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DOL expands availability of overtime exemption for commissioned-employees working for a “retail or service establishment”

The nation’s leading wage-hour law (FLSA, the Fair Labor Standards Act) has long recognized an exemption from overtime for employees who work on a commission. However, the exemption is only available if the employee is working for a “retail or service establishment.”

To be a “retail or service establishment” the company “(a) (m)ust engage in the making of sales of goods or services; and (b) 75 percent of its sales of goods or services, or of both, must be recognized as retail in the particular industry; and (c) not over 25 percent of its sales of goods or services, or of both, may be sales for resale. ” 29 CFR 779.313. The DOL says that this means the business must have a “retail concept.” 29 CFR 779.316.

Typically a retail or service establishment is one which sells goods or services to the general public. It serves the everyday needs of the community in which it is located. The retail or service establishment performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process. (See, however, the discussion of section 13(a)(4) in §§ 779.346 to 779.350.) Such an establishment sells to the general public its food and drink. It sells to such public its clothing and its furniture, its automobiles, its radios and refrigerators, its coal and its lumber, and other goods, and performs incidental services on such goods when necessary. It provides the general public its repair services and other services for the comfort and convenience of such public in the course of its daily living. Illustrative of such establishments are: Grocery stores, hardware stores, clothing stores, coal dealers, furniture stores, restaurants, hotels, watch repair establishments, barber shops, and other such local establishments.

Quoting: 29 CFR 779.318

In addition to the definition of a “retail or service establishment,” the DOL had published a list of business that “may be recognized as retail” and another list that “may not be.” 29 CFR 779.317 and .320. The lists have been roundly criticized over the years. They were not internally consistent, they did not reflect changing realities of the business world, and they were formulated without first going through the formal regulatory process.

The DOL has withdrawn its lists. While the definition of “retail or service establishment” itself has not been affected, the withdrawal of the arbitrary unrealistic add-on lists is intended to make the commission exemption available to more businesses.

Employers who think they fit within the definition of “retail or service establishment” may now wish to consult with legal counsel about using the commissioned-employee overtime exemption, even if they previously were not on the “may be” list or even were previously on the “may not be” list.

Employers are reminded to confirm compliance with state and local law. For example in Colorado COMPS Order 36 has its own commissioned-employee exemption requirements (rule 2.4.2).

Source: DOL final rule, “Partial Lists of Establishments that Lack or May Have a ‘Retail Concept’ Under the Fair Labor Standards Act,” 85 Fed. Reg. 97 (May 19, 2020).

DOL issues new model COBRA notices to address growing wave of litigation

The DOL has issued a new set of model COBRA notices that may be used to comply with COBRA’s requirements, along with a set of explanatory Q&A’s. The DOL’s model COBRA forms are not required to be used, they are intended to reduce litigation exposure by helping to “to ensure that qualified beneficiaries better understand the interactions between Medicare and COBRA.”

Employers should immediately contact their health insurance and benefits providers and plan administrators to ensure they are using the correct COBRA documentation.

DOL issues preliminary Q&A re new coronavirus sick and FMLA leave rights

The DOL has issued a preliminary Q&A on the newly mandated coronavirus-related sick- and FMLA-leave rights. The Q&A answers some but not all of the questions previously raised to DOL. Highlights of the Q&A include the following:

  • The effective date of this new Act will now be April 1, 2020 (moved up from the initial tentative date of no later than April 2, 2020).
  • How employees should be counted for the purpose of determining if a company falls into the exemption for large companies (employing 500 or more), including how to count for related companies (including affiliates) and possible joint employer relationships.
  • How the new coronavirus sick leave hours should be counted for part-time workers.
  • How much sick leave should be paid for workers who would, otherwise, have worked overtime.
  • How employees who qualify for both the new coronavirus sick-leave and the new coronavirus paid FMLA-leave should be paid.
  • The DOL’s interpretation that paid leave provided prior to the new Act’s effective date (now, April 1, 2020) does not count towards these new requirements.
  • How to count the 30-day eligibility period for new hires re the new coronavirus FMLA-leave law.

The DOL advises that regulations will be forthcoming as may be additional guidance.

For brevity’s sake, the DOL’s analysis of these, and the other topics it addresses, are not restated here. Rather employers are encouraged to immediately review the DOL’s Q&A in full.

Reminder: DOL Fact Sheet #70 re furloughs

Employers who are considering furloughs are reminded to consider DOL Fact Sheet #70 regarding federal wage-hour issues, in addition to related state wage-hour issues, such as under new COMPS Order 36. Of course, wage-hour issues are only some of the issues to be considered. Additional issues include possible WARN Act notices and benefits-related questions. Any employer considering possible furloughs, layoffs or other job reductions in response to the current coronavirus should immediately consult with their employment law counsel.

BREAKING NEWS: Congress passes mandatory sick leave and paid FMLA leave re coronavirus

Late March 18, 2020, Congress passed then the President signed into law the Families First Coronavirus Response Act, HR 6201.

