoid this obligation by ensuring that more than half of each working hour is spent on directly tip-earning activity, provided the employee spends at least 80% of the total workweek on tipped work, but as anyone who has operated a restaurant or retail store knows, this requires a level of planning and scheduling precision that is very difficult to achieve. (And if you are thinking that this Rule makes the regular rate calculation for overtime purposes more challenging than ever, you would be correct.)

Although the Final Rule has been applauded by those calling for fairer wages for tipped employees, employers of tipped employees understandably have concerns about the added complexity of timekeeping, scheduling, and exposure to class and collective actions for unpaid and underpaid wages it presents. This is especially true with respect to calculating wages (and overtime wages) during periods in which an employee qualifies for the tip credit for 30 minutes but does not qualify for the tip credit for the remaining 30 minutes of a single hour of work. One option is to move to an hourly rate of pay and discontinue reliance on the tip credit altogether, in which case employers would only be required to track, record, and pay for time worked as they do other non-exempt workers. For those employers unwilling to scuttle the tip credit, they are strongly encouraged to work with legal counsel to ensure they schedule, track, and compensate hours worked properly, and comply with state or local laws that may be more onerous than federal law.

Right. You have now done all the prior preparation for your investigation which you can – identified the relevant policies, noted the points you need to get at, maybe heard what the complainant wants out of it all, understood the limits of your own brief and made sure that there is no avoidable reason why you shouldn’t do it.  Now it comes to the actual investigation part – talking to the makers of disclosures or complaints, those responding to them and drive-by witnesses.

You can find untold volumes of advice on this particular contact sport – just googling “interviewing witnesses” today pulls up 16 million results.  I have not quite read all of those but there do seem to be some very consistent themes in those I have, almost all driven by common courtesy and common sense.  Remember that there is no real law here, only good practice and the overriding objective of obtaining a tenable view of what happened and why, while limiting the scope for later challenge to the impartiality of your findings, their technical accuracy where appropriate, the inclusion of what is relevant and the exclusion of what is not. While on the subject of contact sports, the relevant Acas Guidance contains the strangely (or at least hopefully) superfluous suggestion that you should not make physical contact with the person you are interviewing.  This is well pre-Covid and no other explanation is provided for it, but it certainly should not be taken as precluding a professional shaking of hands in your investigation meeting.

After the introductions, what should you say in opening the process?:

• What your role is – are you merely producing a report on the facts as you find them, or also making recommendations for next steps?
• Who within the employer has asked you to carry out that role That gives the interviewee someone to complain to about you, but more particularly, shows that you have internal accountability to the business.
• The particular issue you are looking into. How much detail is required here will depend on who you are interviewing:  (a) the person making the allegation or complaints knows more about what is going to be discussed than you do, so no real explanation is required there. (b)  a third-party witness need (in fact, should) only be told about the parts of the complaint which concern him – the wider context is unlikely to be relevant and could lead the witness to give answers aimed at the bigger picture rather than based on his direct knowledge of his own little piece of it; and (c)  where the interviewee is to be asked to respond to particular allegations against him, he will fairly have the right to understand what is being said in almost all the detail you can provide, as a minimum enough to allow him to admit, deny or explain each incident and to know what further evidence may be relevant.  If he does not have that information in advance then you should consider granting any reasonable request which he may make for a little time out to consider or collect evidence on any points new to him.
• How you will be noting what it said – a separate note-taker, doing it yourself, making an electronic record, etc., and your willingness for the interviewee or any companion to make their own notes if they wish, plus your intention to send them a copy of the typed-up notes when they are done.
• Some sources say that the investigator should promise to agree those meeting minutes afterwards, but we would not generally go further than inviting comments on them.  Seeking agreement can be an obstacle to progress – you know what you heard but the inevitable temptation for a party asked to agree notes is to require them to say what he realises in retrospect that he should have said, rather than what he actually did.  Comments or supplementary evidence received can still be kept on your file, however, and taken into account if it becomes appropriate to do so.
• An approximate but not binding timescale for the completion of your investigation.
• That you are not able to guarantee confidentiality for anything which the interviewee tells you, on the basis that if the issue becomes disputed, his evidence may have to be disclosed.
• On similar grounds, that you will not be able to take into account in your conclusions anything which you are not able to refer to in your report.  Therefore there is no real scope for the interviewee telling you things “off the record”.
• It may be that the launch of a formal investigation and the realisation that it is all a bit more serious than he thought (in particular that he is imminently going to be pressed to put flesh upon the bones of his allegations) may lead the employee to seek some form of exchange with you about a resolution which could be reached without all this fuss.  How you react as investigator depends on whether that approach is on or off the record.  The employee may be answering belatedly your open question (see here) about his ideal outcome from the grievance, in which case you note it down and move on.  Alternatively, he may be making or inviting a proposal outside the formal process (in particular, almost anything involving monetary compensation) which will probably be without prejudice.  If it is the latter then it is wise to shut that conversation down immediately.  He can be invited to pursue it instead with HR, Legal or a suitable line manager, but if you as investigator get into it, then you will hear things that you cannot then rely on and/or are very likely to lose your perceived neutrality.  We have known cases where (with the knowledge and consent of all parties) the investigator has very successfully morphed into a broker or mediator, so it can be done.  However, the obvious risk is that if it turns out that no agreement can be reached, your perceived ability to investigate impartially may be prejudiced.
• Any questions? Happy to go ahead? Time for Part 9.

