On Friday, June 30, 2017, the Minneapolis City Council passed a $15 minimum wage ordinance on a vote of 11-1, amending Title 2, Chapter 40 of the Minneapolis Code of Ordinances relating to Administration: Workplace Regulations (link is to the draft ordinance). The Ordinance requires that large employers (100 or more employees) pay Minneapolis workers $15 per hour by July 1, 2022, and small employers pay $15 per hour by July 1, 2024, over a 5 and 7 year phase-in period (see table below). As with State law, employers may not take a tip credit for hospitality workers. So what does this mean?  Only time will tell, but it may be a “be careful what you wish for” situation, similar to what Maine has recently went through.  Restaurant employers in Maine saw a hit in their tips only a few weeks after that $12 minimum wage ordnance passed (even despite the fact that the higher wages didn’t yet go into effect), causing the Maine Senate and House to vote overwhelmingly in favor to repeal and restore the tip credit, which Governor LePage has indicated he will sign into law (there are a few more votes and steps in the process).

Who/What Does the Ordinance Apply To?

All employees (full-time, part-time, joint or temporary) are counted to determine size. A franchise is a large employer (no matter how many employees at a single location) if the brand has at least 10 national locations (no matter who operates the franchise). A full service restaurant in Minneapolis, with fewer than 10 national locations is a single employer. State, County, and local governments (except the City of Minneapolis) are exempt from the $15 minimum wage requirement. Notably, and ripe for debate (similar to the sick and safe leave ordinance that since has been limited to employers with an actual work location in the City), is the requirement that it applies to “all time worked within the geographic boundaries of the city”. Employees who work outside the City, but perform at least two (2) hours per week or more in Minneapolis, are covered by this ordinance.

Important for construction and other transportation industries typically passing through: “Time spent in the city solely for the purpose of travelling through the city from a point of origin outside the city to a destination outside the city, with no employment-related or commercial stops in the city, except for refueling or the employee’s personal meals or errands, is not covered by this article.” Thus, a charter bus picking up kids in Minneapolis for summer camps, but located elsewhere could be covered if that driver spends more than 2 hours in the City. A caterer from outside the City who is contracted to cater a party in the City could be covered, as could a construction company that delivers materials into the City. In short, as enacted, it seems the ordinance is going to affect a whole lot of employers located outside the City boundaries.

When Are the Wages Due?

The current tiered phase-in hourly wages are as follows:

Date Large business: five years Small business: seven years
Jan. 1, 2018 $10 No increase
July 1, 2018 $11.25 $10.25
July 1, 2019 $12.25 $11
July 1, 2020 $13.25 $11.75
July 1, 2021 $14.25 $12.50
July 1, 2022 $15 $13.50
July 1, 2023 $15 indexed to inflation $14.50
July 1, 2024 $15 indexed to inflation $15

There is a 90 day training wage for employees under the age of 20 of 85% of minimum wage.

What Happens Next?

The Minneapolis Department of Civil Rights is in charge of enforcement, though the Ordinance does allow a private right of action (employers may be sued by individuals for failing to pay the proper minimum wage). Employers must post notice of these rights, similar to the other State required notices.  As with the sick and safe leave ordinance, chances are that St. Paul and Duluth are not far behind.

 

Mark DaytonOn May 30, 2017, Minnesota Governor Mark Dayton announced that he vetoed “Chapter 2, Senate File 3”, the Uniform State Labor Standards bill (aka, the “Preemption Act”). In doing so, Governor Dayton (correctly) explained that the bill would “preempt local governments’ ability to set wage and benefit levels higher than state law.” Indeed, one of the intentions of the bill was to relieve multi-location employers of the administrative (and other) burdens associated with local ordinances with various requirements concerning leave policies.