  • The Act will take effect “not later than 15 days” after its enactment March 18, 2020, in other words, absent further development, April 2, 2020. (UPDATE: The effective date has been set for April 1, 2020.) It will sunset December 31, 2020.
  • The Act requires two types of leave, both include paid leave components.
    • Both types of leave apply to employers with fewer than 500 employees.
    • Employers of fewer than 50 employees will theoretically be able to seek exemption from the leave requirements if they would “jeopardize the viability of the business as a going concern.” The Act does not explain further. Rather it delegates to the DOL authority to develop regulations and processes to flesh out this possible exemption.
    • Special rules may also permit exemption of “certain health care providers and emergency responders,” again without explanation in the Act, as to be fleshed out by DOL regulations.
  • First, the Act provides for up to 80 hours of sick leave, in the event (1) the employee is subjected to a federal, state or local quarantine/isolation order re coronavirus, (2) the employee has been advised by a healthcare provider to self-quarantine re coronavirus, (3) the employee’s own coronavirus experience, or the employee is (4) caring for an individual subject to a quarantine/isolation order, (5) caring for a child whose school or daycare is closed, or (6) similar conditions as specified by government officials.
    • Sick leave for reasons 1-3 (generally the employee’s own condition) is capped at $511 per day.
    • Sick leave for reasons 4-6 is capped at $200 per day.
    • This sick leave will be available to all employees. Unlike the FMLA leave below, it does not appear to require a 30-day period of employment for eligibility.
  • Second, the Act amends the FMLA to provide for 12 weeks of leave when an employee is unable to work (or telework) because the employee must care for a child under the age of 18 whose daycare, elementary or high school has been closed due to coronavirus.
    • The first 10 days are unpaid. Employees can opt (but not be required) to substitute other paid leave.
    • The remaining 10 weeks of FMLA is paid at 2/3rds of the employee’s regular pay up to $200 per day and $10,000 total aggregate.
    • This coronavirus-specific FMLA leave will be available to employees who have been employed for at least 30 days.
    • The Act modifies the FMLA’s job-restoration requirements (in ways arguably not yet fully clear and hopefully to be determined by DOL regulation), recognizing that following the coronavirus crisis many positions will no longer exist.
    • Please note the coverage (fewer than 500 employees) and eligibility (30-days employment) requirements. This will mean that many (many) more employers and employees will be covered by coronavirus-FMLA than would otherwise be covered by the FMLA in general.
  • The Act (again without sufficient detail to be fully clear) provides for 100% tax credits to permit employers to offset the costs of providing such leave (by offsets against Social Security taxes).
  • The DOL is required to publish a poster within 7 days, summarizing the Act.

UPDATE: The DOL has begun rulemaking to develop regulations, which it hopes to deliver no later than the Act’s effective date, if not sooner. The DOL will bypass the normal process of publishing proposed rules first by invoking governmental-agency emergency authority to publish immediately effective final rules and invite comment on the same thereafter for possible later revisions.

 

Follow-up on new COMPS Order information from CDLE – 4 of 4

As previously discussed on this blog, the Colorado Division of Labor and Employment recently finalized its new wage order, titled COMPS Order 36. COMPS Order 36 has proven to be an overhaul of existing Colorado law, reaching many employers previously exempt from prior wage orders. The COMPS order has left many unanswered questions. In response this blog noted that the CDLE has just issued some additional information. AS explained in that post, employers should review the CDLE’s summary that it emailed out regarding its new information, which email is copy-pasted into that blog post.

As previously discussed on this blog, the Colorado Division of Labor and Employment recently finalized its new wage order, titled COMPS Order 36. COMPS Order 36 has proven to be an overhaul of existing Colorado law, reaching many employers previously exempt from prior wage orders. The COMPS order has left many unanswered questions. In response this blog noted that the CDLE has just issued some additional information. AS explained in that post, employers should review the CDLE’s summary that it emailed out regarding its new information, which email is copy-pasted into that blog post.

Employers curious how the CDLE will interpret the new order’s tip credit rules, including its continued use of the 80/20 rule that is being eliminated at the federal level but now being maintained at the Colorado state level, should review the CDLE’s Interpretive Notice & Formal Opinion (INFO) #3, which details the CDLE’s anticipated process for claims handling.

As a reminder, this blog recently noted an article by Bloomberg BNA surveying last year’s court decisions, which reflect an unwillingness by lower courts to accept even the federal government’s efforts to eliminate the 80/20 rule.

Restaurants and other employers with tipped employees, beware relying on DOL opinion letter

As previously posted, the DOL issued an opinion letter in 2019, purporting to jettison the Obama Administration’s 80-20 rule and expanding the ability to claim tip credits for tipped employees, specifically, during time when they do not earn tips (example, while wait staff vacuum and clean). Bloomberg BNA reports that opinion letter has met with rejection in the courts:

Restaurant chains have lost at least seven decisions over the last year in which federal district court judges refused to give deference to a 2018 Labor Department opinion letter advising restaurants to pay a lower minimum wage to tipped workers for tasks that don’t yield gratuities.

