Being the wage and hour geek that I am, which I have fully embraced, I subscribe to the Minnesota Department of Labor and Industry Bulletin. Today’s bulletin speaks directly to employers, so I thought, why not pass it along. Besides, now I have completed No. 10 (keep reading), and feel like I have accomplished something today after I made my bed this morning (watch at 4:45: Naval Adm. William H. McRaven, Ninth Commander of U.S.Special Operations Command 2014 Commencement Address to the University of Texas at Austin).

So, here you go, courtesy of MnDOLI, 10 tips to not steal from employees:

Ten tips to help employers avoid committing wage theft

  1. Pay your employees at least the state minimum wage. New rates became effective Jan. 1, 2018 (see current requirements at www.dli.mn.gov/LS/MinWage.asp).  Employers operating in the city of Minneapolis need to be aware of the Minneapolis Minimum Wage Ordinance (see http://minimumwage.minneapolismn.gov).
  2. Pay your employees for all hours worked. Employees must be paid for employer-required training and for time needed to prepare to perform work, such as restocking supplies and performing safety checks. If you require employees to meet at a centralized location before driving to a worksite, pay the employee for the drive-time from the location to the worksite. Employers cannot require employees to remain at work and “punch in” only when it gets busy, “punching out” when business gets slow.
  3. Pay your hourly employees for overtime when their work hours exceed 48 hours in a work week. Federal law requires some hourly employees to receive overtime after working 40 hours in a work week. Some employees are exempt from this requirement. More information about federal and state overtime requirements is online at www.dli.mn.gov/LS/Overtime.asp.
  4. Pay your employees at least every 31 days.
  5. Do not misclassify employees as independent contractors. Such misclassification not only adversely impacts the employees, it also creates a competitive disadvantage for employers that comply with state laws related to workers’ compensation, unemployment insurance and tax withholding.
  6. Do not take unlawful deductions from your employees’ paychecks. Deductions for lost or damaged property, cash shortages, tools or uniform expenses generally cannot be made.
  7. Do not require your employees to pool or share tips.
  8. If you have a question, call us. We are available by phone at (651) 284-5070, Monday through Friday, 7:30 a.m. to 6 p.m.
  9. Get more information online. Visit www.dli.mn.gov/LaborLaw.asp for information about all Minnesota labor standards laws.
  10. Share these tips. Encourage other employers and associations to subscribe to our Wage and Hour Bulletin at www.dli.mn.gov/LS/Bulletin.asp.

That about sums it up (though we know it is never that easy), and I have accomplished making my bed and No. 10.

Late last year, the U.S. Department of Labor (DOL) issued a notice of proposed rulemaking, requesting comments related to rescinding portions of the 2011 Obama Administration tip pooling regulations that prohibit an employer from controlling or diverting tips (tips remain with the employee they are given to and up to him/her to share with others or not). The new rule would rescind “the parts of its tip regulations that bar tip-sharing arrangements in establishments where the employers pay full Federal minimum wage and do not take a tip credit against their minimum wage obligations.” As the tip-pooling ban may negatively affect the potential earnings of back-of house-staff, this is not only an issue for employers to keep an eye on, but those back-of-the-house employees as well.  While most wait staff share tips, it is not often split equally, resulting in a disproportionate amount of tips to the front-of-the-house and rescinding this regulation would allow employers to ensure all its staff are equally tipped for their combined team efforts.

Interestingly, after the notice and comment period ended on February 5, 2018, the DOL Office of the Inspector General (OIG) informed the DOL’s Wage and Hour division that an audit on the rulemaking process the DOL engaged in regarding the proposed tip pooling regulation was ongoing.  OIG launched the audit in response to concerns the DOL allegedly hid internal estimates of the proposal’s impact on workers. Accordingly, employers in industries where tipping is a prevalent practice should continue to monitor the developments with the proposed rule.

On January 5, 2018, the Eighth Circuit Court of Appeals (this includes Minnesota), in Boswell v. Panera Bread Co. (8th Cir. 2018), held that Panera Bread Company (Panera) was not able cap the bonuses it had offered a group of 67 managers. In an effort to recruit and retain managers, Panera offered a large-one time bonus. Under the compensation plan, managers were to receive a one-time performance bonus, five years after signing the agreement. Moreover, the manager had to be a manager on the date the bonus was payable (5 years in the future). After the bonus plan was implemented, Panera modified the plan to include a $100,000 cap on the amount of the bonus a manager could receive.