Governor Dayton opined that this is not the role of state government, and that local officials, elected by communities, should be able to “retain the right” to set higher wage and benefit levels for their residents.  He did not address how this affects non-resident workers in a community. Governor Dayton further noted that state government “does not always know what works best for every community, and may lag behind when improvements are needed.” As an alternative, Governor Dayton stated that the legislature should have instead proposed to increase Minnesota’s minimum wage and statewide sick and safe time.

What does this mean for multi-location Minnesota employers? For now, status quo – employers must continue to ensure compliance in each location for which it is doing business. If there are conflicts between two ordinances, or an employee works in multiple locations and the business is headquartered in another, be sure the proper benefits and wage rates are used!

checklistThe old adage is right on – prepare for the worst and hope for the best. In this case, my spring cleaning tip #3 is to review your policies, practices and records as if the U.S. Department of Labor (DOL) were to investigate your business practices tomorrow.  A few issues I’ve dealt with (a lot) this year are listed below:

  • Verify employees are properly classified as exempt/non-exempt.
    • Pay particular attention to sales employees, marketing, and office workers.
    • The DOL overtime regulations overhaul is still on hold pending the Trump administration’s decision whether to pursue the appeal. However, as I mentioned before, the DOL’s revised salary threshold was not all that far from what is usually reality for what an exempt person makes in many industries (excluding small business owners, small towns, etc.). Point is, just because it is on hold does not mean you shouldn’t ensure that salaried employees meet the duties test (and current salary threshold).
  • Ensure independent contractors are properly classified.
    • Have a contract with the entity, and keep records of payments made and Form 1099s.
    • Think twice before a former employee is made an independent contractors…no matter how badly the individual asks for it.
  • Be sure you are properly calculating travel time for non-exempt employees.  I’ve blogged about this in the past as this can get very tricky.
  • Ensure employees are provided “sufficient time” to eat a meal.  Record meal time on time cards for hourly employees.
  • Recordkeeping – these are the easiest violations to spot. You’ve either kept the required records or not.
    • Have a document retention policy and use it.
  • Have employee time cards accessible for three years.
  • Have payroll stubs/history and employee wages accessible for three years, including W-2s.

Keep in mind that, should you receive a visit, the DOL investigator is just there to address and audit compliance with federal wage and hour laws. I just sat in an audit where the DOL investigator instructed the employer as to a withholding issue that is inconsistent with Minnesota law. Accordingly, recall that just because the FLSA permits something, does not mean that Minnesota law allows it. If Minnesota laws are more strict (advantageous to employee), Minnesota law must be followed instead.

fitness

I cannot say this enough. Even if payroll deductions are authorized and/or allowed (for example, an employee agrees or a court order for child support), an employer cannot take so many deductions that an employee’s regular rate dips below minimum wage. Period. End of story. There are no exceptions to this that I am aware of (okay, well, at least for employees who are subject to minimum wage laws – there are a few specific exceptions not worth mentioning here – if you are in the industry, you know it). I wrote about this in an earlier post related to deductions for losses, theft or damage. An employee cannot agree to deductions that will take their regular rate below minim wage – even if they want you to take excessive deductions, you cannot do it.

Case in point – the DOL has recently announced that Life Time Fitness has agreed to pay 15,909 employees for back wages and liquidated damages in an amount of $976,765 (remember, employees get double damages). In Life Time’s situation, it appears that the DOL found violations at the Life Time Fitness locations in Fridley, Lakeville, Roseville, and corporate-wide.  While the DOL vaguely reports it found “the employer violated federal minimum wage requirements at its health clubs and fitness center locations in 26 states”, it hints that the violations were related to taking deductions for the cost of uniforms (which is okay in Minnesota), but so much so that the employee’s earnings were dipped below the federal minimum wage (which is not okay). Now, I have been around long enough to know that there has got to be much more to this story than the DOL would like to announce, and the violations were probably not as black and white. But, it still serves as a good reminder for employers.