In most of those decisions, judges held that DOL wasn’t justified in turning its back on a standard that’s been in place for more than three decades.

Also as previously posted, the DOL issued a propose regulation to the same effect, which if finalized would become law, to which courts should defer in lawsuits.

Employers are reminded that Colorado law requires additional notice-posting to employees if a tip credit is to be claimed.

COMPS Order 36, SOME of what you need to know

As previously posted here, the Colorado Division of Labor and Employment has issued its COMPS Order no. 36. Here’s some of what you need to know:

  • It probably applies to your company. As previously explained, Colorado Wage Orders have historically been limited to certain industries, now their successor, this “COMPS Order” is generally applicable to all employers with only some exceptions, most notably some aspects of the agricultural industry.
  • It’s long, but you should take the time to read it and review it with experienced employment counsel. If you read the draft, the CDLE published a redline with changes from the draft to the final version.
  • It will be effective March 16, 2020.
  • Ensure your overtime-exempt personnel still qualify for exemption under Colorado law, especially that each is earning more than the required minimum salaries, effective the following dates:

July 1, 2020 $684.00 per week ($35,568 per year)
January 1, 2021 $778.85 per week ($40,500 per year)
January 1, 2022 $865.38 per week ($45,000 per year)
January 1, 2023 $961.54 per week ($50,000 per year)
January 1, 2024 $1,057.69 per week ($55,000 per year)

Effective January 1, 2025, the CDLE advises that salary minimums will increase commensurate with Colorado’s minimum wage, as adjusted by the CPI.

  • Employers must now “authorize and permit” non-exempt workers to take at least one 10-minute paid break as close to the middle of each 4-hour shift. What does “authorize and permit” mean? No one knows, and worse, the phrase is not defined elsewhere in the law. Some options employers might consider, in an abundance of caution, include requiring employees take such breaks, disciplining employees who fail to do so and requiring employees to mark down their break times on timecards even though such time must be paid.
    • Note: The COMPS order has different break requirements for employers that have contrary union-negotiated collective bargaining agreements and some Medicaid-funded service providers.
  • Employers must now pay for certain pre- and post-shift activities, which federal law does not consider compensable time, to include some aspects of time related to donning and doffing (changing in and out of certain clothes and gear), briefings, security screenings, safety and travel-related time, and clocking-in and -out.
  • Companies that use independent contractors in their workforce will want to review this blog’s previous post, as COMPS Order 36, as explained by its Statement of Basis, Purpose, Specific Statutory Authority, and Findings in support of COMPS Order #36, seems to have dramatically narrowed the ability of companies to do so, apparently in an attempt to convert such workers, by administrative fiat, into statutory “employees” of joint employers.
  • COMPS Order 36 has revised the definitions for which salaried personnel may be exempt. Employers should review their current exemptions against this new law. Notably, COMPS Order 36 actually expands the availability of exemptions in some instances for computer professionals and some seasonal camp and outdoor education programs.
  • Post the CDLE’s new COMPS Order 36 poster. Indeed the new poster is so new, that the CDLE hasn’t issued one yet. Recently on a call to CDLE the CDLE advised that it does not know when or if it will issue the poster it refers to itself in its own new order.
    • Not only must it be posted, but the poster or the entire COMPS Order itself must be included in handbooks and signed for.
    • And that non-existent poster and expansive COMPS order must be so distributed not only in English but in Spanish or such other language as workers may speak. Although the COMPS Order suggest the CDLE will distribute the order in such other languages, there are none on CDLE’s website.
  • As noted, review this expansive order in its entirety. Other provisions for example address meal, lodging, top credit, uniform deposits.

The new I-9 form is here!

Ok, maybe it’s not that exciting, but still the DOL has released its new I-9 form. It will be mandatory May 1, 2020. It can be found here, with its various other forms and versions. SHRM’s article, if readers are interested, re same, can be found here. Thank you as always to SHRM for great information; if you’re not a SHRM member, consider joining!

Colorado finalizes new wage order, COMPS Order no. 36, 7 CCR 1103-1 (2020)

As noted in a previous post, Colorado proposed a new wage order in 2019. On January 22, 2020, the Colorado Division of Labor and Employment finalized its new order — now called COMPS order #36 — effective March 16, 2020.

