CLOSE X
RSS Feed LinkedIn Instagram Twitter Facebook
Search:
FMG Law Blog Line

Posts Tagged ‘Fair Labor Standards Act’

To Bonus or Not to Bonus? Departing from the FLSA, the California Supreme Court Clarifies Calculation of Overtime Including Flat Sum Bonuses

Posted on: April 16th, 2018

By: Christine C. Lee

Calculating the correct overtime pay rate for non-exempt employees just got a little more complicated for California employers who elect to pay bonuses.  In the recent case of Alvarado v. Dart Container Corporation of California, plaintiff Hector Alvarado, a non-exempt warehouse worker, was paid a flat “attendance bonus” of $15 per day in addition to his hourly rate if he worked a full shift on a Saturday or Sunday.  Because there was no California statute, regulation or wage order directing how employers should calculate the rate of pay for overtime purposes when such non-discretionary flat sum bonuses are paid, the employer, Dart Container Corporation of California, followed the methodology set forth in the federal Fair Labor Standards Act (FLSA).

Dart calculated the overtime pay rate by taking Mr. Alvarado’s total earnings in the relevant pay period, which included the attendance bonuses, and dividing that figure by all hours worked in the pay period including overtime.  Using this figure, Dart paid Mr. Alvarado 1.5 times this rate for every overtime hour worked.

To thank his employer for the bonuses, Mr. Alvarado sued Dart in a wage and hour class action alleging Dart miscalculated the overtime rate of pay.  He argued Dart should have divided the period’s earnings and attendance bonuses only by the amount of non-overtime hours worked which would have resulted in a marginally higher overtime rate of pay.  In support of his position, Mr. Alvarado relied on the California Division of Labor Standards Enforcement’s (DLSE) Enforcement Policies and Interpretations Manual which states that when employees earn a flat sum bonus, their overtime rate is determined by dividing the regular and bonus earnings only by the regular non-overtime hours worked during the relevant pay period.  The case reached the California Supreme Court for guidance.

There, Dart argued because its formula complied with the federal FLSA when California law gave no guidance, its methodology was lawful.  Dart also argued the DLSE Manual was merely an underground regulation and interpretation of the law and therefore was not entitled to any special deference.  The Court agreed the DLSE manual was not entitled to special deference.  Nevertheless, the Court held “[W]e are obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee’s interests.”  The Court found Mr. Alvarado’s method was “marginally more favorable to employees” and should now be the law of California.  To add further ambiguity to its ruling, the Court cautioned this methodology only applied to non-production related flat sum bonuses and not necessarily to production-based bonuses such as piece rate or commission-based bonuses.

Dart requested only prospective application of the Court’s rulings since California law had been unclear up to that point.  The Court refused the request, leaving Dart on the hook for 4+ years’ worth of unpaid overtime, penalties for inaccurate wage statements, penalties under Labor Code §203 and California’s Private Attorney General Act, and attorney’s fees and costs.

The unfortunate result of this decision is that employers may stop bonusing non-exempt employees and/or flee California to avoid this kind of catastrophic litigation.

If you have any questions or would like more information, please contact Christine Lee at [email protected].

 

Back Where We Started: Service Advisors Once Again Are Exempt From Federal Overtime Requirements

Posted on: April 3rd, 2018

By: Brad Adler & Michael Hill

After years of back and forth in the lowers courts, the Supreme Court has ruled that service advisors at auto dealerships are exempt employees under the Fair Labor Standards Act (“FLSA”).  It’s the rare case that goes to the Supreme Court twice.  But after taking the scenic route through the federal court system, the Supreme Court’s Encino Motorcars, LLC v. Navarro decision finally has arrived and brought much-needed clarity to auto dealerships across the country.

As we have written in several previous blogs, the confusion began in 2011, when the U.S. Department of Labor (“DOL”) suddenly (and without explanation) reversed its decades-old position that service advisors were exempt from the FLSA.  The text of the statute at issue provides that “salesman . . . primarily engaged in selling or servicing automobiles” at covered dealerships are exempt.  Since the 1970s, courts and even the DOL itself took the position that a service advisor was such a “salesman.”  In 2011, however, the DOL threw a monkey wrench under the hood by issuing a new rule that “salesman” under the statute no longer would include a service advisor.

This ruling from the Supreme Court, however, applies a straightforward interpretation of the statute’s language and holds that a service advisor is a “salesman . . . primarily engaged in . . . servicing automobiles.”  According to Justice Clarence Thomas, who authored the majority’s opinion, “servicing automobiles” includes more than just working underneath the hood of a car.  “Servicing” is a concept broad enough to encompass meeting with customers, listening to their concerns, suggesting or recommending certain repairs and maintenance, selling new accessories or replacement parts, following up with customers as services are performed, and explaining the repairs and maintenance work to customers when they come to pick up their vehicles.

The Encino Motorcars decision also brought back a special souvenir for employers in other industries.  In reversing the Ninth Circuit’s decision, the Supreme Court expressly rejected the oft-quoted principle that exemptions to the FLSA “should be construed narrowly.”  It now is the Supreme Court’s view that, because the FLSA does not actually say its exemptions should be interpreted narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”  As there are over two dozen exemptions just to the overtime-pay requirement of the FLSA, Encino Motorcars may provide some ammunition for employers fighting exemption disputes in the future.