So what are you supposed to remember? Spread out deductions over several pay periods if necessary so the wages divided by hours worked results in at least minimum wage. However, on a larger scale, payroll personnel should be trained to verify that an employee’s regular rate does not dip below minimum wage, and/or utilize a software program to flag when the regular rate dips below a preset rate (and know when the applicable minimum wage increases!). Keep in mind that this is not only for uniform deductions – but all deductions – even court-ordered. And, as you can see, violations add up quicker than one could imagine (that is the deterrent, after all).

MinnesotaJudicialCenterThe Minnesota Supreme Court has finally issued its Order stemming from this summer’s City of Minneapolis $15 minimum wage roller coaster.  On July 28, 2016, I wrote about Vote for 15MN’s petition to the City of Minneapolis to amend its Charter to require a $15 minimum wage by 2020 for large employers, and 2022 for small employers. If Vote for 15MN had its way, it would have forced the City of Minneapolis to put a ballot question for the general election which would ask voters to decide whether the City of Minneapolis Charter should be amended to require all Minneapolis workers to be paid at least $15 by the year 2020 for 500+ employers and 2022 for smaller employers (and thereafter adjusted based on the consumer price index).

However, later that day, the City of Minneapolis Attorney publicly filed a memorandum declaring that the proposed Charter was inappropriate for a ballot referendum. Vote for 15MN filed a lawsuit, Vasseur et al. v. City of Minneapolis et al., Court File No. 27-CV-16-11794, (Minn. Fourth Judicial District, Aug. 22, 2016), forcing the issue.  On August 22, 2016, Hennepin County District Court Judge Susan M. Robiner held in favor of Vote for 15MN, and resurrected the $15 minimum wage ballot question for the City of Minneapolis to put on the November 8, 2016 ballot, which I wrote about here. Not surprisingly, the City appealed Judge Robiner’s Order to the Minnesota Supreme Court for accelerated review. Funny enough – by that point, I refused to write about and speculate how I thought this would turn out! Not a bad idea on my part…as it turns out, the City of Minneapolis Attorney was correct in her analysis.

On August 31, 2016, the Minnesota Supreme Court revised the District Court’s order, concluding the proposed minimum wage amendment falls exclusively within the authority vested in the City Council over legislation and policy making. Given the accelerated nature of the review, the Minnesota Supreme Court deferred its detailed order on the issue, which was released yesterday. In sum, the Court opined:

Because Minneapolis residents do not have legislative and policymaking authority under the City Charter, we hold that the district court erred in granting the petition and ordering the City to place the wage amendment on the ballot for the general election.”

Accordingly, this issue is dead in the water for this method of changing minimum wage in any Minnesota city. That being said, certainly this is a movement that is not going to go away, so I expect the $15 minimum wage campaigns to continue, and perhaps statewide legislative efforts in lieu of City efforts.

clickAs a result of President Obama’s White House Summit on Worker Voice, on October 28, 2016, the U.S. Department of Labor’s Wage and Hour Blog announced its new beta website – Worker.gov. This website is, according to the DOL, designed to provide “easy-to-access” solutions for employees who need answers “fast”. The DOL admits that “Even the best government websites can be difficult to navigate” – true, true. That being said, it makes it only about 4 clicks for a worker to file a claim electronically.

In short, the website, which is in beta and therefore undergoing constant changes, is designed to provide employees with an easy way to determine whether their rights are being violated, then provides them with a simple click to file a claim against an employer. Partnering with the NLRB, EEOC, and DOJ, the DOL wants the website to provide “critical information” to employees about their rights, who may not know whether they have a “FLSA” or “FMLA” problem, but an “unfairness-on-the job problem”. Employees answer a “few simple questions” and voila! The website will supposedly provide the relevant information, expanding in the weeks and months to come, and “learning” from the workers that use it about what kind of information is being sought – and the site will supposedly begin to feature that information prominently for similar workers.