As noted in the previous post, COMPS order #36 is  radical overhaul of Colorado’s prior wage orders. Among other things the changes include:

  • A title change: Reflecting the fact that this new order addresses far more than simple wages, its title will change from the “Colorado Wage Order” (WO) to the “Colorado Overtime and Minimum Pay Standards Order” (COMPS).
  • COMPS 36 will now reach almost all private employers in Colorado. Previous WOs had applied only to the following four industries: retail and service, commercial support service, food and beverage, and health and medical. COMPS will apply to all employers as a general rule, unless the employer falls within one of the newly defined exemptions set forth in prosed Rule 2 of COMPS. Therefore employers who previously considered themselves exempt from the WOs should now review COMPS to determine if it will become covered.
  • Minimum guaranteed salary: If covered COMPS will increase the minimum guaranteed salary to $42,500, effective 7/1/20, well above that in federal law. COMPS minimum will rise steeply thereafter, each year, to $57,500 effective 1/1/26 and be adjusted thereafter per the CPI.
  • Changes to particular job-specific exemptions have been proposed.
  • Changes to the timing of required rest periods and a requirement that employees who are not allowed their 10-minute rest period receive pay not only for the 10-minute rest period but an extra 10 minutes pay.
  • Changes to the ability to take credits and the ability to charge for uniforms.
  • Changes to the fluctuating workweek method of calculating overtime.
  • Expansion of anti-retaliation protections.
  • Expansion of employer obligations as to “transparency,” “language inclusiveness” and posters.

In addition, the as-finalized COMPS order #36 dramatically expanded the definition of an “employee” and “employer” in Colorado — in apparent reflection of similar narrowing in California — by mandating that a worker will be deemed an “employee” not an independent contractor who otherwise meets all requirements to be an independent contractor but who performs work that is itself part of the company’s own regular business. The CDLE explained this “entirely new factor to the ’employee’ analysis'” in its Statement of Basis, Purpose, Specific Statutory Authority, and Findings in support of COMPS Order #36, as follows:

For example: if a retail clothing store hires an outside plumber on a one-time or sporadic basis to make repairs as needed, the plumber’s services are not part of the store’s primary work — selling clothes. On the other hand, when a clothing manufacturer hires work-at-home seamstresses to make dresses, from cloth and patterns supplied by the manufacturer, that the manufacturer will sell, or when a bakery hires cake decorators to work on a regular basis on custom-designed cakes, the workers are performing the “primary work” of the hiring business.

Other changes to the prior draft order include a rule that workers who are putting on and taking off work clothes and gear (so-called “donning and doffing” cases) are engaged in work and accordingly must be paid for the such time if it takes “over one minute” and if it is not clothes/gear that is “worn outside work as well. Additionally COMPS order #36 will effectively require that, when a 10-minute break is otherwise required, nearly all such workers will need to be made to take their 10-minute breaks every 4 hours. Only workers who work under collectively bargained agreements that say otherwise will be allowed to take breaks outside a 4-hour period, as can some workers who work for certain Medicaid-funded entities.

Perhaps most importantly the final order also implemented a slower increase in the required guaranteed minimum salary for overtime exempt person in 2020 and 2021, then a steeper climb in 2023 to reach the previously planned 2024 minimum salary of $55,000.

Source: final COMPS Order #36 as redlined by the CDLE against its prior draft.

DOL releases final joint employer rule

The DOL has issued a final rule regarding the Joint Employer doctrine.

Analysis of a joint employer issues under the Fair Labor Standards Act (FLSA), the DOL rule says, should start — and will generally end — with the following non-exclusive four factors (quoting the summary in the DOL’s Fact Sheet regarding its new rule):

  • hires or fires the employee;

  • supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;

  • determines the employee’s rate and method of payment; and

  • maintains the employee’s employment records.

The rule emphasizes that no one factor will be controlling and specifically states that the fourth (maintaining employment records) alone will never be sufficient to establish joint employer status. This is a particularly important principle for companies — like franchisors for example — that mandate the use of a software platform hosted by the principle company to encompass a variety of operational needs that include scheduling and HRIS.

The rule eliminates the prior “economic dependence” test that has proven so controversial. Likewise the rule specifies that the worker’s ability to recognize an independent profit or loss is not to be considered. The rule states that, under its application, franchisors, among others, will generally no longer be considered joint employers.  Indeed the rule states that the following are not to be considered indicators of joint employer status (again quoting the DOL’s own summary at its Fact Sheet, above):

  • operating as a franchisor or entering into a brand and supply agreement, or using a similar business model;

  • the potential joint employer’s contractual agreements with the employer requiring the employer to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees or the public;

  • the potential joint employer’s contractual agreements with the employer requiring quality control standards to ensure the consistent quality of the work product, brand, or business reputation; and

  • the potential joint employer’s practice of providing the employer with a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice.

Additional information, including a FAQ, is available on the DOL’s web page regarding its new rule.

Source: DOL final rule, “Joint Employer Status Under the Fair Labor Standards Act,” 85 Fed.Reg. 164 et seq. (1/16/20).

DOL issues regulations clarifying excludable items from the regular rate of pay

Workers who are not exempt from overtime, in other word, workers who must be paid overtime, under federal law (the Fair Labor Standards Act) must be paid time and one-half of their “regular rate of pay.” The phrase “regular rate of pay” is not what it intuitively sounds like; it is not simply what the worker regularly gets paid. Instead, there are strict rules for what must be included in a regular rate of pay and for what may be excluded. The DOL issued final regulations, to be effective January 15, 2020, “to confirm that employers may exclude the following from an employee’s regular rate of pay:

  • the cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;

  • payments for unused paid leave, including paid sick leave or paid time off;

  • payments of certain penalties required under state and local scheduling laws;

  • reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”;

  • certain sign-on bonuses and certain longevity bonuses;

  • the cost of office coffee and snacks to employees as gifts;

  • discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples and;

  • contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.”

