Tag Archives: FLSA

May 3, 2017

Is Comp Time Coming To The Private Sector?

By Mark Wiletsky

Employees in the private sector may have the option of earning compensatory time off in lieu of overtime pay for hours worked in excess of forty hours per week. The U.S. House of Representatives recently passed the Working Families Flexibility Act of 2017, H.B. 1180, which would amend the Fair Labor Standards Act (FLSA) to permit employees in the private sector to receive compensatory time off at a rate of not less than one and one-half hours for each hour of overtime worked. The bill now heads to the Senate for consideration.

Eligibility For Comp Time

Under the FLSA, compensatory time in lieu of overtime pay has long been permitted for public sector government employees. But non-government, private sector employees have not had the option of accruing comp time as the FLSA requires that private sector employers compensate overtime only through pay. Under this bill, private sector employees who have worked at least 1,000 hours for their employer during a period of continuous employment with the employer in the previous 12-month period may agree to accrue comp time instead of being paid overtime pay.

Employee Agreement For Comp Time

Under the bill, an employer may provide comp time to employees either (a) in accordance with the provisions of an applicable collective bargaining agreement for union employees, or (b) in accordance with an agreement between a non-union employee and the employer. In the case of non-union employees, the agreement between the employee and the employer must be reached before the overtime work is performed and the agreement must be affirmed by a written or otherwise verifiable record maintained by the employer.

The agreement must specify that the employer has offered and the employee has chosen to receive compensatory time in lieu of monetary overtime compensation. It must also specify that it was entered into knowingly and voluntarily by such employee. Requiring comp time in lieu of overtime pay cannot be a condition of employment.

Limits On And Pay-Out Of Accrued Comp Time

The bill specifies that an employee may not accrue more than 160 hours of comp time. No later than January 31 of each calendar year, the employer must pay out any unused comp time accrued but not used during the previous calendar year (or such other 12-month period as the employer specifies to employees). In addition, at the employer’s option, it may pay out an employee’s unused comp time in excess of 80 hours at any time as long as it provides the employee at least 30-days’ advance notice. An employer may also discontinue offering comp time if it provides employees 30-days’ notice of the discontinuation.

The bill provides that an employee may terminate his or her agreement to accrue comp time instead of receiving overtime pay at any time. In addition, an employee may request in writing that all unused, accrued comp time be paid out to him or her at any time. Upon receipt of the pay-out request, an employer has 30 days to pay out the comp time balance. Upon termination of employment, the employer must pay out any unused comp time to the departing employee. The rate of pay during pay-out shall be the regular rate earned by the employee at the time the comp time was accrued, or the regular rate at the time the employee received payment, whichever is higher.

Employee Use of Comp Time

Under the bill, employers must honor employee requests to use accrued comp time within a reasonable period after the request is made. Employers need not honor a request if the use of comp time would unduly disrupt the operations of the employer. Employers are prohibited from threatening, intimidating, or coercing employees either in their choice in whether to select comp time or overtime pay, or in their use of accrued comp time.

Will It Pass?

The bill passed the House 229-197, largely along party lines with all Democrats and six Republicans voting against it. Reports suggest that although Republicans hold 52 seats in the Senate, they will need at least eight Democrats to vote in favor of the bill to avoid a filibuster. Supporters of the bill urge that it offers workers more flexibility and control over their time off. Those who oppose the bill say it could weaken work protections as it offers a promise of future time off at the expense of working overtime hours for free. This is not the first time that federal comp time legislation has been proposed, so we will have to see if the Senate can line up sufficient votes to pass it this time around. Stay tuned.

December 21, 2016

No Such Thing As A Free Lunch!

Cave_BradBy Brad Cave

Hundreds of hourly employees sued their former employer alleging that they were due additional overtime pay. They asserted that the company failed to include their $35 daily travel meal reimbursement in their regular rate of pay when calculating time-and-one-half, meaning they were paid less overtime than they were due. The Tenth Circuit Court of Appeals, whose decisions apply to Wyoming, Colorado, Oklahoma, Kansas, New Mexico, and Utah, recently analyzed their claim.

Calculating Regular of Pay

The Fair Labor Standards Act (FLSA) requires employers to pay employees at one and one-half times the employee’s “regular rate” of pay for all hours worked in excess of 40 per workweek. An employee’s regular rate of pay includes all remuneration paid to the employee, subject to certain exceptions. If a part of an employee’s pay is left out of the “regular rate” calculation, the employee’s overtime rate will be undervalued.