The beta site provides a drop down, under which five job titles are currently available – day laborer; office worker; nail salon worker; restaurant worker; and construction worker. From there, it takes to you a “Tell Us what happened. We can help.” screen with several options such as – “You have the right to be treated equally.”, “You have the right to engage with others to improve wages and working conditions”, “You have the right to a safe and healthy work environment”, and “You have the right to be paid.”  From there, the employee can chose what happened (i.e. suggestions – all are in the negative – such as “I was not paid for work I performed”) , and then be taken to a “File a Claim” screen.

What does this mean for employers? I have to believe we will see an increase in filed complaints, as that is the whole purpose of the website – to make it easy for employees to complain about unfair work treatment – and provide a simple click to do so.

Sleep breakSeems simple enough, right? Not so fast! In Minnesota, “hours worked” is generally defined as “training time, call time, cleaning time, waiting time, or any other time when the employee must either be on the premises of the employer or involved in the performance of duties in connection with his or her employment or must remain on the premises until work is prepared or available.”  Minn. Rule 5200.0120. As always, this definition is not entirely helpful. For example, does “training time” include seminars that the employee wants to go to outside of normal work hours, or a free seminar during work hours? What about non-mandatory training opportunities? As is frequently the case – it depends, and often depends on the facts. However, a few general rules of thumb follows:

Rest & Meal Breaks 

Employees who work 4  consecutive hours must be provided time to use the nearest restroom. Rest breaks of less than 20 minutes are counted as “hours worked”. Employees who work at least 8 consecutive hours must be provided a meal break (sufficient time to eat a meal). Meal breaks are not counted as hours worked – but should “generally” be 30 minutes or more (so says the State), so the employee is “completely relieved from duty” to eat. Minor interruptions in meal time is okay, but frequent interruptions would convert this to paid work time. Thus, it is a good idea to require employees to step away from their workstation during meal times. Fun fact – there is no mandatory “smoke break” – employees have no right to a smoke break, but certainly they may chose to use their meal break or other provided rest break for such a purpose.

On-Call Time

Under Minnesota law, employees who must remain on premises or so close that they cannot use time “effectively” for personal purposes, must be paid for on-call time. Employees on-call away from work are not working, unless called to work. There is, of course, much more to this (for example, paramedics who may work 24 hour shifts are not always “working” during the 24 hours shift), but for purposes of this quick overview, that’s the general rule – whether the employee is “engaged to wait” (paid) or “waiting to be engaged” (unpaid).

Sleep Time

If an employee is scheduled for less than 24 hours per day, sleep time (with some exceptions – see below) is work time, even if you allow them to sleep. Minn. Rule 5200.0121. Employees scheduled 24 hours or more do not need to be paid for meals and a sleeping period (less than 8 hours), so long as there are adequate sleeping facilities and the employee can usually get at least 5 hours of uninterrupted sleep. However, it is critical that there is an understanding/agreement (doesn’t have to be in writing – but very good practice). Work performed during the sleep time must be compensated and if the sleep time is interrupted so the employee cannot get at least 5 hours of sleep, the entire period is work time.

On-Site Employees

Here is one of the exceptions to the above sleep time rule. Caretakers, managers and other on-site employees of residential buildings, whose principal place of residence is the residential building, and who receive the residence as full or partial compensation for duties performed, must be paid for time spent on duties, but no other time. Minn. Stat. 177.23, Subd. 10.

Companionship Service

Another exception to the above sleep time – employees who provide companionship services (29 CFR 552.6 and 552.106) to individuals unable to care for their own needs, who are employed to stay overnight in the home with the individual(s), and who are paid at least minimum wage for 4 hours for the overnight stay. For those, the term “hours” worked does not include nighttime hours of 10 pm to 9 am – for a total of 8 hours per night, during which the employee is able to perform duties, but is not in fact performing such duties and can sleep or do other things in the home.  Minn. Stat. 177.23, Sub. 11.

As always, the law is not super clear, and there is certainly case law and other guidance to support any one situation. The exceptions to the rule almost always overshadow the rule in wage and hour law. For example, there is a plethora of guidance about paramedics, EMT’s and other first responders, and of course, on-call time is particularly contentious. When in doubt, as I always say, dig deeper!