(Quoting the DOL’s web page for these final rules, available here, https://www.dol.gov/agencies/whd/overtime/2019-regular-rate.)

The final regulations alsoeliminate() the restriction in (FLSA’s) §§ 778.221 and 778.222 that ‘call-back’ pay and other payments similar to call-back pay must be ‘infrequent and sporadic’ to be excludable from an employee’s regular rate, while maintaining that such payments must not be prearranged.” (Quoting that same web page.)

As the DOL notes in its summary above, some sign-on bonuses are excludable, but not all are. The DOL explains in its final rule and the prefatory comments for that rule that it depends on whether the sign-on bonus requires the recipient to do work. Thus a sign-on bonus that is paid before and irrespective of whether work is actually done is excludable, but if that bonus has a clawback provision (if the worker doesn’t end up working, or doesn’t end up working enough hours/days), then it is payment for work provided and becomes not excludable.

In brief, sign-on bonuses with no clawback provision are excludable from the regular rate; sign-on bonuses with a clawback provision pursuant to collective bargaining agreement (CBA), or city ordinance or policy are included in the regular rate; and sign-on bonuses with a clawback provision not pursuant to a CBA, city ordinance or policy, or other similar document that complies with § 778.212, are excludable from the regular rate.

Likewise, the DOL explains “bonuses contingent upon the employee’s continuing in employment until the time the payment is to be made and the like are” not excludable.

The DOL also spent quite a bit of time in the final rule discussing what is a “discretionary bonus” that may be excluded from the regular rate of pay.

Examples of bonuses that may be discretionary include bonuses to employees who made unique or extraordinary efforts which are not awarded according to pre-established criteria, severance bonuses, referral bonuses for employees not primarily engaged in recruiting activities, bonuses for overcoming challenging or stressful situations, employee-of-the-month bonuses, and other similar compensation. Such bonuses are usually not promised in advance and the fact and amount of payment is in the sole discretion of the employer until at or near the end of the period to which the bonus corresponds.

Employers should consider pulling a list of the payroll codes they use for non-exempt workers, marking which they currently considered excluded versus included in the regular rate of pay calculations, then mapping that against the new regulations. In conducting that mapping, and in order to preserve attorney-client privilege and attorney work product protections, they may wish to involve experienced employment law counsel in their internal audit.

Source: “Regular Rate Under the Fair Labor Standards Act,84 Fed.Reg. 68736 (12/16/19).

DOL issues proposed rule re tip-pooling

In a November 2019 opinion letter the DOL reversed position on tip-pooling. As explained there, the DOL lifted the Obama-era DOL’s 80-20 rule, making it easier for employers (like restaurants) to pool tips among tipped employees, including even those who perform some non-tipped work during their day (like waiters who vacuum, set up and clean up the restaurant as well as work tables). In this proposed rule the DOL is proposing to codify its new approach into a formal regulation. Codification of this approach into a regulation — rather than simply setting it forth in an opinion letter — will have at least two effects: It will generally require courts to defer to this interpretation and make it more difficult for future administrations to deviate.

Colorado Supreme Court holds referral service to be an employer, striking independent contractor classification

In contrast with the Trump Administration’s approach to so-called gig-economy cases, the Colorado Supreme Court recently struck one company’s attempt to classify its workers as independent contractors, not employees.

At the federal level, the Trump Administration has, through both the NLRB and DOL, recently held that (at least some) gig-economy companies, like Uber in particular, are technology companies that merely connect consumers with service providers (example, drivers), and as such, they may lawfully characterize — at least for federal purposes — those service provides as independent contractors.

In this case, the Colorado Supreme Court rejected a company’s argument that it was merely a referral source connecting consumers with housecleaners. The Court held the company was, therefore, liable for Colorado state unemployment taxes.

Does the case signal a rejection of the Trump Administration’s approach at the Colorado state level? Or is the case distinguishable from situations like Uber’s paradigm? These questions have yet to be litigated. It may simply be that the Colorado Supreme Court will reject, at the state level, at least for unemployment, if not also workers compensation, the Trump Administration’s approach at the federal NLRB and DOL level.

Alternatively, the case may suggest some key factual distinctions about the particular company in this case. In the Colorado Supreme Court case, the evidence — unlike arguably in other gig-economy cases — was that the referral company did quite a bit more than simply refer. The Supreme Court noted testimony that it assisted cleaners, it trained them, it exercised “quality control,” it even controlled the cleaners’ ability to hire assistants. The Supreme Court held that all of this combined to be “exactly the control and direction” sufficient to convert a company into an employer, in other words, independent contractors into employees.

