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Posts Tagged ‘Fair Labor Standards Act’

Is Wellness Activity Participation Compensable?

Posted on: September 25th, 2018

By: Joyce Mocek

The Department of Labor (DOL) recently issued an opinion letter on whether employees must be compensated under the Fair Labor Standards Act (FLSA) for the time they spend participating in wellness activities.   In this inquiry, the employer advised the DOL that it allowed its employees to participate in wellness programs including “biometric screening,” (ie cholesterol levels, blood pressure and nicotine usage screening), during and outside of regular work hours.  The screening information could result in a decrease in the employee’s health insurance deductible.  The screening was not related to the employee’s job, there were no restrictions on the time an employee could participate in the events, and participation was not required by the employer.

In its opinion letter, the DOL noted the employer received no financial benefit as a result of the employee participation in the activities, and the employee’s voluntary participation predominantly benefited the employee.  The employer did not require the employee to perform any job related duties while they were participating in the activities.  Thus, since the activities predominantly benefited the employee, the DOL opined that the time the employees spent participating in the wellness program did not constitute worktime under the FLSA.  Further, since the employee was relieved of all duties, and not restricted in the amount of time they could participate in the activities, the time spent was considered non-compensable “off  duty” time.

Employers with wellness programs should review their policies concerning such programs, to ensure they follow the guidance recently outlined by the DOL in this opinion letter to avoid potential FLSA issues.

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

The Side Work Struggle: Nonprofit Restaurant Group Challenges The 80/20 Tip Credit Rule In Texas Federal Court

Posted on: September 19th, 2018

By: John McAvoy

On July 6, 2018, a nonprofit restaurant advocacy group filed suit against the U.S. Department of Labor in Texas Federal Court challenging the rule that governs the compensation of tipped employees; specifically, the DOL’s “80/20 Tip Credit Rule” or “20% Rule” set forth in the 2012 revision to the DOL’s Field Operations Handbook. Restaurant Law Center v. U.S. Dept. of Labor, No. 18-cv-567 (W.D. Tex. July 6, 2018).

Under the Fair Labor Standards Act (the “FLSA”), employers may pay a “tipped employee”—i.e., “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips”—a cash wage of $2.13 per hour (or more) so long as the employer satisfies certain statutory criteria, including that the employee’s tips plus the cash wage equal the minimum wage. See 29 U.S.C. §§ 203(m), 203(t). That means tips are credited against – and satisfy a portion of – employers’ obligation to pay minimum wage. Congress has noted occupations in which workers qualify for this so-called tip credit: “waiters, bellhops, waitresses, countermen, busboys, service bartenders, etc.” S. Rep. No. 93-690, at 43 (Feb. 22, 1974).

The FLSA tip credit is not available to employers in all situations. Rather, the 80/20 Tip Credit Rule limits the use of a tip credit wage where workers spend more than 20% of their time performing secondary work not directly related to tip-generating activities. Such secondary work is universally known throughout the restaurant industry as “side work.”

Side work encompasses any and all secondary tasks restaurant employees must complete in addition to their primary responsibilities waiting tables, expediting food, bussing tables or tending bar. Side work generally includes things like rolling silverware, restocking glasses and various other items, cleaning and/or any other behind the scenes tasks necessary to ensure that restaurant operations run smoothly.

The 80/20 Tip Credit Rule provides that if a tipped employee spends more than 20% of his or her time during a workweek performing side work, i.e. duties that are not directly related to generating tips, the employer may not take a tip credit for the time spent performing those duties.

Tipped employees and employers throughout the industry share a deep-seated aversion to the 80/20 Tip Credit Rule for three (3) main reasons. First, the Rule is unclear as to what is, and what is not, an allegedly “tip generating” duty. Second, side work varies from restaurant to restaurant and shift to shift and is subject to unpredictable external conditions; most notably, the number of patrons that dine in the restaurant on any given day. For example, a bartender working the Saturday night shift in a chain restaurant may spend 95% of his or her shift serving customers, and a mere 5% on side work. However, that same bartender may open the restaurant the following day (Sunday morning) and spend 40% of his or her shift on side work from the night before, and only 60% serving customers. Third, tipped employees do not generally log their hours separately by task. As a result, tipped employees and their employers have struggled to apply the Rule. Tipped employees have to ask themselves whether they are working for less than minimum wage, and employers have to constantly wonder whether they are in compliance with the current state of the 80/20 Rule.

These issues, among others, have spawned several lawsuits challenging the 80/20 Tip Credit Rule. For example, the plaintiff in Restaurant Law Center contends, among other things, that the DOL “surreptitiously and improperly” created the 80/20 Tip Credit Rule, rather than abiding by the rulemaking process, thereby violating the Administrative Procedure Act.