On May 15, 2022, employers will have to officially contend with New York City’s recently enacted salary transparency law.  The Big Apple joins a growing list of jurisdictions – California, Colorado, Connecticut, Maryland, Nevada, and Washington, among them – to pass a pay transparency law, although the obligations of covered employers vary slightly across jurisdictions.  Proponents extol transparency in pay for its push to narrow the gender pay gap and combat other potential discrimination, while opponents lament the potential compliance burden employers may face.  Here is everything we know about the law so far.

What Does the Law Require?

The law requires employers to state the minimum and maximum salary offered for any advertised job, promotion, or transfer opportunity.  The stated salary range may be based on the highest and lowest salary that the employer “in good faith believes” it would pay for the advertised position at the time of its posting.

This disclosure requirement applies to external job advertisements as well as internal promotion or transfer opportunities.  Failure to include the required salary range will constitute an unlawful discriminatory practice under the New York City Human Rights Law.  

Who is Subject to These Disclosure Requirements?

The law applies to any employer or employment agency with four or more employees in New York City.  For purposes of this law, independent contractors working in furtherance of an employer’s business count toward this four-employee threshold.  Agents and employees of covered employers are also subject to the law’s disclosure requirements.

Are There Any Exceptions?

Temporary positions advertised by temporary help firms are exempt from the law’s otherwise broad ambit.

Next Steps for Employers?

The New York City Commission on Human Rights is expected to clarify the obligations of covered employers through the issuance of guidance and regulations prior to the law’s effective date.  In the meantime, employers can start to prepare by conducting an internal review of their company’s pay policies and current employee salaries.  As always, Squire Patton Boggs will monitor and provide updates as developments continue to unfold.

Squire Patton Boggs Summer Associate Wade Erwin discusses the issues in and implications of an FLSA case set to heard by the U.S. Supreme Court in October.

In the upcoming 2022-2023 term, the United States Supreme Court is set to decide in Helix Energy Solutions Group, Inc., et al. v. Hewitt (No. 21-984) whether a daily rate supervisor who earned in excess of $200,000 annually is entitled to overtime compensation under the federal Fair Labor Standards Act. Employers that pay their employees daily rates – particularly those in the oil and gas industry – should be on the lookout, and preparing, for the Court’s decision, as it threatens to alter the employment compensation landscape substantially and may force some employers to reshape their compensation schemes entirely. Oral argument in this case is presently scheduled for October 12, 2022.

In Helix, the Court will determine whether supervisors who typically would be exempt from the overtime compensation provisions of the Fair Labor Standards Act (“FLSA”) are entitled to time-and-a half pay for hours worked over 40 hours in a workweek because they receive a daily rate rather than a fixed annual salary. As readers of this blog are aware, the FLSA requires employers to pay employees at a rate of one-and-one-half times their regular rate of pay for any hours they work in excess of 40 hours in a workweek. Although the FLSA applies to broad categories of employees, regulations implemented by the U.S. Department of Labor exempt certain employees from these overtime pay requirements. These exceptions apply to employees who are paid on a salary basis in an amount more than $684/week and who satisfy criteria concerning the performance of executive, administrative, professional, computer, and/or outside sales duties. They also apply to “highly compensated” employees – those who earn at least $107,432/year and are paid on a salary basis – if the employee customarily and regularly performs at least one of the duties associated with exempt employees.