Another distinction may have been the apparent lack of technology underlying the cleaning company’s business model. As the federal agencies have noted in their gig-economy cases, companies like Uber characterize themselves as, first and foremost, technology companies. They have invested in and run considerable technological platforms to effectuate their referral systems. It is those very technologies that created their business models. The federal agencies noted that running those technologies is, therefore, the business of a gig-economy company, like Uber. In other words, Uber’s real business is running that technology, not driving. Thuse the company and its service providers are, those agencies have said, in two different businesses.

One thing is clear, companies in Colorado that use independent contractors should immediately review those classifications with experienced legal counsel. This case reflects a continuingly narrow approach to independent contractor classifications at the state level.

Additionally, it should be noted that the Colorado Supreme Court did not note that this company had written agreements in place. Both Colorado state unemployment laws and workers compensation laws create a rebuttable presumption of independent contractor status if companies have written agreements that meet particular statutory requirements. In addition to reviewing their independent contractor classifications, companies should ensure they consult with legal counsel to develop compliant written independent contractor agreements, so they can at least assert the benefit of such a presumption in these cases.

Source: Colorado Custom Maid v. ICAO, case no. 17SC350 (Colo. 5/28/19).

Uber and other gig-economy companies score major wins at NLRB and DOL

Both the NLRB and DOL have issued letters advising that gig-economy companies, like Uber, are not employers but have instead properly certain workers, like drivers, as independent contractors.

The letters come on the heels of NLRB decisions earlier this year holding that the Board will no longer look at potential or even contractually-available control. Rather it will focus on actual control exercises by the company, and in doing so will not consider control that is required by the government. This new test focuses on whether the independent contractor enjoys his-her own “entrepreneurial opportunity.”

In the NLRB letter, NLRB General Counsel opined that Uber in particular is, under this new test, not engaging drivers as employees but has properly characterized them as independent contractors. Specifically General Counsel noted that drivers control their own time of work, place of work and are free to drive for competitors, with many actually doing so. Drivers provide their own vehicles, fuel and maintenance. They operate without supervision by Uber, rarely interacting with Uber’s management except when a problem arises.

In the DOL’s letter, the DOL did not identify the gig-economy company at-issue but reaffirmed in general that such companies are, for similar reasons, properly able to characterize workers as independent contractors.

Source: NLRB General Counsel Advice Memorandum case no’s. 13-CA-163062, -158833 and -177483; DOL Wage-Hour opinion letter no. FLSA2019-6 (4/29/19).

Seven Things You Need To Know About The DOL’s Proposed Salary Rules

Here are answers to seven common questions regarding the DOL’s recent proposal to increase the minimum guaranteed salary for overtime exempt positions.

1.    What has the DOL proposed?

As explained in a prior blog post, the DOL has just proposed increasing the minimum guaranteed salary for most overtime exempt positions from $455 per week ($23,660 per annum assuming the employee works some portion of 52 weeks per year, which amount could be less depending on actual vacation/etc.) to $679 per week ($35,308). It is expected this increase will affect approximately one million workers, who will have to be paid either a raise or overtime.

2.    When will the new minimum salary take effect?

Currently the DOL’s proposal is just that, a proposal. If the proposed rule becomes final, it is expected to take effect in January 2020. Many commentators believe that is likely.

3.    What does the DOL’s proposal mean for employers now?

Employers should begin reviewing their workforce for employees who are classified as overtime exempt to ensure that their salaries exceed the proposed new minimum ($679 per week).

4.    What are an employer’s options?

Employers will have two options for employees who are currently overtime exempt but earn less than the proposed minimum:

  1. Increase the employee’s guaranteed salary to meet the new proposed minimum ($679 per week); or,
  2. Convert the employee to hourly and pay overtime.

Technically there are at least two other options:

  •  Continue paying the current sub-minimum salary, but convert the position to overtime-eligible, then pay overtime on an hourly basis, at half-time, in addition to the salary, for workweeks when overtime is worked. This is called the “fluctuating workweek” method.
  • Continue paying the current salary under an agreement with the employee that the salary includes assumed overtime; pay no additional hourly (or salary) amounts to compensate employees for overtime hours. This is called a Belo agreement.”

Unfortunately while the fluctuating-workweek method and Belo agreements are theoretically available, and sound like ways to “build in” overtime into a salary, they are not as practical as employers (and employees) might hope. Each is disfavored by the DOL and the courts. Each is available only in strictly limited circumstances. Both options are beyond the scope of this article. Neither should be implemented except after consultation with experienced legal counsel.

5.    What are some of the most common considerations for employers weighing their options?

Analyzing the impact of these proposed regulations will depend greatly on the circumstances of every workforce. However, here are some of the most common considerations:

  • The number of workers (and the number of positions) currently overtime exempt but paid under the DOL’s proposed minimum.
  • The financial difference between each worker’s current salary and the DOL’s proposed minimum.
  • The likelihood of overtime hours and the feasibility of converting a currently salaried overtime-exempt worker to an hourly overtime-paid worker.
  • The increased cost of benefits that may be tied to pay (assuming a worker’s pay is increased) and any change to the level or type of benefits available (assuming a worker is converted to hourly).

