On November 8, 2018, the DOL issued Opinion Letter FLSA2018-24, addressing the question of when additional payments to an exempt employee based on an hourly, daily or shift basis defeats the professional exemption. In short, an exempt employee may have a “guaranteed salary”, but then also receive additional compensation on an hourly, daily, or shift basis, so long as there is a “reasonable relationship” between the guaranteed amount and actual wages earned. Generally, I tell employers not to ever pay a salaried employee based on hours worked; this is the exception to that rule – so long as it is properly done.

Usual earnings between 1 to 1.5 times the guaranteed salary will typically satisfy this test. (i.e. the employee is guaranteed $500 a week and typically earns $600 to $750 a week). The Court did not address earnings between 1.5 times and 1.8 times the guaranteed salary.  The Court noted that earnings more than that (i.e. 1.8 times or double) may not have a “reasonable relationship,” and thus, may defeat the exemption (and thus, minimum wage and overtime applies). Yet, no bright-line rule exists, and the DOL will look at it on an employee-specific basis (not as a group). Keep in mind that this test does not apply to other payments made to an exempt employee such as bonuses, commissions, etc., which do not have the “reasonable relationship” requirement.

On November 14, 2018, the St. Paul City Council passed an ordinance implementing a minimum wage of $15 for employees who work within the geographic boundaries of St. Paul. Employees based outside of St. Paul, but who occasionally perform work in St. Paul, are also covered if, “over the course of one week [the employee] performs at least two hours of work for an employer within the geographic boundaries of the city.” This means that the Ordinance (for now) appears to apply to employers both located within St. Paul, and those outside of St. Paul with employees who work two or more hours in a week in St. Paul. I cannot imagine that this will not be challenged, however, similar to the challenge made (and won) in Minneapolis by non-Minneapolis employers with respect to the scope of its Sick and Safe Time Act Ordinance.

Employers are defined in the Ordinance as “Macro” (more than 10,000 employees); “Large” (more than 100); “Small” (100 or less); and “Micro” (fewer than 5). The minimum wage hike begins January 1, 2020 for Macro businesses at $12.50 and ends up at $15 by July 1, 2022, with automatic increases thereafter. All other size employers begin the first increase on July 1, 2020. Large businesses start at $11.50 and end up at $15 by July 1, 2023.  Small businesses start at $10 and end up at $15 by July 1, 2026. Micro businesses start at $9.25 and end up at $15 by July 1, 2028. Once an employer has hit the $15 minimum wage, thereafter the minimum wage is automatically increased to whatever the City Minimum Wage rate is that applies to the City of Saint Paul (the adjusted minimum wage rates will be announced September 1 of each year). For purposes of determining company size, all employees, including temporaries, are included. Franchises with more than 10 locations nationally are based on all locations owned and operated by a single franchisee.

A few other items to note – there is no exemption for tipped employees.  Thus, like with our State minimum wage, employers cannot apply a tip credit to meet the minimum wage requirements. There are exceptions for youth wages, city-approved youth-focused training or apprentice program, persons with disabilities, extended employment program workers, independent contractors, and others. Finally, like Minneapolis, St. Paul will prepare a notice for employers to use, as well as accompanying regulations for the finer details…and likely a flashy website to make it easy for employees to learn their rights and file complaints.

The U.S. Department of Labor issued several opinion letters on November 8, 2018.  One of those, Opinion Letter FLSA2018-27, reproduces verbatim the text of Opinion Letter FLSA2009-23, which was (one of many) withdrawn by the Obama Administration “for further consideration”. This Opinion Letter clarifies the definition of a “tipped employee” for purposes of the Fair Labor Standards Act tip credit. However, since Minnesota does not allow a “tip credit” against minimum wage, I won’t go into more detail here, except to note it for those of you who have multi-state restaurants.

On November 14, 2018, the Eighth Circuit Court of Appeals held in Baouch v. Werner Enterprises, Inc. that per diem travel payments made to truck drivers driving away from home at night as reimbursement for travel expenses are “wages,” even though not taxed as part of an “accountable plan” under Treas. Reg. §1.62-2(c)(2). To qualify as an “accountable plan” a payment plan has to meet the IRS’ business connection, substantiation and return of excess expenses requirements. The Court held that the payments under the accountable plan were part of the drivers’ “regular rate,” as they were made as remuneration for work performed under the FLSA. The Court held that representations made by the employer to the IRS were not inconsistent with the FLSA’s governing the calculation of regular rates for the purposes of minimum wages. As the payments were made based on miles driven, and thus, hours worked, the payments were correctly included in the regular rate calculation, even though the primary effect of the payments were to cause participating drivers to take home more pay due to the non-payment of taxes on the payments.  The Court concluded that “per diem payments that vary with the amount of work performed are part of the regular rate.”