In Helix, Michael Hewitt worked for Helix as a tool pusher, managing other employees while working offshore on an oil rig. In that role, Hewitt managed approximately a dozen other employees, for which he was paid a sizable $963 daily rate for every day he worked. Although Mr. Hewitt typically worked more than 40 hours per week, his daily rate remained unaffected by the number of hours he worked or the quality of the work he performed. Mr. Hewitt spent two years working for Helix, earning over $200,000 annually from 2015 to 2017. After Helix terminated Mr. Hewitt’s employment for performance-related reasons, he filed suit against the company in a Texas federal court. In that suit, Mr. Hewitt alleged that Helix misclassified him as an exempt employee under the FLSA and that he was therefore entitled to overtime compensation for the hours he worked in excess of 40 hours in a workweek. In response, Helix argued that Mr. Hewitt’s supervisory role and high annual income brought him under the FLSA’s “highly compensated” and “executive” employee exceptions. The trial court agreed with Helix, ruling that Mr. Hewitt was exempt from the FLSA’s overtime compensation requirements. The matter was then appealed to the United States Court of Appeals for the Fifth Circuit.

The issue before the Fifth Circuit centered on the salary prong of the “highly compensated” and “executive” FLSA exemptions. Because he was a supervisor who earned over $200,000 a year, and he always made the statutory minimum of $455 each week he worked (which was the salary threshold during the years at issue; it is now $684/week), both sides agreed that Mr. Hewitt satisfied the first two exemption requirements. The parties, however, fiercely disputed whether Mr. Hewitt’s daily rate qualified as payment on a salary basis.

In a 12-6 en banc decision, the Fifth Circuit held that Mr. Hewitt was not exempt, and therefore that he was entitled to be paid overtime compensation despite his sizable income. Emphasizing “‘employees are not to be deprived of the benefits of the [FLSA] simply because they are well paid,’” the majority found that the plain text of the FLSA placed Mr. Hewitt outside the “executive” and “highly compensated” exceptions. Because he worked for a daily rate and did not receive compensation on weekly or less frequent basis – what would be ordinarily considered a “salary” – the appellate court reasoned that Mr. Hewitt needed to satisfy the salary basis test to fall within the overtime exemptions. However, under the salary basis test, Mr. Hewitt had to receive a guaranteed weekly payment that was calculated without regard to the number of hours, days, or shifts he worked. Additionally, to be exempt from the FLSA’s overtime requirements, the test required that a reasonable relationship exist between the guaranteed rate and the amount that Mr. Hewitt actually earned. According to the Fifth Circuit, the reasonable relationship standard ensures that the minimum weekly guarantee is not a sham. By setting a ceiling on how much the employee can expect to work in exchange for his regular paycheck, the test prevents the employer from claiming that it pays a stable weekly amount without regard to hours worked, while in reality regularly overworking employees in excess of the time the weekly guarantee contemplates.

Helix argued that Mr. Hewitt’s daily rate was a minimum weekly guarantee, but the Fifth Circuit rejected this argument. Instead, it held that the Helix’s compensation plan failed both prongs of the salary basis test. As an initial matter, the court reasoned that the daily rate did not qualify as a guaranteed weekly payment because Mr. Hewitt’s pay was, by definition, calculated with regard to the number of days he worked. The Fifth Circuit further held that Helix did not satisfy the reasonable relationship test because Helix paid Mr. Hewitt an “order of magnitude greater” than the minimum weekly guarantee (that is, the $963 daily rate). Because Helix’s payments to Mr. Hewitt did not meet the salary basis test, the appeals court held that he was not exempt under the FLSA, and therefore eligible for overtime compensation.