A large group of former hourly employees for a nationwide seismic-mapping services company filed a lawsuit claiming that the company violated the FLSA by failing to include an established meal allowance, which was paid to employees while traveling, in the employees’ regular rate of pay.  In their collective action, the parties asserted that the company required employees to travel away from home and stay in hotels near remote job sites for four to eight weeks at a time. Employees then typically returned home for about two to four weeks before traveling to another remote location. They often worked more than 40 hours per week while at the remote location, triggering overtime pay.

Per Diem For Meals

The company provided its employees with a $35 per diem for meals for all days at the remote location as well as the days spent traveling to and from the remote job location. The company did not pay the $35 meal reimbursement on days that employees worked from their home location or when food was provided at the remote job site.

Exception To “Regular Rate” For Traveling Expenses

The regular rate of pay generally must be calculated to include all remuneration for services paid to the employee.   One exception to this rule is that employers can exclude from the regular rate all reasonable payments for traveling expenses incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer. The regulations state that this exemption includes the “reasonably approximate amount expended by an employee, who is traveling ‘over the road’ on his employer’s business, for . . . living expenses away from home . . . .” 29 C.F.R. § 778.217(b)(3). The company argued that the $35 meal payments were exempt travel expenses and therefore, need not be included in the calculation of the employees’ regular rate.

Meal Reimbursement Was Exempt Travel Expense

The employees countered by arguing that the $35 payments were not exempt travel expenses because the employees were no longer traveling while they worked at the remote job sites for four to eight weeks at a time. They also argued that the phrase “living expenses” did not include the cost of food. The Tenth Circuit disagreed on both arguments.

The Court reasoned that the employees’ position that they were no longer “traveling over the road” when they reached their remote job site was a “hyper-literal interpretation.” The Court instead read “traveling” more broadly to include not just time in transit, but also time away from home. On the employees’ argument that the cost of food did not qualify as a “living expense,” the Court agreed with prior determinations by the U.S. Department of Labor to find that the cost of food away from home is an additional expense that the employee incurs while traveling for the employer’s benefit and therefore, is a living expense. The Court ruled that the $35 per diem meal reimbursements were exempt travel expenses and need not be included in the employees’ regular rate when determining overtime pay. The Court upheld summary judgment in favor of the company. Sharp v. CGG Land Inc., No. 15-5113 (10th Cir. Nov. 4, 2016). Read more >>

December 1, 2016

DOL Appeals Overtime Rule Injunction: Webinar At Noon (MT) Today

6a013486823d73970c01b8d1dc5d4a970c-120wiBy Mark Wiletsky

On the very day that its final overtime rule was supposed to go into effect, the U.S. Department of Labor filed an appeal of last week’s preliminary injunction that temporarily halted the rule. The appeal will be heard by the Fifth Circuit Court of Appeals, which is located in New Orleans, Louisiana.

Will Appeal Be Expedited?

Appellate rules for the Fifth Circuit permit parties to file a motion for an expedited appeal, which means the appeal would be heard and ruled upon in a much shorter timeframe than normal, e.g., the normal timeframe for an appeal can be a year to 18 months. The court will grant such motion only for good cause. We expect that the DOL might try to expedite its appeal, especially given the change in administration coming in late January. As of this morning, however, there is no indication that the DOL has moved for an expedited appeal, but it is possible that it hasn’t been listed on the docket or otherwise been made public yet.

The DOL could also ask the district court to stay the preliminary injunction pending the appeal – in other words, to allow the new overtime rules to go into effect pending the outcome of the appeal. It is unlikely that the district court judge would grant a stay, but it would be a logical next step. Again, no motion to stay the injunction is yet listed on the court’s docket.

Webinar At Noon To Discuss Injunction and Appeal

Please join our free webinar at noon (MT) today (December 1, 2016) as I discuss what the preliminary injunction of the DOL’s overtime rule and the pending appeal mean for employers. I’ll also discuss options for employers who have been considering, or may even have implemented pay practices in anticipation of the overtime rule changes. Register for the webinar here. We will record the webinar for those unable to attend.

November 23, 2016

DOL’s Overtime Salary Threshold Increase Is On Hold – Now What?