So, what does this mean?  Well, an employer who has an “accountable plan” for the payment of mileage reimbursement may be able to include that payment as “wages” for establishing the “regular rate” under the FLSA for purposes of meeting minimum wage.  However – you can’t have your cake and eat it too.  More often an employer argues that per diem is not part of the regular rate (as that increases overtime). Accordingly, employers should be careful that if per diem payments under an accountable plan are tied to hours worked, they may indeed be included in the regular rate for purposes of overtime. Finally, the Court noted such an analysis should be reviewed on a case-by-case basis, and look at factors such as whether the payments were unrestricted (employees need not report expenses or provide receipts and could spend the money as they liked) and the purpose and intent of the payments.

Quick reminder – on January 1, 2019, Minnesota’s minimum wage will increase to $9.86 per hour for large employers, and $8.04 an hour for all others (small employers, training wage rate and youth wage rate).  Employers located in Minneapolis should already be paying $10.25 per hour for small businesses and $11.25 for large (more than 100) businesses.  Remember, the higher rate applies if you are a Minneapolis employer; those rates increase every July 1.  As for St Paul employers, the City Council announced a new minimum wage ordinance on October 9, 2018, which it hopes to pass into law before the end of the year (more on that later in a future post).

 

I cannot count the number of times per month a client calls and explains that they want to terminate an employee, and starts the conversation along the lines of, “I know you are going to tell me I should have terminated him/her a long time ago but [fill in the poor excuse here].”. I used to think this was Minnesota nice. We don’t want to hurt people’s feelings, try to see the best in everyone, and think that everyone needs a second, third, fourth, tenth, etc. chance. For most, I tell them their initial gut was the best one and yeah, after reviewing the file, they should have been terminated long ago (and now they have a mess on their hands as the employee has made discrimination complaints, etc.). If the person is not cutting it, you typically know within 30 or 60 days. They either have it or they don’t. The fit the culture, or they don’t. They can grasp the concept or they can’t. Why keep them longer?

Apparently, this may have less to do with “Minnesota nice”, and more to do with an economic theory called the sunk cost fallacy. I was reading a BBC article today discussing the phenomenon of why we make bad decisions, such as the losing gambler that just keeps losing, the poor business model that we keep trying to pump money into to make it work, watching a bad movie all the way to the end, eating way too much at an all-you-can-eat buffet, staying in a bad relationship, or, yep, you guessed it, keeping a poor performing employee when we know that additional training is not going to make the person perform to expectation no matter how much more money we spend on him/her. What about the recruit that you relocated? The high-dollar guaranteed severance executive? The sign-on bonus for the new CDL? The more money/time/effort put into an employee, the harder it becomes to terminate the employee when need be.

These economists and physiologists theorize that people hate cutting their losses. We are more likely to irrationally continue to sink money into a lost cause, rather than to admit failure. And, according to the University of Minnesota’s own study, it is not just humans that do this. Mice and rats are apparently sensitive to time invested in something and resisting giving up something after the decision has been made to plow forward without any indication of future success. How do we fix this thinking? According to the BBC article, it is simply to pause, step back and ask yourself the pros/cons with staying the course and the pros/cons with changing the course. In our world, it usually means calling your employment law attorney and having them tell you what you already know should happen, but you need us to tell you. Which is fine by me.  Oh the stories I could tell…

Employers are often surprised to learn that employees may be terminated while on (or after) Family Medical Leave Act (FMLA) or other type of protected leave. The key, however, is that there needs to be some sort of unrelated intervening event such as in the case of Naguib v. Trimark Hotel Corp. On September 12, 2018, the Eighth Circuit Court of Appeals upheld the U.S. District Court for the District of Minnesota’s decision in Trimark, that an employee was not wrongfully terminated while on Family Medical Leave Act (FMLA) protected leave.