The Fifth Circuit’s holding deepened a circuit split on this issue. While the Fifth, Sixth and Eighth Circuits apply the reasonable relationship test, the First and Second Circuits adhere to a different interpretation that exempts daily-rate workers under the salary basis test. In order to resolve this circuit split, the U.S. Supreme Court agreed on May 2, 2022 to hear Helix, and is set to decide whether highly compensated supervisors who are compensated on a daily basis that exceeds the FLSA’s highly compensated threshold and who are paid more than the weekly salary basis amount are exempt from overtime compensation under the FLSA. The Court’s decision will carry immense implications for certain employers, particularly those in the oil and gas industry, where the compensation scheme at issue is prevalent. As briefs submitted in the case highlight, requiring overtime compensation for highly paid daily workers threatens to increase labor costs in oil and gas exploration and production industry by a minimum of 26.2 percent. Further, if the U.S. Supreme Court affirms the Fifth Circuit’s decision, interest groups have voiced concern that a single employee making $200,000 annually could be entitled to an additional $52,000 in back wages. Helix’s impact also could spread across industries, affecting the construction industry, creative services companies, and any other employers who pay their employees daily rates. The Court’s decision in Helix could bring a new class of employees within the purview of the FLSA’s overtime requirements, and depending on the outcome, employers could face increased liability for failure to pay overtime compensation. The case could force companies with highly compensated daily rate employees to either make overtime payments or pivot towards a guaranteed minimum salary scheme. We will continue to track the Helix case and will provide updates on federal overtime law as new information becomes available. In the meantime, employers who pay their employees on a guaranteed daily amount basis should review their current pay practices and consult with counsel to consider whether to revise their approach prospectively in the event of an adverse ruling from the Court.

Back in November 20201 we reported here on some new Acas guidance on changing terms of employment through dismissal and re-engagement, and in November last year on the Government’s intention to issue a new statutory Code on that practice here.

A first draft of that Code has now landed and we can exclusively report that in terms of actual usefulness to employers it lives down to all reasonable expectations.  The draft elevates repetition to an art-form, cramming perhaps 4 pages of potentially helpful pointers into a full 16.  It is not nice to criticise something so obviously well-intended and in principle sensible, but do we really need: 4 statements that other statutory consultation obligations may be engaged, and that recognised trade unions should not be side stepped into the consultation process; 5 mentions of dismissal and re-hire being a last resort only and of the importance of avoiding discriminatory consultation methods or changes to terms, 7 separate nudges to the employer to provide as much information as possible and to keep its own business requirements under review in the light of representation received and a full 8 different renditions of the need for consultation to be genuine and open-minded.  There are only a comparatively restrained 2 cautions not to use threats of dismissal to put “undue pressure” on employees to agree new terms, which is a little odd as this was actually the main trigger for the consultation in the first place.

Strip all that away, however, and you do reach an almost incidental kernel of potentially interesting issues.  Their relevance arises from the inclusion within the Code of permission to Employment Tribunals hearing claims arising from fire-and-rehires to increase or reduce compensation by up to 25% for unreasonable non-compliance with it.  Therefore knowing what the Code actually requires of you, whether as employer or employee, is pretty important.

Almost all the obligations lie on the employer, so identifying some basis on which the employee can unreasonably fail to comply is not easy. There is the basic obligation to consult in good faith, but since it will never be an indication of bad faith not to agree to a worsening of one’s terms and conditions, that doesn’t seem like much of a runner. Ultimately you fall back on paragraph 53 of the Code, the obligation on an employee who is working under protest to keep saying so.  Quite how this is helpful to employment relations is not explained but the sanction is presumably imposed because working under protest without saying so could lull the employer into thinking that nothing further needed to be done, making the employee partly responsible for his own misfortune. 

