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Under the Supreme Court’s new “fair reading” doctrine, will FLSA exemptions be interpreted more broadly?

Historically courts have interpreted the overtime exemptions in FLSA (the Fair Labor Standards Act) narrowly in favor of employees. This “narrow construction” doctrine has made it difficult to treat employees who may be exempt as such unless they clearly fit an exemption. Now, the Supreme Court has rejected the “narrow construction” doctrine, ruling that it has not been “a useful guidepost for interpreting FLSA.”

The Supreme Court held that FLSA’s overtime obligations consist of two basic chunks of statutory language: The first requires employees to be paid overtime; the second chunk of language is a series of exemptions from that general rule. The Supreme Court held that FLSA provided courts with no basis for giving the first chunk of language any greater significance than the second chunk, in other words, to read the overtime requirement broadly at the expense of having to read the exemptions narrowly. Instead the Supreme Court held, both chunks of language should be given equal importance. The Supreme Court called this a “fair reading.”

Those exemptions are as much a part of theFLSA’s purpose as the overtime-pay requirement. See id., at ___ (slip op., at 9) (“Legislation is, after all, the art of compromise, the limitations expressed in statutory terms often the price of passage”). We thus have no license to give the exemption anything but a fair reading.

Having rejected the narrow-construction doctrine, and instead applying its fair-reading doctrine, the Supreme Court then held that, in this case, service advisors at the car dealership in question qualified for an overtime exemption under FLSA’s special exemption for salesmen at car dealerships.

It is likely this ruling will have substantial impact in all FLSA overtime cases. It will not be limited to the FLSA’s exemption for salesmen at car dealerships. Rather the fair-reading doctrine will substantially expand the reach of all of FLSA’s overtime exemptions.

Source: Encino Motorcars, LLC v. Navarro, case no. 16-1362 (2018).

Colorado Supreme Court holds statute of limitations on wage claims runs from pay period following its due date

The Colorado Supreme Court held that the statute of limitations under the Colorado’s Wage Claim Act, CRS. 8-4-101 to -123, begins to run from the pay period when the wage first becomes due and is unpaid.

The facts of the case illustrate the importance of this holding. Like many states, Colorado’s wage claim laws permit an employee to sue at the time of termination for any unpaid wages. Most commonly wage claims involve amounts that are claimed due in that final paycheck, for example, vacation pay, but what about wages that were claimed due in prior periods? This case involved a group of workers who sought wages “as far back as 1992.” Colorado’s wage laws, like federal law (Fair Labor Standards Act, FLSA), set a 2-year statute of limitations on wage claims, or 3 years if the violation is deemed wilful. The plaintiffs argued that the Act allowed them to seek all of their claimed wages, going back decades. In contrast, the company argued that they could seek only wages that came due in their final paycheck, nothing earlier.

The Colorado Supreme Court disagreed with both parties, holding that the plaintiffs can seek any wages that came due in their final paychecks plus any that came due in the 2 years preceding their termination (or 3 if the claim is deemed wilful), but that they cannot seek wages going back farther than that.

We conclude that under section 109, terminated employees may seek wages or compensation that had been earned in prior pay periods but remain unpaid at  termination. This right, however, is subject to the statute of limitations in section 122, which runs from the date when the wages first became due and payable—the payday following the pay period in which they were earned. A terminated employee is thus limited to claims for the two (or three) years immediately preceding termination.

It is noted that the Court there said plaintiffs could seek claims for 2 (or 3) years “immediately preceding termination;” however, it would seem from the language of the Act and the Court’s own reasoning that the Court meant “immediately preceding (the filing of their lawsuit seeking wages upon) termination.” That issue is likely to be litigated in future cases.

Source: Hernandez v. Ray Domenico Farms, Inc., case no. 17SZ77 (Colo. 3/5/18).

California is at it again, this time, how to calculate overtime

Under federal law (the Fair Labor Standards Act, “FLSA”), a non-exempt employee’s regular rate of pay is calculated, for overtime purposes, for each workweek, by totaling their compensation that week (excluding only certain limited things likely discretionary bonuses) then dividing by their total hours worked that week. They receive half that on top of the pay they’ve already received as compensation for overtime hours worked (in excess of 40).

Under a recent California case, California has decided, yet again, to be the odd jurisdiction out and, now, mandates that the denominator is only non-overtime hours.