6a013486823d73970c01b8d1dc5d4a970cBy Mark Wiletsky

Many human resource professionals got into the office today not knowing whether to laugh or cry. Most are happy that the Department of Labor’s (DOL’s) new overtime salary requirement will not go into effect next Thursday, December 1, 2016, due to a federal judge’s grant of a nationwide preliminary injunction which prevents the DOL from implementing and enforcing the new rule. (See our post yesterday reporting on the injunction.) Yet, many organizations have already spent countless hours preparing for the new rule to go into effect next week and are wondering what to do now. Let’s review where things stand and your best options going forward.

Nationwide Injunction Delays Final Overtime Rule 

In September, twenty-one states sued the DOL in federal court in Texas seeking to stop the DOL’s final rule that more than doubles the salary threshold for the so-called white collar exemptions and calls for automatic increases every three years. Business groups and industry associations also filed suit in the same Texas court seeking a similar outcome. The state-plaintiffs filed an emergency motion for a preliminary injunction. Shortly thereafter, the business-plaintiffs filed an expedited motion for summary judgment. The two cases were consolidated under Judge Amos L. Mazzant, III.

On November 16, 2016, Judge Mazzant heard oral argument on the state-plaintiffs’ emergency preliminary injunction motion. He issued his ruling yesterday, granting the preliminary injunction on a nationwide basis.

To prevail on their preliminary injunction motion, the states needed to show, among other things, that they would have a substantial likelihood of success on the merits of their case. The court ruled that the states met that burden, finding that the plain meaning of the executive, administrative, and professional exemptions in the Fair Labor Standards Act (FLSA) focused only on the duties of such positions, without a minimum salary level. The court stated that although the FLSA delegated authority to the DOL to establish the types of duties that might qualify an employee for these exemptions, it did not authorize the Department to disqualify employees who meet the duties requirements but do not meet the salary level established in the DOL’s final rule. The court concluded that the DOL exceeded its delegated authority and ignored Congress’s intent by raising the minimum salary level so that it “supplants the duties test.”

Anticipating The Next Legal Move

The preliminary injunction is only the first step in this legal challenge to the DOL’s final overtime rule, but it provides a huge blow to the Obama administration’s efforts to raise wages for U.S. workers. The DOL could appeal the court’s ruling to the Fifth Circuit Court of Appeals, but according to a DOL statement, the agency is still “considering all of [its] legal options.” Whether an appeal would be successful is unknown. Absent an appeal, the Texas lawsuits continue, with a permanent resolution still to be decided. Read more >>

June 21, 2016

Supreme Court Avoids Deciding Whether Car Dealership Service Advisors Are Exempt From Overtime Pay

Mumaugh_BBy Brian Mumaugh

The U.S. Supreme Court rejected the Department of Labor’s (DOL’s) 2011 rule that stated that “service advisors” at car dealerships are not exempt under the Fair Labor Standards Act (FLSA), but declined to take the final step by declaring them exempt under the FLSA. Instead, the Court sent the case back to the Ninth Circuit Court of Appeals to analyze whether service advisors are exempt under the applicable FLSA provision without regard to the DOL’s 2011 regulation.  Encino Motorcars, LLC v. Navarro, 579 U.S.  ___ (2016).

Duties of Service Advisors

At issue are the “service advisors” in a car dealership’s service department. These advisors typically greet the car owners who enter the service area, evaluate the service and repair needs of the vehicle owner, recommend services and repairs that should be done on the vehicle, and write up estimates for the cost of repairs and services before the vehicle is taken to the mechanics for service.

While service advisors do not sell cars, and they do not repair or service cars, they are essential in the sale of services to be performed on cars in the Service Department. Consequently, the issue is whether they fall within the FLSA exemption for salesmen, partsmen, or mechanics. The case before the Court involved numerous service advisors who sued their employer alleging, among other things, that the dealership failed to pay them overtime wages.

DOL Had Flip-Flopped On Exempt Status

In 1970, the DOL took the view that service advisors did not fall within the salesman/mechanic exemption and should receive overtime pay. Numerous courts deciding cases challenging the DOL’s earlier interpretation, however, rejected the DOL’s view and found service advisors exempt. After the contradictory rulings, the DOL changed its position, acquiescing to the view that service advisors were exempt from overtime pay. In a 1978 opinion letter, as confirmed in a 1987 amendment to its Field Operations Handbook, the DOL clarified that service advisors should be treated as exempt.

After more than 30 years operating under that interpretation, the DOL flip-flopped again in 2011. After going through a notice-and-comment period, the DOL adopted a final rule that reverted to its original position that service advisors were not exempt and were entitled to overtime. It stated that it interpreted the statutory term “salesman” to mean only an employee who sells automobiles, trucks, or farm implements, not one who sells services for automobiles and trucks, as service advisors do.