In this case, the plaintiff, Isis Naguib, was a long-time (1977-2014) Executive Housekeeper at Millennium Hotel, a Trimark brand hotel. During the past three years of her employment, Naguib essentially testified against the company in an unrelated case, her son filed a discrimination complaint against the hotel, and she took FMLA leave for hypertension. While the FMLA request was approved, she was suspended and terminated soon after her return, as a result of an internal investigation.

While Naguib was on FMLA leave, the fill-in Head of Housekeeping personally observed timekeeping irregularities, and notified management. Notably, it was determined that Naguib told housekeepers to round down their time and not record all overtime hours and Naguib altered time records without the proper company form. In addition, one housekeeper regularly sewed hotel linens at home off the clock. This practice resulted in lower payroll costs, and thus, a bonus for Naguib. Ultimately, Millennium compensated the employees for the docked overtime, disciplined three other managers (who did similar practices on a smaller scale), and terminated Naguib just twelve days after her return from FMLA. The 8th Circuit Court of Appeals agreed with the District of Minnesota (the Honorable Judge Joan N. Ericksen) in its ruling that there were no specific links between her termination any any sort of discrimination, and that the investigation was only conducted as a result of irregularities found in her absence. Thus, the termination proper despite the other recent events.

The U.S. Department of Labor (DOL) was extremely busy with its announcements on August 28, 2018. Along with issuing 6 opinion letters, a directive, and launching a new web page (all of which I previously wrote about), it also announced the creation of not one, but two new websites, as well as the new Office of Compliance Initiatives. The new websites, worker.gov and employer.gov provide one location for information for federal worker protections (worker.gov) and information for employers about their responsibilities for federal worker protections (employer.gov).

The employer.gov website provides information regarding pay and benefits; workplace safety and health; small business resources; required posters; nondiscrimination; federal contractor requirements; and veteran and service member employment. It has frequently asked employer questions as well. In theory, the Office of Compliance Initiatives will work to promote greater understanding of federal labor laws and regulations, and will work with enforcement agencies to ensure compliance with the law.

What does that mean for the average employer? I have no idea. It seems to me to be yet another pair of government websites designed to provide consolidated information and links. But as always, nothing is as easy as it seems, and thus, it’s just one more set of data to review. In any event, Minnesota employers should also keep in mind that our laws cannot be ignored and so just because something is allowed under federal law, does not necessarily mean it is under state law. Thus, while this may be handy from a federal perspective, don’t forget about the Minnesota Department of Labor and Industry agency regulations and our Minnesota state wage and hour laws.

This update is short and sweet. On August 28, 2018, the U.S. Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP) launched a new web page titled “Contracting Officer Corner“. The OFCCP’s new web page is designed to be a one-stop shopping, if you will, for federal contractors. It includes a new Pre-Award Process Guide, links to the Pre-Award Registry, Notification, Federal Acquisition Regulations, debarred contractors search, regional office staff contacts, and downloadable EEO workplace posters. That’s it!

For those of you who are federal contractors, and have had the pleasure of being audited by the U.D. Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP), you know how close to the vest the OFCCP has historically kept their formulas, pay analysis groupings theories, and statistical modeling theories/backup, making early settlement frustrating if not impossible. Effective August 24, 2018, the DOL issued a new directive, DIR 2018-05, that outlines their procedures for conducting their compliance evaluation (audit) with the priority of eliminating pay discrimination. I am encouraged by this directive, insofar as the OFCCP appears to be taking measures to improve transparency and working more on correcting true pay disparities versus paying a game of “gotcha”.

DIR 2018-05 notably nods to this history, stating that upon review “OFCCP is concerned that contractors lack the clear guidance Directive 307 [2013] intended to give”. The OFCCP hopes the new directive will allow federal contractors to better conduct meaningful self-audits to proactively identify and address any pay disparity issues. I’d bore you all to death if I set forth a summary of the directive, but wanted to at least point out what the directive contains (the link to DIR 2018-15 is above).

The directive explains how it uses statistical and other evidence to evaluate pay practices, as well as data requests via a Scheduling Letter, which is used to request data such as the employers Affirmative Action Program (AAP). The directive further notes how it determines its similarly-situated analysis groupings by developing pay analysis groupings (PAGs) that mirror a contractor’s compensation system (this has been a fight for contractors in the past). Finally, the directive discusses how the OFCCP applies statistical methodology and modeling in a desk audit and during the compliance evaluation, which control variables are used and how, and how it will facilitate transparency, consistency, and resolution through conciliation.