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Posts Tagged ‘FLSA’

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].

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].

Are We There Yet?: Auto Service Advisor Exempt Status Under the FLSA Makes Return Trip to the Supreme Court

Posted on: November 28th, 2017

By: Will Collins

Last year, the Supreme Court narrowly avoided a collision with the question of whether service advisors at car dealerships are exempt as “salesmen” under the overtime requirements of the Fair Labor Standards Act (FLSA). However, as Encino Motorcars, LLC v. Navarro returns to the Supreme Court, the case is poised to squarely address this issue and, hopefully, provide much-needed clarity.

As previously discussed, the Supreme Court sent the Encino case back to the Ninth Circuit Court of Appeals to reconsider the exempt status of service advisors, instructing the Ninth Circuit to give no deference to the Department of Labor’s (DOL) regulations providing that service advisors were not exempt.

After considering the case on remand, the Ninth Circuit still held that service advisors do not fall within the FLSA’s exemption for “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” As a result, the Supreme Court will again consider the exempt status of auto service advisors and all indications are that the Court will resolve the discrepancy between the DOL regulations, the Ninth Circuit decision, and prior decisions by the Fifth and Fourth Circuits.

After a long road of uncertainty, many are hopeful that the Supreme Court will provide clarity when it finally resolves this issue. As the case is scheduled for oral argument in January, we will continue to monitor the case and provide an update of any developments.

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

Hands Off My Money! Ninth Circuit Rules Employers Can’t Force Employees to Share Tips with Non-Tipped Employees

Posted on: March 3rd, 2016

 

By: Brad Adler and Amanda Hall

We have discussed tip-pooling programs in the past.  Generally speaking, the Fair Labor Standards Act (“FLSA”) permits an employer to fulfill part of its hourly minimum wage obligation to tipped employees using the employees’ tips.  This practice is known as taking the “tip credit.”  When an employer takes the tip credit, they must (1) give notice to their employees and (2) allow the employees to retain all of the tips they receive unless the employees participate in a valid “tip pool.”  A “tip pool” is typically only valid if it is comprised exclusively of employees who are “customarily and regularly” tipped.  In other words, the tip pool cannot extend to non-tipped employees, such as back-of-the-house employees (e.g., cooks or dishwashers).

Many businesses, however, do not take the tip credit – either as a result of internal practice or pursuant to state law.  These employers pay their employees minimum wage regardless of the tips they earn.  Although a 2011 Department of Labor regulation says that tips are the sole property of the tipped employee and may not be shared in a pool with non-tipped employees even if the employer does not take the tip credit, the Ninth Circuit Court of Appeals and several lower courts out West (where the tip credit is generally not permitted under state law) had previously held this practice to be permissible. 

On February 23, 2016, however, the Ninth Circuit reversed course (and precedent) and upheld the 2011 Department of Labor regulation and concluded that even employers who do not take the tip credit must follow the tip-pooling rules set forth in the FLSA.  Oregon Rest. & Lodging Assoc. v. Perez, ___F.3d ___, 2016 WL 706678 (9th Cir. Feb. 23, 2016).  Accordingly, employees who receive tips generally cannot be required to share their tips with non-tipped employees even if their employer pays them minimum wage.  Although the decision is expected to be challenged, unless it is overturned, employers within the Ninth Circuit (which includes the states of California, Nevada, Washington, Arizona, Oregon, Idaho, Montana, Hawaii, and Alaska) may need to re-examine their tip-pooling practices. 

Further, although the Ninth Circuit opinion is not binding precedent on other states, employers in other areas who do not take the tip credit should carefully review their tip-pooling procedures to make sure they are compliant with the FLSA.