Dealerships were understandably unhappy with the final rule and continued to challenge the DOL’s position in court. As cases went up on appeal, the Fourth and Fifth Circuit Courts of Appeals ruled that the DOL’s interpretation was incorrect. The Ninth Circuit disagreed, ruling instead to uphold the agency’s interpretation. Those contradictory decisions led the Supreme Court to take on the issue in the Encino Motorcars case. Read more >>

March 22, 2016

Class-Action Lawsuit Permitted To Rely On Sample Data To Determine Wages Owed

Husband_JBy John Husband

In the absence of actual time records, time spent by employees donning and doffing protective gear may be established by representative evidence in order to establish the employer’s liability for unpaid overtime pay in a class action lawsuit, ruled the U.S. Supreme Court today. The Court rejected the company’s argument that each employees’ wage claim varied too much to be resolved on a classwide basis. Instead, the Court upheld the class certification, sending the case back to the district court to determine how to distribute to class members the $2.9 million dollar jury award. Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. ___ (2016).

Pay For Donning and Doffing Protective Gear

Under the Fair Labor Standards Act (FLSA), it is well established that employers must pay employees for time spent performing preliminary or postliminary activities that are “integral and indispensable” to their regular work. In the Tyson Foods case, over 3,300 pork processing employees sued, alleging that the company failed to pay them for time spent putting on and taking off required protective gear at the start and end of their work shifts and at meal periods. The employees argued that such time was “integral and indispensable” to their work and that when added to their weekly work hours, pushed them beyond 40 hours per week resulting in unpaid overtime.

Because Tyson Foods did not keep any time records for donning and doffing time, the employees presented representative evidence of the time spend on those activities, including employee testimony, video recordings of the donning and doffing process at the plant, and a study by an industrial relations expert, Dr. Kenneth Mericle. Dr. Mericle analyzed 744 videotaped observations to determine how long various donning and doffing activities took, concluding that employees in the kill department took an estimated 21.25 minutes per day while workers in the cut and retrim departments took an estimated 18 minutes per day. Using that data, another expert added that time to each employees’ recorded work time to determine how many hours each employee worked per week.

Tyson Foods argued that because the workers did not all wear the same protective gear, each individual plaintiff spent different amounts of time donning and doffing the gear. Therefore, Tyson Foods maintained that whether and to what extent it owed overtime pay to each individual employee was a question that could not be resolved on a class-action basis. Importantly, Tyson Foods did not attack the credibility of the employees’ expert or attempt to discredit the statistical evidence through its own expert, but instead opposed class certification on the basis that the individual variances of the time spent by each employee made the lawsuit too speculative for classwide recovery. 

Employee-Specific Pay Inquiries Do Not Destroy Class Action

The Court determined that the employees’ use of Dr. Mericle’s representative study was permissible to establish hours worked in order to fill the evidentiary gap created by the employer’s failure to keep time records of the donning and doffing activities. The Court refused to define a broad-reaching rule about when statistical evidence may be used to establish classwide liability, stating instead that it would depend on the purpose for which the evidence was being introduced and the elements of the underlying action. It ruled it appropriate to rely on  sample evidence when each class member could have relied on that sample to establish liability if he or she had brought an individual lawsuit. In the wage and hour context, if the sample data could permit a reasonable jury to find the number of hours worked in each employees’ individual action, the “sample is a permissible means of establishing the employees’ hours worked in a class action.”

The Court, in its 6-to-2 decision, refused to rule on the issue of how the jury’s $2.9 million award would need to be dispersed among the class members and how to prevent uninjured class members (i.e., those whose donning and doffing time did not result in overtime) from recovering any part of the award. In fact, Chief Justice Roberts, writing a separate concurring opinion, expressed his concern that the district court would not be able to devise an allocation method that would award damages only to those class members who suffered an actual injury. But, because the majority found that the allocation methodology issue was not before the Court, the case gets sent back to the trial court for that determination.

Litigation Tactics To Oppose Class Certification

The Court noted numerous litigation strategies by Tyson Foods that may have proved fatal to its case. First, Tyson Foods failed to move for a hearing to challenge the admissibility of the employees’ expert study by Dr. Mericle. A so-called Daubert hearing would have offered Tyson the chance to keep the representative sample out of the trial which may have eliminated the employees’ evidence of time spent donning and doffing protective gear.