For the employer, the key risk areas appear to be:-

• Treading the very thin line between being “honest and transparent about the fact that it is prepared, if negotiations fail and agreement cannot be reached, to …dismiss employees in order to force changes through” (paragraph 38) on the one hand, and threatening dismissal only as a negotiation tactic in circumstances where the employer is not in fact contemplating dismissal as a means of achieving its objectives (also paragraph 38, very next sentence). This puts employers in a very tough position, since if you make it clear at the start of the negotiation that you are not willing to go down the fire-and-rehire route even as a last resort, your chances of obtaining employee agreement to detrimental changes to their terms are as near zero as makes no difference.  Therefore you have to be willing to say at the outset that if all else fails you will consider that route.  However nicely put, how is that not a threat? Maybe if you do it terribly gently, perhaps even apologetically, it can count as pressure but not “undue” pressure?
• Providing the fullest practicable information at the earliest practicable time. The Code accepts that certain information may be withheld on grounds of commercial confidentiality, provided that that position is itself then fully explained.  On its face, however, if you miss some information or you start the process later than you could have done, then there could be a breach of the Code even if there is no evidence that your alleged default made any difference at all to the end results.
• Related to that, paragraph 61 indicates that once the employer has decided on that route, “it should give as much notice as possible of the dismissal“, and “consider whether any particular employees might need longer notice in order to make arrangements which might better enable them to accommodate the changes…where possible an employer should agree to a longer notice period for employees to make these kinds of arrangements or find alternative work“.  The lesson from this would appear to be that there are no points to be gained by hanging off from starting consultation about dismissal and re-engagement in the hope that it will not be necessary – instead you should begin it essentially as soon as you have the idea, cause all the associated disruption and upset, and then hope that it becomes unnecessary.
• The constant requirement to keep an eye on the actual need for the changes to terms proposed.  Under the Code, this seems to arise not just at the original planning stage but also during consultation, at the time of any proposed dismissals and again after the changes have been made, to the point that where changes can later be reversed, this should be actively considered. The Code suggests each of these to be separate obligations, so the employer’s duties are seemingly not satisfied just by doing all the necessary thinking at the outset and getting it right first time.

So overall, the practical or procedural burden on the employer is not much changed by the Code, nor the thought-processes required. What is now needed, if that 25% uplift is to be avoided, is a much more detailed and extensive record of those thought-processes.  These notes will need to demonstrate that repeated revisiting of the business drivers for the dismissal and re-engagement proposal, active consideration of all employee representations, reviewing what more detailed background information could be provided to affected staff, and (in particular) that no final decision to pull the trigger on dismissal and re-engagement is made until there are very good grounds to consider that there is simply no alternative – meaning as a minimum that all collective mechanisms are exhausted, there are no signs of further movement on either side and the parties to the discussions are near-hysterical with fatigue and mutual resentment.

In a first of its kind opinion, the U.S. Court of Appeals for the Third Circuit (which hears appeals from the federal district courts in Delaware, New Jersey, and Pennsylvania) ruled that an employer does not violate the Fair Labor Standards Act (FLSA) when it deducts time from FLSA-exempt employees’ paid time off (PTO) banks for failing to meet productivity targets.

To understand the decision, we first need a refresher on the FLSA and how it requires employers to pay exempt employees. Employees are presumptively entitled to be paid a minimum wage for all hours worked, plus overtime – 1.5x their regular rate of pay – when they work more than forty (40) hours in a workweek. An exception to the overtime requirement applies when an employee’s salary and job duties fall within one of the recognized overtime exemptions. The so-called “white collar” exemptions apply to executive, administrative, and professional employees who not only perform exempt job duties but are paid a guaranteed salary of at least $684/week that is not subject to deduction based on the quality or quantity of work they perform.

With that primer in mind, we turn to the facts in Higgins v. Bayada Home Health Care Inc., No. 21-3286 (3rd Cir. Mar. 15, 2023), a class and collective action brought by clinicians who worked for a home health agency. The agency established productivity point targets for each clinician, which they satisfied by completing tasks such as routine home visits, office work, or scheduling follow-up appointments. Productivity targets were linked to the clinicians’ base salary and PTO accrual and could be adjusted upward or downward with a corresponding adjustment to salary and accrual rate. When clinicians exceeded their productivity minimums, they received additional compensation. When they missed their weekly productivity minimums, the agency deducted hours from their PTO banks in an amount equivalent to the difference between their actual performance and their target performance. Although the home health agency never deducted wages from the clinicians’ base salaries to cover productivity deficits, the clinicians reasoned that PTO was a “proxy” for salary and alleged that these deductions “were effectively reductions in their salary.” By treating them as “wage earners whose total compensation is pegged to the number of hours they work,” the clinicians argued that the home health agency forfeited their exempt status, entitling them to overtime pay.

Both the district court and the appellate court rejected the clinicians’ “proxy” theory out of hand. Writing that their “arguments miss the mark,” the Third Circuit opined that the question is not whether a pay structure approximates an hourly wage, or even whether an employer threatens to dock a salaried exempt employee’s wages, “but whether an employer made an actual deduction from an employee’s base pay.” Looking first at the plain language of the Department of Labor’s (DOL) FLSA regulations, which provide that an employee is “not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business,” 29 C.F.R. § 541.602(a)(2), the Court held that the only question before it was whether PTO constitutes “predetermined compensation.”