Restaurant Law Center is worth mentioning because there is a split emerging among the circuit courts as to the 80/20 Tip Credit Rule’s validity. In 2011, the U.S. Court of Appeals for the Eighth Circuit upheld the validity of the Rule. However, in September 2017, a three-judge panel from the U.S. Court of Appeals for the Ninth Circuit concluded that the DOL effectively imposed new recordkeeping guidelines on employers to determine which tasks are tip generating and which are not.  In doing so, the Ninth Circuit held that the DOL had created a new regulation inconsistent with the “dual jobs” regulation. Shortly after the Ninth Circuit’s three-judge panel issued this opinion, the Ninth Circuit granted a rehearing before the full panel. Although the case was re-argued in March 2018, the full panel has yet to issue its opinion. If the Ninth Circuit upholds its prior decision, or the Fifth Circuit (where the July 6, 2018 lawsuit is pending) ultimately invalidates the 80/20 Tip Credit Rule on appeal, there will be a split among the federal appeals courts, opening the doors for the U.S. Supreme Court to decide the validity and enforceability of the 80/20 Tip Credit Rule.

Needless to say, the outcome of these cases will have serious implications to the restaurant industry in all jurisdictions throughout the country.

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

Arbitration Agreement Litigation Wins Continue to Fall Like Dominoes for Pizza Hut

Posted on: June 26th, 2018

By: Tim Holdsworth

Following the Supreme Court’s opinion in Epic Systems that class and collective actions waivers in arbitration agreements are enforceable, a federal court recently granted a motion to compel arbitration to one of the nation’s largest Pizza Hut franchisees in a lawsuit in Illinois.

In Collins et al. v. NPC International Inc., case number 3:17-cv-00312, in the U.S. District Court for the Southern District of Illinois, drivers from Illinois, Florida, and Missouri filed a collective action under the Fair Labor Standards Act asserting that their employer had failed to reimburse them for vehicle expenses. In May 2017, the judge stayed the franchisee’s motion to compel individual arbitration pending the Supreme Court’s ruling in Epic Systems. The franchisee renewed that motion after the Supreme Court’s ruling, and the judge granted it.

The drivers will now have to bring their claims individually against the franchisee in arbitration, likely saving the franchisee expenses and time.

Epic Systems gave credence to arbitration agreements containing class and collective action waivers, and employers using them continue to reap the benefits. If you have any questions about the issues above or want to learn more about implementing arbitration agreements, please contact me at [email protected], or any of Freeman, Mathis & Gary’s experienced labor and employment law attorneys.

Coffee, Water, Less Than 20 Minutes

Posted on: June 19th, 2018

SCOTUS KICKS THE CAN ON SHORT BREAKS COMPENSATION

By: John McAvoy

On June 11, 2018, the U.S. Supreme Court refused to entertain the appeal of a Pennsylvania employer that could have resolved the emerging split of authority between the federal appellate courts and the U.S. Department of Labor (DOL) as to the compensability of employees’ short rest breaks.

In American Future Systems, Inc. d/b/a Progressive Business Publications v. R. Alexander Acosta, Secretary, U.S. Department of Labor, the Secretary of Labor filed suit against Progressive Business Publications, a company that publishes and distributes business publications and sells them through its sales representatives, as well as the company’s owner, alleging they violated the Fair Labor Standards Act (FLSA) by paying their salespeople an hourly wage and bonuses based on their number of sales per hour while they were logged onto the computer at their workstations, and by not paying them if they were logged off for more than 90 seconds.

The U.S. District Court for the Eastern District of Pennsylvania previously found that the employer’s policy had violated the FLSA, relying on a DOL regulation which states that “[r]est periods of short duration, running from 5 minutes to about 20 minutes, are common in industry.  They promote the efficiency of the employee and are customarily paid for as working time.  They must be counted as hours worked.”  In so holding, the District Court found that the employer was liable for at least $1.75 million in back wages and damages.

On appeal to the Third Circuit Court of Appeals, the employer argued that that it provided “flex time” rather than “breaks,” which allowed workers to clock out whenever they wanted, for any reason.  In other words, that the employees were not “working” after they logged off of their computers since they could do anything they wanted, including leaving the office.  The appellate court rejected this argument, reasoning that to dock the pay of employees who can’t manage a bathroom sprint is “absolutely contrary to the FLSA,” and affirmed the lower court’s decision.

The Third Circuit’s reliance on DOL regulation was contrary to the holdings of some of the other circuit courts which opted to assess the circumstances of the break in lieu of interpreting the DOL regulation as a bright-line rule that fails to take into consideration the facts of a particular situation.