Second, the Court noted that Tyson Foods did not attempt to discredit Dr. Mericle’s sample evidence through an expert of its own. By focusing its trial strategy only on attacking the class certification issue, the jury was left without any rebuttal to the employees’ experts.

Finally, Tyson Foods rejected splitting the jury trial into two phases, a liability phase and a damages phase. Instead, it insisted on a single proceeding in which damages would be calculated in the aggregate and by the jury. The jury came back with a $2.9 million award, which was half of what the employees’ sought, but still a significant award against Tyson Foods.

Blow To Businesses Defending Class Actions

Although the Court refrained from approving the use of representative data in all class-action cases, the Court’s decision makes it more difficult for employers to object to sample data when defending a class or collective action. Noting that representative data is not an appropriate means to overcome the absence of a common employer policy that applies to all class members, per its 2011 Wal-Mart Stores, Inc. v. Dukes decision, the Court allowed representative data to fill the evidentiary gap regarding hours worked where each employee worked in the same facility, did similar work, and was paid under the same policy.

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March 17, 2016

New Overtime Regulations May Be Finalized Sooner Than Expected

Biggs_JBy Jude Biggs

The U.S. Department of Labor’s (DOL’s) agenda specifies that its final overtime regulations are due to be published in July, but recent developments suggest they may be released a few months earlier.  With the salary threshold for the white collar exemptions going up from the current $23,660 to over $50,000 per year, employers need to prepare now for the changes.

DOL’s Overtime Rule Sent To OMB

On March 15, 2016, the DOL sent its proposed final overtime regulations to the Office of Management and Budget (OMB) which is the final step before the rule can be published. The OMB review process typically takes one to two months, but speculation suggests that the review of this rule may be sped up to allow for publication as early as April or May.

The political environment in Washington, D.C. and fact that this is an election year may be to blame for the expedited process. The Congressional Review Act (Act) provides Congress with 60 legislative days to review any final rule issued by a federal agency. If Congress disapproves of the regulation, which current Republicans in Congress are sure to do with the overtime rule, it may pass a resolution to nullify the rule. The President can veto that resolution, but then Congress has the opportunity to override the veto by a two-thirds vote.

Because of an unusual provision in the Act, any new rule that is not submitted to Congress within 60 session days of the adjournment of the Senate or House, may be subject to a renewed review by the new Congress in the next Congressional session (with potential veto by a newly elected President). Or, if Congress’s 60-day-review period extends after the presidential inauguration, the new President may let a resolution of disapproval stand, killing the rule. The Obama Administration will not want to take the chance that a new Congress and/or President gets to review the overtime rule in 2017 so it is expected that the White House will do everything possible to get the new overtime rule to Congress prior to the cutoff date.

Salary Threshold For Exemptions Will More Than Double

The DOL’s proposed rule raises the salary threshold for the white collar exemptions from the current $455 to an expected $970 per week, more than doubling the annual salary level to more than $50,000. The salary threshold for the highly compensated employee exemption will increase from the current $100,000 to more than $122,000 per year. The DOL estimates that almost five million U.S. workers who are currently exempt will be entitled to minimum wage and overtime compensation under the new salary level requirements. In addition, the final rule will include an automatic annual adjustment provision that will require that the salary thresholds be adjusted each year to keep up with inflation.

Next Steps

With a compressed timeline for the new rule to become effective, employers need to take steps now to decide how to handle employees who no longer qualify as exempt under the new rules. Some companies may choose to increase exempt employee salaries to meet the new threshold in order to retain the exemption. Others may choose instead to change the status of some workers’ status to non-exempt and pay them overtime. Either way, employers need to get a plan in place to prevent headaches and potential wage claims when the final rule goes into effect.

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November 4, 2015

2016 Colorado Minimum Wage Going Up To $8.31 Per Hour

Hobbs-Wright_EBy Emily Hobbs-Wright 

Minimum wage workers in Colorado will see a one percent increase in their hourly wage in 2016. The Colorado Division of Labor has proposed to increase the minimum wage from the current $8.23 per hour to $8.31 per hour beginning January 1, 2016. The minimum wage for tipped employees will increase from $5.21 to $5.29 per hour. 

The Colorado Constitution mandates that the state minimum wage rates be automatically adjusted for inflation each year. The new wage rates for 2016 reflect that the consumer price index (CPI) for the Denver-Boulder-Greeley urban area for the first half of 2015 went up overall by one percent from the first half of 2014. The Bureau of Labor Statistics noted that higher costs for housing, up 5.5%, were largely responsible for the overall increase. Food prices rose 1.5 percent and other items were up 3.2%. Despite a 21.7% decrease in energy costs, the overall CPI for urban consumers was up one percent. 