To help employers with the math of comparing options, a number of spreadsheets are available on the Internet.

Additionally, employers are reminded that consideration should be given to two other features of this proposed rule that may affect the math of their analyses:

  • The ability to do a “catch-up” payment, which may help some employers meet the new proposed salary minimum.
  • The ability to exclude certain bonuses from overtime calculations, which may help other employers afford converting workers into overtime-eligible hourly positions.

Finally, employers should consider with their HR professionals the potential impact on workforce morale. This in particular will vary from company to company. Common questions include the following:

  • How will other workers respond to seeing these positions receive raises?
  • Will raises cause salary compression?
    • In other words, will lower level salaried employees start earning nearly as much as workers in skilled or even managerial level positions?
    • Will skilled and even managerial level positions need to be increased accordingly?
  • Is any part of the workforce unionized?
    • If so will converting salaried positions into hourly positions make them more likely to be claimed by union as part of its bargaining unit?
    • For positions already within a bargaining unit, employers are reminded of their collective bargaining obligations and to review with legal counsel, first, any requirements for notice and an opportunity to bargain, as well as the potential impact of a current agreement’s “zipper” clause.

6.    Reminder, employers still have to meet the “duties” tests for overtime exemptions

Employers are reminded that paying the minimum guaranteed salary is not all it takes to be exempt from overtime requirements. Workers must also meet the DOL’s duties tests for the various kinds of exemption.

7.    In what states will the DOL’s proposal affect employers?

If it becomes effective, the increase will take hold nationwide, at a federal level. Although it will apply in all fifty states, employers are reminded that some states, including Alaska, California and New York, already require minimum guaranteed salaries in excess of even this new proposed increase. Accordingly, employers in Alaska, California and New York should confirm with legal counsel but may find no change is required to their workers’ salary levels.

 

DOL proposes overhaul of Joint Employer rules

Following up on recent efforts by the NLRB to overhaul the Joint Employer doctrine, the DOL has proposed its own revisions.

Like the NLRB, the DOL proposes that the right to control not be considered, but rather that focus be on whether the putative joint employer actually has exercised control.

Only actions taken with respect to the employee’s terms and conditions of employment, rather than the theoretical ability to do so under a contract, are relevant to joint employer status under the Act.

Additionally, the DOL proposes to clarify that “whether an employee is economically dependent on the potential joint employer is (also) not relevant.”

Rather, the DOL suggests that four factors be considered to determine whether the putative joint employer exercised sufficient control, in actuality, to warrant liability:

The Department’s proposed test would assess whether the potential joint employer:

  • Hires or fires the employee;

  • Supervises and controls the employee’s work schedule or conditions of employment;

  • Determines the employee’s rate and method of payment; and

  • Maintains the employee’s employment records.

Source: DOL proposed rules re “Joint Employer Status Under The Fair Labor Standards Act,” 29 CFR Part 791, RIN 1235-aa26 (4/1/19).

DOL confirms that employers may claim tip credit even for time tipped employees spend on non-tipped work

Confirming an approach announced in a recent opinion letter, the DOL has amended its Field Handbook, the manual for its enforcement personnel, that employers (like restaurants) may claim a tip credit for time that tipped employees spend on non-tipped work (such as a waiter who may vacuum) if performed contemporaneously (or nearly so) with tipped customer duties.

An employer may take a tip credit for any amount of time that an employee spends on related, non-tipped duties performed contemporaneously with the tipped duties—or for a reasonable time immediately before or after performing the tipped duties—regardless whether those duties involve direct customer service.

As explained in two recent blog posts, this lifts the DOL’s Obama-era 80-20 rule for tipped employees.

Source: DOL Field Assistance Bulletin 2019-2 (2/15/19).

DOL proposes to overhaul its overtime rules

The Department of Labor issued the much anticipated proposed revisions to its overtime regulations.

Proposed Increase To Minimum Guaranteed Salary For Exempt Employees

The proposals will increase the minimum guaranteed salary that (most) exempt employees must receive from $455 per week ($23,600 per year) to $679 per week ($35,308 per year).

The DOL anticipates this increase will result in 1-million currently exempt employees losing their overtime exemptions, in other words, having to be paid overtime. This compares to the Obama Administration’s 2016 proposal to increase the minimum salary to $913 per week ($47,476 per year), which was anticipated then to result in 4.6-million exempt employees losing their exemptions, in other words, having to be paid overtime.

Proposed Increase to Highly-Compensated Employees

The proposals will increase the minimum guaranteed salary for employees in the Highly-Compensated Exemption from $100,000 per year to $147,414 per year. The DOL anticipates this will convert 201,100 workers into non-exempt employees who must be paid overtime.

Inflationary Adjustments

In contrast with many commentators’ expectation, the proposed rule does not provide for automatic adjustments to the minimum salary to, for example, keep with inflation. Instead, the DOL proposes to revisit these numbers every 4 years through further rulemaking. 