What’s the difference? Here’s a simple hypothetical to illustrate. Assume in Week-1 of the year, John works 42 hours at a rate of $10 per hour. He gets paid $420 for that straight time (42x$10). That same week, John also receives an attendance bonus of $42. So far, his pay that week totals $462 ($420+$42). His regular rate is therefore, under FLSA, $11 ($462/42). He still hasn’t been overtime, so for overtime, he gets paid half that regular rate $5.50 ($11/2) for the 2 hours he worked overtime, in other words, an extra $11. His total pay that week, under FLSA, is $473.

Under the California approach, when it comes to calculating the regular rate, the company can only divide by 40. So his regular rate of pay is $11.55 ($462/40), nearly a 10% increase. That means his overtime rate is half that, making his total pay that week is $473.50 ($420+$42+$11.50).

Source: Alvarado v. Dart Container Corp. of Calif., case no. S232607 (Cal. 3/5/18).

DOL adopts Primary Beneficiary test for interns under FLSA

The U.S. Department of Labor has adopted the Primary Beneficiary test for deciding whether an intern must be paid as an employee or can be treated instead as an unpaid intern. This brings the DOL into alignment with a number of circuit courts, including the Sixth, Ninth and Eleventh. The Primary Beneficiary test is generally seen as more favorable towards employers and students who wish to be treated as unpaid interns.

The Primary Beneficiary test asks, given the “economic reality” of the relationship, whether the putative intern or the company is the real “primary beneficiary” of the relationship. When asking that question, the DOL and courts that follow this test consider the following seven factors (quoting new DOL Fact Sheet #71):

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

Wonder what a wage-hour class (collective) action complaint looks like?

A group of employees recently filed a lawsuit in federal district court in Denver, Colorado, against DaVita Healthcare Partners, Inc., and Total Renal Care, Inc. Their complaint, which is publicly available in court records, lays out their claims and provides HR professionals with a chance to see what this kind of lawsuit can look like. Reminder as you review, the defendants have yet to respond to the complaint; therefore, the plaintiffs’ allegations are merely, just that, at this time, allegations, which are unproven. The plaintiffs’ allegations have yet to even be tested in litigation.

The complaint alleges violations of the Fair Labor Standards Act (FLSA), which is the nation’s leading, federal wage-hour law.

It was filed as a class action, more specifically, a collective action. Simply put, the difference between a class action and a wage-hour collective action is this: In a class action, representatives can sue on behalf of a group of similarly situated individuals, who can then opt out of the class if they choose not to be involved. FLSA provides for “collective” actions, in which individuals have to opt in to join the class. Either way court approval is required to proceed as a class/collective action, and this Complaint signals the plaintiffs’ intent to seek such approval.

Here the plaintiffs describe their alleged class as a group called the “Trailblazers,” which they describe, as follows:

2. Plaintiffs and those similarly situated are non-exempt hourly employees of Defendants. Plaintiffs and those similarly situated are all located within a geographic area designated and defined by Defendants as encompassing the states of Tennessee and Mississippi, and parts of Indiana, Ohio, Kentucky, Alabama, and Georgia, and are collectively referred to by Defendants as the “Trailblazers.”

3. Plaintiffs and those similarly situated in the “Trailblazers” zone are subject to the same illegal policy and practice of failing to pay workers for all time worked and failing to pay overtime wages. That policy and practice is based, in part, on direct patient care hours per treatment and the calculation of direct patient care hours for each facility established by corporate DaVita that reduces Defendants’ patient to staff ratios and require Plaintiffs and those similarly situated to work more hours for which they are not properly compensated.

They allege, as follows, that wages were not paid for all hours worked and, as a result, overtime is also claimed:

6. Defendants required Plaintiffs and those similarly situated to clock out for
their meal breaks. Plaintiffs and those similarly situated were/are required to perform work-related duties during meal breaks. Plaintiffs and those similarly situated were/are not paid for work-related interruptions that occurred/occur during meal breaks during their shifts wherein they worked more than five consecutive hours. Defendants failed to change Plaintiffs’, and those similarly situateds’, time records to reflect the additional time worked on behalf of the employer even when Plaintiffs and those similarly situated requested that their time records be corrected by management.

7. Plaintiffs and those similarly situated were/are not properly paid for other work-related duties which occurred outside of their scheduled shift hours and/or on weekends. Defendants failed to change Plaintiffs’, and those similarly situateds’, time records to reflect the additional time worked on behalf of the employer even when Plaintiffs and those similarly situated requested that their time records be corrected by management.