Proposed Minimum Wage Order Number 32 will be up for comment at a public hearing on November 9, 2015, after which the Division of Labor will issue its final rule. Information about the hearing and submitting written comments is available on the Division’s website

As a reminder, Colorado’s state minimum wage rates apply if either of the following two situations applies to an employee: 

1. The employee is covered by the minimum wage provisions of Colorado Minimum Wage Order Number 32; or 

2. The employee is covered by the minimum wage provisions of the Fair Labor Standards Act. 

If in doubt about the application of Colorado’s wage laws, be sure to consult with your employment counsel.

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August 24, 2015

Home Care Workers Entitled to Minimum Wage and Overtime

BWiletsky_My Mark Wiletsky 

Agencies that provide companionship or live-in care services for the elderly, ill or disabled will now have to pay their home care workers minimum wage and overtime pay under the Fair Labor Standards Act (FLSA). Reversing a lower court decision, the Court of Appeals for the District of Columbia upheld the Department of Labor’s (DOL’s) new regulations that removed those employees from the “domestic service” exemption. The Court also struck down the challenge to the DOL’s revised definition of companionship services that now places a duty restriction on workers who may be considered exempt. 

Extension of FLSA Protections Is Reasonable 

For years, individuals who provide companionship or live-in care services were exempt from the minimum wage and overtime rules under the FLSA, even if those individuals were employed by a third party.  In 2013, however, the DOL reversed its prior interpretation of the domestic service exemption, adopting new regulations stating that third-party employers of companionship-services and live-in employees could no longer use the exemption to avoid paying minimum wage and overtime pay to their home care workers. The new regulations also narrowed the definition of companionship services: a worker providing exempt services can spend no more than 20 percent of his or her total hours worked on the provision of care, including meal preparation, driving, light housework, managing finances, assistance with the physical taking of medications, and arranging medical care. 

Before the new rules went into effect, trade associations representing third-party agencies that employ home care workers challenged the DOL’s new regulations in court and the district judge declared them invalid. The lower court ruled that the DOL’s decision to exclude a class of employees from the exemption because they were employed by a third-party agency contravened the plain terms of the FLSA. The court also threw out the DOL’s revised definition of companionship services, with its 20 percent limit on care-related tasks, as contrary to both the text and intent of the statutory exemption. 

On August 21, 2015, the Circuit Court of Appeals for the District of Columbia disagreed and upheld the new regulations. The appellate court found that the FLSA exemption did not specifically address the third-party employment question and therefore, the DOL had the authority to create rules and regulations to fill in the gap. 

The court also determined that the DOL’s new interpretation was “entirely reasonable.” The DOL explained that its change in policy was due to the change in the market for home health care. In the 1970’s, professional care for the elderly and disabled was primarily provided in hospitals and nursing homes so that services in the home were largely that of an “elder sitter” or companion. More recently, however, individuals needing a significant amount of care were now receiving that care in their own homes, provided by professionals employed by third-party agencies rather than by workers hired directly by care recipients or their families. These changes, as well as Congress’s intent to bring more workers within the FLSA’s protections, convinced the court that the DOL’s changed interpretation was reasonable. 

Potential Adverse Effects of FLSA Coverage Unfounded 

The third-party agencies challenging the DOL’s regulations argued that requiring minimum wage and overtime pay for home care workers would raise the cost of their services, making home care less affordable and creating a “perverse incentive for re-institutionalization of the elderly and disabled.” The DOL countered by pointing to fifteen states where minimum wage and overtime protections already extend to most third-party-employed home care workers and noted that there was no reliable data that these pay protections led either to increased institutionalization or a decline in the continuity of care. The DOL also cited the industry’s own survey that indicated that home care agencies operating in those fifteen states had a similar percentage of consumers receiving 24-hour care as those agencies in non-overtime states. 

The DOL further argued that the new rules would improve the quality of home care services, thus benefitting consumers, because the revised regulations would result in better qualified employees and lower turnover. It would also reflect the reality that home care workers employed by third-party agencies are professional caregivers, many of whom have training or certifications, who work for agencies that profit from their employees’ services. The appellate court found the DOL’s position reasonable, upholding its regulations. 