Other Changes

Other proposed changes to the federal overtime rules include a proposal to, now, permit up to 10% of the required minimum salary to be satisfied by the payment of nondiscretionary bonuses and commissions:

(T)he Department proposes to permit nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level test for the executive, administrative, and professional exemptions, provided that such bonuses or payments are paid annually or more frequently. Such payments may include, for example, nondiscretionary incentive bonuses tied to productivity and profitability.

The DOL also proposes that employers will be able to make a 1-time annual “catch-up” payment to ensure employees exceed the required minimum salary.

Finally, the Department proposes to permit employers to make a final “catch-up” payment within one pay period after the end of each 52-week period to bring an employee’s compensation up to the required level. Under the proposal, each pay period an employer must pay the exempt executive, administrative, or professional employee 90 percent of the standard salary level ($611.10 per week), and if at the end of the 52-week period the salary paid plus the nondiscretionary bonuses and incentive payments (including commissions) paid does not equal the standard salary level for 52 weeks ($35,308), the employer would have one pay period to make up or the shortfall (up to 10 percent of the standard salary level, $3,530.80). Any such catch-up payment would count only toward the prior year’s salary amount and not toward the salary amount in the year in which it was paid.

Anticipated Litigation

As with previous wage-hour regulatory proposals, these have already been greeted with numerous promises of litigation.

Comments

The DOL has invited comments from the public within a 60-day period.

Source: DOL’s proposed rule “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees,DOL RIN 1235-AA2 (3/7/19).

DOL revives self-reporting program

The United States Department of Labor (DOL) has revived its Payroll Audit Independent Determination (PAID) program, which is designed to allow employers who suspect they have violated the Fair Labor Standards Act (FLSA) to self-report the suspected violation and get the DOL’s take on the situation. Unfortunately that’s about all an employer gets.

The program is open to employers who suspect they’ve underpaid workers, unless the employer is already involved in an audit, litigation or has received a demand from an employee or their attorney. Unfortunately the DOL doesn’t say what happens if the employer self-reports and then receives the demand, does that kick the employer out of the PAID program?

We aren’t likely to find out because the PAID program offers very little real benefit to a self-reporting employer. On its face, it is supposed to allow an employer to self-report and, in doing so, self-identify their own calculations of backpay owed. If the DOL agrees, it will then process the payments to workers. Although that is likely helpful to mitigate against penalties — especially in cases that involve a large total amount at-issue, consisting of small payments to individual workers, incurred as a result of an inadvertent violation — participation in the program doesn’t result in either the employees or the DOL waiving future claims, audits, litigation, etc.

Participating in the program comes with an especially high price. In order to be eligible, the employer must effectively lay out a plaintiff’s case, by submitting the following information to the DOL (quoting the DOL):

  1. specifically identify the potential violations,

  2. identify which employees were affected,

  3. identify the timeframes in which each employee was affected, and

  4. calculate the amount of back wages the employer believes are owed to each employee.

Source: US DOL PAID program.

DOL proposes reversing course on Obama-era tip-pooling rule

The U.S. Department of Labor has issued a proposed rule that would reverse an Obama-era tip-pooling rule, which has proven controversial since its issuance. As previously reported in this blog, the courts have split over whether — and the Tenth Circuit has joined the majority that hold that — employers need not comply with the tip-pooling rule if they otherwise meet the Fair Labor Standards Act’s minimum wage requirements. These courts hold that the tip-pooling rule is merely a condition of claiming the credit for tips against the minimum wage; if an employer does not claim the tip credit — if the employer pays at or above the minimum wage — then the tip-pooling rule does not apply. One part of the tip-pooling rule prohibits employers from sharing tips with any worker in a position that is not customarily and regularly tipped, such as dishwashers, cooks, etc. Thus, by paying tipped employees (e.g., waiters) at or above the minimum wage, without claiming the tip credit, employers are free to require a tip pool that is shared with other employees, even dishwashers, cooks, etc. This proposed rule would confirm this view in the formal FLSA regulations, in other words, that the tip-pooling rule only applies as a condition of claiming the tip credit. The proposed rule would codify the approach already taken by the Tenth Circuit.

Court strikes Obama-era DOL overtime rules

After issuing a preliminary injunction freezing the Obama-DOL overtime rules in 2016 before they took effect, the same court struck them on August 31, 2017 as unconstitutional, and in so doing expressly held the DOL had acted outside even Chevron authority. The decision, for now, seems to bring an end to the rules, as it seems unlikely the Trump-DOL will re-visit them.

Source: Nevada v. U.S. D.O.L., — F.Supp.3d —, case no. 4:16-cv-00731-ALM (D.E.D.Tex. 8/31/17).

DOL Persuader Rule blocked

The DOL’s persuader rule, which would have extended the longstanding persuader rules to cover attorneys providing legal advice, has been blocked by the courts. Whether it will survive numerous lawsuits, much less a Republican Congress and Trump Administration, is doubtful.

Nat’l Fed’n of Independent Bus. v. Perez , N.D. Tex., No. 16-cv-066, 11/16/16.