The Court resolved that question in favor of the employer. Neither the FLSA nor the DOL regulations define the term “salary,” but the Court nevertheless found “a clear distinction between salary and fringe benefits like PTO,” deriving support for this distinction from three general usage and legal dictionaries, all of which distinguish periodic wage payments (salary) from benefits provided in addition to basic wage rates (fringe benefits). Since the home health agency never deducted from the clinicians’ base salaries, the clinicians continued to receive their “predetermined compensation” – that is, their salaries – each pay period, irrespective of the deductions from their fringe benefit PTO banks. That PTO might be converted to cash in the future – such as by cashing it out at year-end or because the employer includes unused, accrued PTO in employees’ terminal wage payments – was irrelevant. The clinicians’ predetermined compensation for the weeks in which they did work did not fluctuate, so the potential monetary equivalent of PTO was immaterial.

Although the decision involved a legal issue of first impression, its rationale aligns with the DOL’s longstanding guidance on this subject. In a 2009 Opinion letter (DOL Op. Ltr. Jan. 16, 2009), the DOL’s Wage and Hour Division explained that the salary docking prohibitions in the FLSA overtime exemption regulations do not extend to nonmonetary compensation such as vacation time or sick leave:

In no event can any deductions from an exempt employee’s salary be made for full or partial day absences occasioned by lack of work[.] … Employers can, however, make deductions for absences from an exempt employee’s leave bank in hourly increments, so long as the employee’s salary is not reduced. If exempt employees receive their full predetermined salary, deductions from a leave bank, whether in full day increments or not, do not affect their exempt status.

Accordingly, employers safely can deduct missed work hours from exempt employees’ PTO or vacation banks without risking their exempt status. In addition, employers – at least those in the Third Circuit – can also dock PTO banks to discourage inefficiency or for other purposes without risking overtime liability.

On August 30, 2023, the US Department of Labor announced a Notice of Proposed Rulemaking (NPRM) that could significantly change the “white collar exemptions” to the overtime compensation requirements of the Fair Labor Standards Act (FLSA). 

Under current law, by default all employees covered by the FLSA are entitled to overtime pay at the rate of 1.5 times their regular rate of pay for all hours worked in excess of 40 hours in a workweek. However, under the FLSA’s “white collar” exemptions, employees who perform certain administrative, executive,  computer and/or professional duties and who are paid at least $35,568 per year on a salary basis ($684/week) are exempt from the FLSA’s overtime pay requirements. “Highly compensated employees” – those that perform office or non-manual work and at least one of the exempt executive, administrative, or professional duties and are paid on a salary basis – are exempt if their salary is $107,432 or greater.

Under the NPRM, the minimum salary level, which was last updated in 2019, would increase to an annual salary of $55,068 ($1,059/week) or more (the exact amount will be based upon the 35^th percentile of full-time salaried workers in the lowest-wage Census region, using data available at the time of the final rule).  The minimum salary level for an employee to qualify as exempt under the “highly compensated employee” exemption would increase from $107,432 per year to $143,988 per year or more (again, the exact amount would be based upon the 85^th percentile for the highly compensated employee exemption, using data available at the time of the final rule). More significantly, the NPRM provides for automatic increases to these minimum salary levels every three years based upon Census data available at that time. Of note, the NPRM does not include any proposed any changes to the duties tests.

Some states have already increased their minimum salary levels for exempt employees under state laws, and several states would remain above the level proposed under the NPRM. For example, for 2023, the minimum salary requirements for exempt employees in California is $64,4800, in New York is either $55,341 or $58,500 depending upon location, and in Washington is $65,478.40. Other states with minimum salary requirements that are higher than under the FLSA currently, but that would be below the approximately $55,058 proposed by the NPRM, are Alaska ($45,136), Colorado ($50,000), and Maine ($41,410). 

Other changes contained in the NPRM include (1) applying the updated salary levels to employees in US territories where the FLSA minimum wage applies (Puerto Rico, Guam, the US Virgin Islands and the CNMI), where the salary level currently remains at $455 per week; and updating the special salary levels for American Samoa and the motion picture industry, which have not been updated since 2004.