No Standing to Challenge Narrowed Definition of Companionship Services 

By ruling that the third-party agencies could not use the domestic services exemption, the court removed the ability of those agencies to use the companionship services definition to exempt home care workers from minimum wage and overtime protections. As a result, the trade associations’ members challenging the new, narrowed definition of companionship services would not be directly harmed by the revised definition. Because they would not suffer any injury from the narrowed definition, the challengers lacked standing to oppose the revision, denying the court of jurisdiction to resolve that issue. Consequently, the court ordered that judgment be entered in favor of the DOL. 

Practical Effect for Home Care Employers 

Pending any appeals, the DOL’s new regulations removing the ability of third-party home care agencies to exempt their home care workers from FLSA minimum wage and overtime pay will go into effect. Employers of home care workers should take steps now to ensure that they comply with the FLSA minimum wage requirement for all hours worked as well as paying an overtime premium for all hours worked over 40 per week. In addition to updating your pay practices, be sure to revise any affected policies and statements in your employee handbook, operational manual, timekeeping procedures, job advertisements and recruiting materials.

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July 20, 2015

Unpaid Internships Permitted Under New Test

Williams_BBy Brad Williams 

A federal circuit court has adopted a new test permitting employers to use unpaid interns where the “tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.”  In Glatt v. Fox Searchlight Pictures, Inc., 2015 WL 4033018 (2nd Cir. July 2, 2015), the U.S. Court of Appeals for the Second Circuit rejected a stringent and outdated six-part test promoted by the Department of Labor (DOL) for determining whether “interns” are actually “employees” within the meaning of federal wage and hour law.  Glatt will have a significant impact on intern-initiated litigation, including by making class or collective actions more difficult to prosecute in jurisdictions that adopt the test. 

Background to Glatt 

Internships have become a hot-button topic in recent years.  In 2010, the DOL issued “Fact Sheet #71” to educate private sector, for-profit employers about unpaid interns and to dissuade their use.  Derived from a 1947 U.S. Supreme Court case that addressed the use of “trainees” hoping to become railroad brakemen, the Fact Sheet listed six criteria that the DOL believed must be satisfied for interns to be excluded from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements.  Most notably, these criteria included requirements that employers derive “no immediate advantage” from interns’ activities and that interns not “displace” regular employees (e.g., by preventing their hiring, or by absorbing overtime hours).  The DOL took the position that all six criteria must be satisfied for the “trainee” / “intern” exception to apply.  However, because most employers receive at least some benefit from unpaid interns, the DOL’s rule would effectively preclude all private sector, for-profit businesses from using unpaid interns, except in unusual cases involving bona fide educational programs and job shadowing. 

Based largely on the DOL’s position, interns initiated a wave of class and collective actions across the country alleging that they had been wrongly classified as “interns” rather than “employees.”  Despite ambiguity in the controlling case law, employers settled many of these lawsuits at great expense and out of fear that satisfying the DOL’s six-factor test would prove impossible.  For instance, Condé Nast settled a class action involving 7,500 interns for $5.8 million in 2014, and Saturday Night Live settled a similar lawsuit involving thousands of interns for $6.4 million that same year.  Other employers elected to discontinue their internship programs altogether to avoid the threat of litigation. 

Case Law Response to DOL’s Six-Factor Test 

Despite employers’ capitulation in the face of class and collective action threats, the actual test for distinguishing between “interns” and “employees” under the FLSA has always been ambiguous.  Although the DOL has long promoted its six-part test, it has vacillated in opinion letters and other administrative guidance regarding whether all six criteria must be satisfied.  For their part, courts have afforded the DOL’s test some deference, but have rarely held that all six criteria must be met.  Instead, they have considered the “totality of the circumstances” or the “economic realities” of interns’ and employers’ relationships in determining whether interns (or similar workers) are actually “employees.”  Many of these cases are based upon U.S. Supreme Court cases like Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947), and Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290 (1985).  Other courts – most notably the U.S. Court of Appeals for the Sixth Circuit in Solis v. Laurelbrook Sanitarium & Sch.. Inc., 642 F.3d 518 (6th Cir. 2011) – have eschewed the DOL’s six-part test altogether, favoring a “primary beneficiary” test which looks at which party receives the primary benefit of an internship.  In Solis, the Sixth Circuit concluded that the “primary beneficiary” test was supported by Walling v. Portland Terminal Co., 330 U.S. 148 (1947), the very same 1947 U.S. Supreme Court case on which the DOL purported to base its six-factor test. 