Allegedly compounding their claim for failure to pay, they also claim the employer “failed to properly maintain accurate daily records of all hours worked by Plaintiffs and those similarly situated as required by federal law because Defendants are not properly recording all hours worked, including overtime.”

What is sought in a class (collective) action like this under FLSA? These Plaintiffs claim “unpaid wages, overtime compensation, a declaratory judgment, liquidated damages, compensatory damages, punitive damages, costs and attorneys’ fees and pre and post judgment interest associated with the bringing of this action, plus any additional relief that is just and proper for Plaintiffs and those similarly situated under federal law.”

Again, it is emphasized these are merely unproven allegations at this point. Still, the complaint itself, being public, provides HR professionals an opportunity to see what this kind of case can look like.

Congress Takes Shot at Browning-Farris – Law Week Colorado

Interested in reading Bill Berger‘s thoughts about Congress’ efforts to reverse Obama-era expansions of the Joint Employer doctrine, especially H.R. 3441 (which if passed would be the Save Local Business Act)? Check out the August 7, 2017 issue of Law Week Colorado. If passed, the Act would tighten the application of the Joint Employer doctrine (back) to requiring evidence of actual control by the purported joint employer in cases involving the National Labor Relations Act or the Fair Labor Standards Act.

Source: Congress Takes Shot at Browning-Farris – Law Week Colorado

Employer may share in tips if it does not claim a tip credit, at least in Tenth Circuit

The Fair Labor Standards Act (FLSA) is the country’s leading wage-hour law. Among other things, FLSA imposes a federal minimum wage. The federal minimum wage is a baseline; states and local governments are free to adopt higher minimum wages. Employers can, even under federal law, pay tipped employees a lower minimum wage if certain conditions are met. One condition is that the employer not share in the tips. To put it (overly) simply), tips can be pooled among other tipped employees, but not with the company or management.

What if the employer decides it wants the tips and doesn’t care about claiming the tip credit? In other words, can a company take some or all of the tips so long as it pays the full applicable minimum wage? The Tenth Circuit read the law and held, yes, in Marlow v. The New Food Guy, Inc., 861 F.3d 1157 (10th cir. 2017) (Employer that does not claim tip credit may take share of tips; FLSA’s prohibition against same is merely a condition for claiming a tip credit). The U.S. Department of Labor and Ninth Circuit say otherwise. See Oregon Restaurant & Lodging Assoc. v. Perez, 816 F.3d 1080 (9th Cir. 2016) (Employer may not whether or not a tip credit is claimed).

While the Tenth Circuit’s opinion is clear, well reasoned and based on the language of FLSA, employers outside the Tenth Circuit should be aware of the distinction in the event they wish to share in tips.

Employer’s attorney may be held liable for retaliating against client’s former employee

In a decision that is already drawing harsh criticism, the Ninth Circuit held that an attorney may be liable to his client’s former employee for retaliation where the attorney contacted federal immigration authorities at U.S. Immigration and Customs Enforcement (ICE) to advise, “if there is an interest in apprehending” the plaintiff, he would be attending a deposition on a certain date. ICE conducted its own investigation and determined “based on our records he has no legal status.” The plaintiff learned that ICE was aware of him, alleged that realizing the same had caused him severe, and as a result, he said, settled his wage-hour lawsuit against the former employer. After settling with the company, he sued its attorney, again, not his own attorney but opposing counsel. The Ninth Circuit noted that attorney had allegedly communicated with ICE about five other plaintiffs and held that the plaintiff’s claim should be allowed to proceed.

In doing so, the Ninth Circuit reviewed the statutory language of FLSA’s retaliation provisions. The Fair Labor Standards Act (FLSA) is the nation’s primary wage-hour law. The Ninth Circuit read its anti-retaliation language as being broader than its substantive provisions regarding overtime, minimum wage, etc. The Ninth Circuit said the broad anti-retaliation language was more like Title VII’s (the nation’s leading anti-discrimination law). The Ninth Circuit held that, given the breadth of FLSA’s anti-retaliation language, such a claim is viable.

The decision has been called “flat-out bonkers” and possibly “the year’s worst employment law decision” and is being cited as an example of a decision by a court that “has officially lost its mind.”

Source: Arias v. Raimondo, Court of Appeals, 9th Circuit 2017 – Google Scholar