WorkweekHere is a hint – it is NOT Monday – Friday. Believe it or not, as frequently as this term is used, it is not often use properly. A workweek (or work week or work-week) is actually defined by the Minnesota Fair Labor Standards Act (MnFLSA) and Fair Labor Standards Act (FLSA). Accordingly, employers should not take this term lightly. What’s the fuss? Well, a “workweek” is defined by both the MnFLSA and FLSA to be a period of 168 hours during 7 consecutive 24 hour periods. How you designate it (if at all) can affect your payment of overtime and minimum wage.

Fun fact – the workweek can actually begin on any day of the week and at any hour of the day, as decided by the employer. This is key because the workweek is used to determine minimum wage and overtime. Thus, employers should designate the applicable workweek in your employee handbook. If you don’t designate it, it is presumed to be a calendar week (Sunday 12:01 a.m. to Saturday 11:59 p.m.). This can have significant impacts on overtime in businesses that have more FTE work hours on certain days than, say for example, a workforce of M-F, 9-5. For example, if your busy days are Friday – Sunday and employees work many hours those days and less others, you may want to consider a workweek of Saturday – Sunday, to split the heavy consecutive days up.

Also, keep in mind that, while employers may prospectively change the workweek from time-to-time, it must be “fixed” and thus, cannot be temporary, or changed to avoid overtime. The idea is that you set it and leave it (or reset it and leave it).  Generally, a business has its customary busy days (for example, retail on the weekends), which doesn’t change much, so changing your workweek too frequently may raise some eyebrows.

volunteerI was having lunch the other day with a colleague who practices non-profit law in Minnesota.  As is often the case, we chat about issues facing our clients. Naturally, we started talking about whether not-for-profit entities are subject to the Fair Labor Standards Act (FLSA). The answer is that it depends on whether the entity is “covered”, or the individual is “covered”. In other words, there is no exemption for non-profit employers and whether the entity is covered is the same as any for-profit entity. Indeed, the Department of Labor’s (DOL) updated regulations apply to for-profit and not-for-profit entities alike. In fact, on May 18, 2016, the DOL published its Guidance for Non-Profit Organizations on Paying Overtime under the Fair Labor Standards Act. In addition, it published another handout, Overtime Final Rule and the Non-Profit Sector.

Can A Charitable Organization Not Be A Covered Enterprise?

Sure. In order for your organization to be covered, it must have annual revenues (sales made or business done) over $500,000. Unless your organization is engaging in “ordinary commercial activities” (such as a gift shop), with sales in excess of $500,000, it is not covered (keep reading though, because this does not mean the FLSA does not apply to your employees). When determining enterprise coverage, the DOL will look to see if the non-profit is engaging in activities “for a business purpose” as opposed to, for example, activities that are charitable such as providing clothing, food, temporary shelter, hotline counseling services, and the like. That being said, income used to further the charitable activities such as contributions, donations, membership fees and dues (with some limitations) is not included in the $500,000 threshold.

Can An Employee of A Charitable Organization Be Covered Individually?

Yes. This will happen when an employee’s work activities are regularly engaging in interstate commerce – which is almost always given our connected society (email across state lines, phone calls out-of-state, credit card transactions, etc.). That being said, the DOL has stated in its guidance that it is not going to use its resources to find that needle in a haystack, but will look more to whether an enterprise is covered. It seems the DOL does have a weakness for charitable organizations…but I wouldn’t bank on it.

How Does the FLSA Overtime Regulations Apply to Your Non-Profit?

If you get to join the FLSA club, the DOL’s regulations apply just as they would if you were a for-profit entity. Accordingly, you can find out more information in my earlier posts, the one summarizing the overtime overhaul can be found here. In short, you will need to pay minimum wage plus overtime unless your employees meet one of the white-collar or other stated exemptions.

What About Volunteers?