District Court Decisions in Glatt and Hearst 

The Glatt case was originally filed in 2011 in New York by former interns of Fox Searchlight Pictures who had worked on the film Black Swan.  A similar lawsuit was filed in 2012 in New York by former interns of Hearst Corp. who had worked on magazines including Harper’s Bazaar and Marie Claire.  Both cases were high-profile and amongst the first wave of intern-initiated lawsuits to work their way through the courts.  Both were closely watched by employers concerned about the legality of internships. 

In 2013, the district court in Glatt held that two of plaintiffs were “employees” rather than “interns”/ “trainees” under the FLSA and state law.  The court applied a version of the DOL’s six-factor test but did not expressly hold that all six factors must be satisfied.  The court also granted class and conditional collective action certifications to a third plaintiff. 

Also in 2013, the district court in Hearst held that the magazine interns were not “employees” under the FLSA and state law based on a “totality of the circumstances” test.  The court denied the plaintiffs’ motion for class certification.  Because Glatt and Hearst addressed the same issues, but reached different results, they were eventually consolidated for argument on appeal to the U.S. Court of Appeals for the Second Circuit.

Second Circuit’s Adoption of “Primary Beneficiary” Test in Glatt 

On July 2, 2015, the Second Circuit issued its long-awaited decision in Glatt.  That same day, it issued a summary order in the companion case, Hearst.  In Glatt, the court rejected both the DOL’s six-factor test, and the plaintiffs’ insistence that they were automatically “employees” of Fox Searchlight Pictures because the company had received an “immediate advantage” from their work.  The court found the DOL’s six-factor test unpersuasive, and afforded it virtually no deference because it was based upon the DOL’s reading of Walling, which the Second Circuit concluded it was equally competent to construe (along with other U.S. Supreme Court cases). 

Accepting Fox Searchlight Pictures’ argument, the Second Circuit adopted a “primary beneficiary” test, holding that “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.”  Although not fully articulated in the court’s decision, this test is supported by both a defensible reading of Walling, and later U.S. Supreme Court cases mandating consideration of the “totality of the circumstances” and the “economic realities” of the parties’ relationships.  To help lower courts apply the new test, the Second Circuit listed seven non-exclusive factors to consider in determining whether an intern or an employer is the “primary beneficiary” of an internship: 

  • The extent to which the intern and the employer clearly understand that there is no expectation of compensation.  Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa. 
  • The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions. 
  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit. 
  • The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar. 
  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning. 
  • The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  • The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. 

Because the district court in Glatt had not expressly considered these factors, the Second Circuit vacated the lower court’s decision and remanded for further proceedings.  Given its holding in Glatt, the Second Circuit also vacated the district court’s decision in Hearst and remanded for further proceedings. 

Glatts Impact in the Second Circuit and Beyond 

Glatt’s “primary beneficiary” test is more favorable to employers than the DOL’s six-factor test.  The fact that employers receive some benefit from interns’ work no longer means that internships are automatically illegal.  In addition, the individualized assessment required to determine whether an intern – as opposed to an employer – benefits more from an internship under the test means that class and collective actions might now prove impossible to certify.  In fact, the Second Circuit vacated the district court’s class and conditional collective action certifications in Glatt, and affirmed the district court’s denial of class certification in Hearst.  This strongly suggests that class and collective actions may no longer be appropriate vehicles for resolving intern classification disputes in jurisdictions that apply the new test.  To the extent that Glatt or Hearst proceed in the courts below, the defendants will likely face liability only as to individual interns, not entire classes.

Glatt’s new test is currently only the law in the Second Circuit, which covers Connecticut, New York, and Vermont.  However, the test for distinguishing between “interns” and “employees” remains in flux in many jurisdictions, and other federal circuit courts may adopt similar tests as more intern-initiated lawsuits work their way through the courts. For instance, the U.S. Court of Appeals for the Tenth Circuit – which covers Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming – currently applies a “totality of the circumstances” test based on Reich v. Parker Fire Prot. Dist., 992 F.2d 1023 (10th Cir. 1993).  However, like Glatt, Reich recognized that the DOL’s six-factor test was unpersuasive, and the case contains language consonant with Glatt’s “primary beneficiary” test. 
The Tenth Circuit may eventually adopt a more favorable standard if and when it revisits intern classification.  Regardless of how the case law develops, however, Glatt plainly illustrates the weakness in the DOL’s six-factor test, and shows that employers may profitably resist intern class or collective actions, even when it requires making new law.

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