The employer asked the U.S. Supreme Court to clarify how compensability for breaks should be determined.  Citing the circuit split, the employer posited that the question of break pay should be determined by assessing the circumstances of the break, rather than adopting the DOL regulation as a bright-line rule.  In its reply brief, the DOL fervently defended its regulations and denied the existence of the alleged circuit split, arguing that “hours worked [are] not limited to the time an employee actually performs his or her job duties.”  Unfortunately, this remains an issue for another day as the Supreme Court refused to hear the case and/or resolve the alleged split.

Absent a decision from the Supreme Court to the contrary, employers in Pennsylvania, New Jersey, and Delaware are bound by the Third Circuit’s decision. As such, employers in these states must continue to comply with DOL regulations with respect to the compensability of short breaks.

Fortunately, the applicable DOL regulations are designed to protect employers’ rights. For starters, the regulations recognize that meal periods serve a different purpose than coffee or snack breaks and, as such, are not compensable.  Second, an employer need not count an employee’s unauthorized extensions of authorized work breaks as hours worked when the employer has expressly and unambiguously communicated to the employee that the authorized break may only last for a specific length of time, that any extension of the break is contrary to the employer’s rules, and any extension of the break will be punished.

Although an employer will have to compensate an employee who repeatedly takes unauthorized breaks lasting less than 20 minutes in order to comply with the Third Circuit’s ruling and the applicable DOL regulations, the employer is nevertheless free to discipline the employee for such indiscretions by whatever means the employer deems appropriate, including termination.

Prudent employers should prepare themselves to address such issues through smart planning and proper training of employees, including managers, supervisors and HR personnel to ensure the employer’s break, discipline, and termination policies and procedures comply with all applicable DOL regulations.

Want to know whether your company’s break, discipline, and termination policies and procedures comply with DOL regulations? Let me help. Please call or email me (215.789.4919; [email protected]).

PA Fed. Ct. Finds UberBLACK Limousine Drivers Maintain Independent Contractor Status

Posted on: April 30th, 2018

By: John P. McAvoy

On April 12, 2018, Uber Technologies, Inc. won its legal battle on the recurring issue of independent contractor misclassification when the Eastern District of Pennsylvania granted the company’s motion for summary judgment in Razak v. Uber Technologies, Inc., No. 16-cv-573 (E.D. Pa. Apr. 11, 2018) (Baylson, J.). In so holding, the court concluded that UberBLACK limousine drivers are not employees of Uber covered by state and federal wage laws.

Uber has been defending independent contractor misclassification cases in state and federal courts throughout the country since the company first opened its doors in 2009. Like several other ride-sharing companies, Uber has persistently maintained that its drivers are independent contractors and that, as such, the company is exempt from the state and federal wages laws of all jurisdictions in which it conducts business. Despite these salient arguments, the vast majority of courts have concluded that the workers were Uber employees subject to wage laws, indicating that a slightly different set of facts may have swayed the decision in the other direction. However, based on the Honorable Michael M. Baylson’s opinion in the Razak case, it appears this pattern has reached its natural end.

Unlike other federal and state courts that have addressed this issue, the Eastern District concluded that almost all of the factors the court considered weighed heavily in favor of classifying UberBLACK limousine drivers as independent contractors that do not enjoy the rights, benefits and securities provided by state and federal wage laws.

The Eastern District reached its decision by applying the six factor test set forth in Donovan v. Dialamerica Marketing, Inc., 757 F.2d 1376 (3d Cir. 1985); namely, (1) the degree of Uber’s right to control the manner in which the work is performed (“Right to Control”); (2) the UberBLACK limousine drivers’ opportunity for profit or loss depending on their managerial skill (“Opportunity for Profit or Loss”); (3) the UberBLACK limousine drivers’ investment in equipment or materials required for their task, or their employment of helpers (“Employee Investment”); (4) whether the service rendered requires a special skill (“Special Skills”); (5) the degree of permanence of the working relationship (“Relationship Permanence”); and (6) whether the service rendered is an integral part of Uber’s business (“Integration”). The court found that all but two of the factors (i.e., Special Skills and Integration) strongly favored independent contractor status. Accordingly, the court concluded that the UberBLACK limousine drivers had not met their burden of showing that they are employees and that Uber is their employer.

If upheld on appeal to the Third Circuit, the Razak decision could finally put to rest the issue of whether Uber drivers and workers at companies that employ similar business models are being misclassified as independent contractors under the Fair Labor Standards Act and any state wage laws that test for independent contractor status in the same or similar fashion.

If you have any questions or would like more information about this case, please contact John P. McAvoy at [email protected].