Individuals generally cannot “volunteer” for a commercial activity (such as working in the gift shop). These rules have not changed with the revised overtime regulations. A volunteer is one who volunteers freely for a non-profit for public service, etc. without expecting compensation. If the individual is a full-time “volunteer”, you should look carefully to be sure that the individual is not crossing the line displacing work of an employee (typically volunteers are part-time). Similarly, a paid employee should not be allowed to “volunteer” for the same non-profit in the same capacity as the work the employee is paid for. In short, if the volunteer is an integral part of the organization, you may want to take a second look at the classification of the employee and/or conduct an internal audit of your wage and hour practices. Finally, don’t forget about Minnesota wage and hour laws…just because the FLSA may not apply, does not mean that Minnesota law does not provide employees certain protections (yes, that’s another blog for another day!).

Shermancourthouse1The nation may soon be watching what unfolds in a small courthouse in Sherman, Texas. A little over 2 months before the new overtime regulations go into effect, on September 20, the Attorney General or Governor of 21 states sued the U.S. Department of Labor, alleging that the new Fair Labor Standards Act (FLSA) overtime regulations are unlawful and contrary to the Constitution in State of Nevada et. al v. U.S. DOL (E.D. Tex.). The same day, the U.S. Chamber of Commerce also spearheaded and filed a separate lawsuit joined by 55 plaintiffs (mostly large nationwide business associations such as the National Association of Manufacturers and Associated Builders and Contractors), in Plano Chamber of Commerce et. al v. U.S. DOL (E.D. Tex). The States and Business groups present great arguments, but only time will tell if this quiet town of about 38,000 and one judge will shake up the nation. One thing is for sure – all eyes will be on Judge Amos Louis III Mazzant in the upcoming months.

The States’ Case

The plaintiff States have asked the Court to declare the new overtime regulations unlawful as they: violate the 10th Amendment, exceed Congressional authorization; were imposed without observance of procedures required by law; are arbitrary and capricious; and, in the alternative, improperly delegate Congressional legislative power. The States ask the Court to enter a temporary or preliminary injunction, stopping the regulations from taking effect.

The States’ basic argument is that the DOL has put salary levels as the primary indicator of exempt status over the actual duties test, which is not what Congress intended. Further, they argue that the automatic indexing of the salary level every three years does not account for actual economic conditions. Finally, they argue that the rule exceeds Constitutional authorization as the Federal government is mandating that States pay State employees overtime even if their duties are exempt. In support, the States note that despite President Obama’s instruction to “address the changing nature of the workplace”, the DOL didn’t in fact change the duties test, because it was more difficult than just changing the salary threshold (which doesn’t do anything to change the nature of the workplace). Notably, the $913 revised salary threshold was, as the States point out, based off of 2015 Q4 data from the “South”, nearly doubling the previous $455 per week threshold.

The U.S. Chamber of Commerce Case

The plaintiff business groups, on the other hand, argue that the new regulations violate the Administrative Procedure Act as the new minimum salary and escalator provisions exceed DOL’s statutory authority under the FLSA; and is arbitrary, capricious and otherwise contrary to law. The business groups argue that even the DOL has acknowledged that it does not have the authority to set wages or salaries for exempt employees. They further argue that historically, the DOL has declared the sole purpose of the salary level threshold is to screen out “obviously nonexempt employees”. Accordingly, in the past, the salary threshold has been set at the bottom 10 or 20% – not 40% as it will be. Interestingly, the “South” wages that were utilized include Maryland, the District of Columbia, and Virginia – which are 3 of the top 10 median income states. Slightly misleading (note the sarcasm), and kudos to whomever actually figured that out! At the end of the day, the business groups also make a great argument that basically, the DOL took an easy way out to force more employers to pay overtime to more individuals, many of whom are performing exempt duties and don’t need the FLSA’s protections.

While we can always hope, it is unlikely to change anything before December 1, 2016. Accordingly, employers should continue your wage and hour audit, and prepare for the imminent revisions to take place. Hope for the best and prepare for the worst!