While these changes are significant, employers can relax…for now. If history is any indication, the NPRM will very likely undergo some revisions and may face legal battles as well. Once the NPRM is published in the Federal Register, there will be a 60-day public comment period. Impacted employers should consider submitting comments; please reach out to the authors or to your Squire Patton Boggs contact to discuss how we can help voice your comments, answer any questions, or assist with your employment law needs.

French law has traditionally provided that absences due to non-occupational illness are not taken into account when determining the amount of paid leave accrued, as they do not constitute a period of actual work. Periods of absence due to an occupational accident or illness lasting more than one uninterrupted year are not taken into account either. In broad terms, you do not accrue holiday while off sick unless it is work-related, and even then, for one year only. Where paid leave has not been granted by the employer, the employee’s claim is usually limited to a maximum of 3 years back in time.

However sensible that sounds on the general principle that holiday is a health and safety measure to allow recuperation from work, not absence from work, those provisions are in clear contradiction with European law (the Working Time Directive and Article 31 § 2 of the Charter of Fundamental Rights of the European Union), which — rightly or wrongly — does not contain any suspension of paid holiday accrual during sickness absence. As such that existing position has been regularly challenged by the European Court of Justice. Until now, domestic French law has stood its ground, but the French High Court has now issued several decisions upholding the primacy of European Union law.

In summary:

• Employees whose employment contract is suspended due to illness, whether occupational in cause or not, continue to accrue paid leave rights for the period of absence (Cass. soc. September 13, 2023, n° 22-17.340);

• For employees suffering an occupational accident or illness, the accrual of paid leave is no longer limited to the first year of absence (Cass. soc. September 13, 2023, n° 22-17.638);

• The 3 year limitation period for paid leave compensation only begins to run if the employer has taken the necessary measures to enable the employee to effectively exercise his paid leave rights (Cass. soc. September 13, 2023, n° 22-11.106).

Speaking to the Association des journalistes de l’information sociale in the immediate aftermath of the decisions, Labour Minister Olivier Dussopt said that the issue was being “investigated” by his department, and that a meeting with the President of the Republic and the Prime Minister would be held in the coming weeks. To date, no official measure has been taken yet by the Labour Ministry in response to those decisions, but why the urgent top-level meetings over a simple employment law case?

The combined effect of these decisions is still uncertain, but the real problem is likely to be not the calculation of holiday going forwards but what is now done about the past. We need to keep in mind that case law applies retroactively in France. As a result, because the existing holiday accrual rules referred to in the opening paragraph above were partially declared incompatible with the Working Time Directive, their disqualifying effect must be disregarded to guarantee the legal protection ensured by Article 31 § 2 of the Charter of Fundamental Rights.

The requirement of EU law to provide an effective remedy for breaches of that law would not be met if the employees who were denied any holiday accrual by that traditional approach could only claim loss of holiday (or pay) for a limited window backwards. Therefore it is now possible that employees or former employees could legitimately claim compensation for unaccrued paid leave whilst they were on sick leave, or whilst they were off because of an occupational accident or illness for more than one year uninterrupted, without those claims being limited in time to the last 3 years. However, according to the Senior Advisor to the French High Court, employees could potentially claim paid leave accrued during sick leave since 1^st December 2009, the date on which the Lisbon Treaty came into force, giving binding legal force to the Charter, Article 31 § 2 of which has direct effect. It means that if you have had a particularly poor sickness record and had your holiday entitlement limited as a result, you may now seek compensation which healthier and more contributing colleagues cannot. Perhaps no wonder that the matter is being looked at with some trepidation at senior levels in government.

In any case, you should modify your payroll software settings as far as possible, either internally or with your payroll provider, to bring them in line with these new case law rulings, unless your collective bargaining agreement contains provisions in line with European Union law. Companies with operations in France should now think about how to solve the past and protect the future.

In its judgement in Zabelin -v- SPI Spirits and Shefler this month, the Employment Appeal Tribunal has offered a refresher course on some important questions around protected disclosures, contracting out of statutory rights and when the Acas Code applies.