For questions about this case or how it may impact your business, or other questions or advice regarding wage and hour laws, please contact [email protected] or [email protected].

Congress Steps Into Tip-Pooling Fight

Posted on: March 23rd, 2018

By: Timothy J. Holdsworth

We wrote previously about the background on the tip-pooling regulations and the DOL’s Notice of Proposed Rulemaking (“NPR”) that would allow tip-pooling arrangements that include employees who do not regularly and customarily receive tips under the Fair Labor Standards Act (“FLSA”). The DOL received a considerable number of comments on the NPR, some of which worried that the NPR would allow employers to keep their workers’ tips.

Buried in the spending bill Congress passed (pages 2025-2027 if you are dying to read it) is a rider that will affect the current U.S. Department of Labor (“DOL”) laws on tips. The bill proposes language that prohibits an employer, including managers and supervisors, from keeping tips received by employees. This prohibition would apply regardless of whether the employer takes the tip credit. The rider also would make employers liable to employees for any tips unlawfully kept by the employer.

If the bill is signed by President Trump, these may substantially affect any tip-pooling arrangements employers planned to enact under the NPR. It is also unclear if the DOL may try to revise the NPR in any way.

The provision would also subject employers to new liability under the FLSA. Just last year, the Eleventh Circuit (Alabama, Florida, and Georgia) in Malivuk v. Ameripark, LLC held that the FLSA does not authorize an employee to sue her employer solely for an employer allegedly withholding her tips when the employee does not allege that she received less than the minimum wage or less than what she was entitled to for overtime work. The rider creates a new cause of action solely for withheld tips.

If you have any questions about what these potential changes may mean for your business or would like more information on navigating wage and hour laws, please contact Tim Holdsworth at [email protected].

DOL To Rescind 2011 Tip-Pooling Regulations

Posted on: December 19th, 2017

By: Timothy J. Holdsworth

In 2011, the U.S. Department of Labor (“DOL”) revised its regulations to support its position that the Fair Labor Standards Act (“FLSA”) requires that tipped employees retain all their tips regardless of whether the employer takes the tip credit for those employees. These regulations have repeatedly been challenged in courts, and circuits have split over their legality. In addition, several states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) have enacted legislation requiring employers to pay tipped employees the state minimum wage, effectively abolishing the federal tip credit.

As we predicted, in the wake of this litigation and legislation the DOL has issued a Notice of Proposed Rulemaking (“NPRM”) announcing its intent to reverse these 2011 regulations in part. The DOL now proposes to rescind the portion of the regulations that apply to employers that do not take a tip credit, but instead pay wages of at least the federal minimum wage.

One major effect of this change is that employers would now be able to create tip-pooling arrangements that include employees who do not regularly and customarily receive tips. For example, a restaurant could share tips among both servers and dishwashers. In its NPR, the DOL acknowledges that its proposed changes will allow employers and employees greater flexibility in determining their pay policies and allow employers to reduce wage disparities among all employees that contribute to customers’ experience.

The DOL will be accepting public comments on its proposed changes until February 5, 2018. We will update you once the DOL announces the finalized changes, but we do not expect the DOL to modify the changes significantly (if they decide to do so at all). Until the portions of the regulation are rescinded, employers need to be sure their tip policies comply with the current interpretation of the 2011 regulation in their circuit. Additionally, employers need to comply with any applicable state and local compensation laws and regulations regarding tips and tip-pooling, as they could face liability under those laws regardless of the proposed changes discussed in this blog.

If you have any questions about these changes or would like more information on navigating wage and hour laws, please contact Timothy J. Holdsworth at [email protected].

SCOTUS Rules Employers May “Pick-Off” FLSA Plaintiffs

Posted on: April 18th, 2013

By: Anthony Del Rio

The U.S. Supreme Court has issued its opinion on a case regarding whether an employer may “pick-off” the named plaintiff in a Fair Labor Standards Act (“FLSA”) collective action. The Court ruled 5-4 in favor of the employer, which means that employers may be able to use a Rule 68 offer of judgment to short-circuit FLSA collective actions in the future.

The case, Genesis HealthCare Corp. v. Symczyk, involved an employee that filed a FLSA wage and hour claim intended to be a collective action. The defendant made a Rule 68 offer of judgment that would have given the plaintiff everything she could possibly have obtained through the lawsuit (all alleged damages and attorneys’ fees), effectively mooting her claim before any other employees joined the collective action. The plaintiff did not accept the offer before the prescribed deadline, and the defendant moved to dismiss. The district court dismissed the case, because it was moot as to the only plaintiff. However, the Third Circuit Court of Appeals, while acknowledging the individual’s claim was moot, was persuaded by the plaintiff’s argument that it was a litigation tactic to “pick-off” the lead plaintiff and reversed the district court’s ruling.

The Supreme Court sided with the district court. The holding now provides solid ground for employers to attempt to moot collective actions before they start. However, the majority did not hold that an unaccepted Rule 68 offers will always moot a plaintiff’s FLSA claims, because that issue had not been appealed. Unfortunately, there is conflicting case law regarding whether an FLSA claim is mooted by an unaccepted offer of judgment. Nonetheless, the Supreme Court has provided employers with what may be a very useful tool in defeating FLSA collective actions.

The opinion is available here:  http://www.supremecourt.gov/opinions/12pdf/11-1059_5ifl.pdf