The background facts are relatively simple. Zabelin worked for SPI which is owned by Mr Shefler. Like many other employers, SPI agreed a temporary pay cut with its employees in 2020 to mitigate the adverse impact of the pandemic. Like rather fewer of them, it then unilaterally extended that cut beyond the date agreed, provoking Zabelin into complaining about that breach of contract as it applied to him and others, a complaint reinforced by SPI’s simultaneous proposal to change his 2019 bonus provision retrospectively from something he had a reasonable chance of obtaining to something he didn’t. Zabelin said that this too was a breach of his contract and those of other staff, that this approach was causing great unease and damage to mental health among other SPI teams and offices, and that the whole exercise was being conducted without transparency or financial necessity, but simply to increase SPI’s profit. What must have been a less than amicable call between him and Shefler about all this ended abruptly when Zabelin was told that he really needn’t worry about any of it because he was fired.

The original Employment Tribunal concluded that even though Zabelin’s complaints were clearly motivated substantially by his own self-interest, his reference to concerns about the impact of SPI’s conduct on other group employees in the UK and overseas was enough to get over the public interest hurdle of a protected disclosure for whistleblowing purposes. From that it was a short step to the conclusion that Zabelin’s dismissal was in retaliation for that disclosure. As a result, he was automatically dismissed and his potential compensation therefore not subject to the ordinary dismissal cap. Section 123(1) ERA states that in an unfair dismissal case, “the amount of the compensation to  be awarded should be such amount as the Tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal…”. It is not impossible for the application of the “just and equitable” factor to lead to an award below the amount of the complainant’s losses, for example through contributory fault, but here there was no such fault since the ET could obviously not blame Zabelin for making a protected disclosure.

So the ET looked at Zabelin’s losses and the horse and cart which SPI had driven through the Acas Code of Practice, added 20% for the latter and grossed up the lot, taking Zabelin’s compensation award to a not insubstantial £1,626,452.07. The two respondents appealed against that sum on two main grounds.

First, Zabelin’s contract included a term which stated that if he were dismissed, his maximum claim against SPI would be for a net £270,000, less than a third of the sum actually awarded. SPI said that this term was either binding on the ET direct, or should at least have been considered as part of its assessment of what level of compensation would have been just and equitable, with the clear intent that this would have led to a figure significantly below £1.6 million and closer to, oooh, £270,000, perhaps?

Second, SPI argued that the Acas Code did not apply, or at least not to all of Zabelin’s complaints, because he had not put them in writing. In its view, there had consequently been no grievance for the Code to apply to and therefore there should have been no 20% uplift.

Morally, the first point might be thought to have some merit. After all, Zabelin was legally trained, had negotiated his employment contract from a position of some bargaining strength and was assisted by professional legal advisors. The maximum sum he had agreed to was substantially greater than an ordinary wrongful and/or unfair dismissal claim would have brought him. This was not a case, heard the EAT, where a bus driver was given no option but to accept a clause limiting his entitlements on termination to a sum below that maximum, which Counsel for SPI fully accepted would not be binding.

The EAT considered that contractual clause to be a fairly overt attempt to require Zabelin to contract out of his statutory rights, I.e. the right to have one’s compensation assessed in line with the ordinary principles of section 123(1), and that it was therefore void under section 203 Employment Rights Act 1996 (the same section that makes ordinary termination agreements void unless they are recorded through Acas or a formal settlement agreement). Whether the contractual clause was a direct restriction or merely something for the ET to consider, SPI’s argument that it should had led Zabelin to receive a maximum £270,000 net was a faller at the section 203 fence. Therefore the moral position didn’t matter – no ordinary contract clause could pre-limit an employee’s statutory entitlement to appropriate compensation from the ET, whether bus driver or senior executive.  

As to the grievance point, the EAT did confirm that the Acas Code would only apply if the grievance were put in writing. Here at least some of it had been and the EAT was not perturbed that this had then been fleshed out only orally – that was common in workplace grievances, where it would be unrealistic to expect the employee to produce a comprehensive written statement of his concerns first time out. The 20% bump therefore stood.

However, to be clear, this is absolutely not licence to employers to ignore complaints which are made orally, especially if they concern allegations of legal wrongdoing or harassment. Or indeed anything else, really – you might not be at risk of an Acas uplift if you don’t deal promptly with an oral grievance, but that won’t protect you from allegations of constructive dismissal, discrimination, or just being a really dire manager if you blank it for that reason. By all means ask that it be put in writing or whether the employee is actually asking you to do anything about it, but don’t ignore it. Keep in mind also that none of this means a protected disclosure for whistleblowing purposes also has to be in writing to be valid —  it does not.