The Court found the bonus cap breached the unilateral contract established when Panera offered to pay the managers a bonus for the managers’ continued at-will employment. Departing from prior Missouri cases finding that an offer could be revoked under a unilateral contract prior to substantial performance, the Court held the managers “beginning of performance would render the offer irrevocable.”

What does this mean for employers?  Tread carefully when offering long term bonus or commission plans; be sure that circumstances can’t change so much that you may not be able to deliver on the promise.  Be sure to insert an explicit reservation clause, stating that the employer may revoke or (prospectively) modify the offer, in its sole discretion. Panera attempted to argue it had reserved the right to revoke or modify the bonus payment, since the payment was conditioned on the managers’ continuance of work, a condition Panera argued it controlled under the employment at will rule. However, the Court rejected that argument, finding “Panera was not entitled to move the goalposts on [the managers] by imposing a bonus cap, which was outside the contemplation of the unilateral-contract offer.” In order to demonstrate the parties contemplated a modification or revocation, employers should make sure upon offering a bonus to include clear language stating the bonus is voluntary and may be withheld or modified without notice. That being said, it is also probably not a bad idea to state you will only do so “prospectively” – in other words, provide notice the bonus program is changing before it actually changes.  Then have all employees acknowledge the change.  In this instance, the Court alluded to the fact that Panera could have changed the bonus plan formula, but did not; it erred by adding new conditions (a cap on a bonus).

The DOL started 2018 with a bang, adopting the primary beneficiary test in lieu of the previous six-part test for determining whether interns and students are employees for purposes of the FLSA. This is a pretty big deal for employers desiring to use unpaid internships. The decision to adopt the primary beneficiary test comes after numerous federal courts rejected the DOL’s six-part test that required an intern or student to meet all six factors in order to be exempt under the FLSA requirements. As a practical matter, most internship programs failed to meet at least one of the six factors resulting in the intern being consider an employee and subject to minimum wage and overtime requirements.

The new seven factor primary beneficiary test analyzes “the ‘economic reality’ of the intern-employer relationship to determine which party is the ‘primary beneficiary’ of the relationship”.  Here are the seven factors:

  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.

Since no single factor is dispositive, the DOL now has greater flexibility to determine the relationship of the employer and intern or student on a holistic case-by-case basis.

The first phase of the Minneapolis minimum wage ordinance took effect on January 1, 2018. As I wrote about earlier here and here, all employers located in Minneapolis must comply with the Minneapolis Minimum Wage Ordinance, which trumps both the Federal and State minimum wage laws because it mandates a higher minimum wage. Since, a Hennepin County District Court judge denied the Chamber of Commerce’s request for a temporary injunction, large employers (more than 100 employees) located in Minneapolis need to pay a minimum wage of $10 per hour. Under the Ordinance, small employers (100 or fewer employees) are not subjected to a wage increase until the second phase of the ordinance on July 1, 2018. At that time, small employers must pay a minimum wage of $10.25 per hour, while large employers must pay $11.25 per hour. As a reminder, employers should be sure to familiarize themselves with all wage law and ordinances that may apply to your business.

Effective January 1, 2018, Minnesota large employers (annual gross revenue of $500,000 or more) must pay a minimum wage of $9.65 per hour; small employers must pay $7.87 per hour.  This is HIGHER than federal minimum wage of $7.25 per hour. Accordingly, Minnesota law applies, and so generally no Minnesota employee (with some exceptions) should earn less than $7.87 per hour (and, I know you know this, but there is no “tip credit” allowed in Minnesota).

But wait – there’s more! As I wrote about earlier, Minnesota employers subject to the Minneapolis Minimum Wage Ordinance must pay an even higher minimum wage starting January 1, 2018. Thus, for those employers, Minneapolis’ ordinance will trump both Minnesota state law and Federal law (hence, the Chamber of Commerce’s lawsuit that is pending). Starting January 1, 2018, large businesses (more than 100 employees) that fall under the Minneapolis ordinance will need to pay a minimum wage of $10 per hour.  Starting July 1, 2018, small businesses that fall under the Minneapolis ordinance will need to pay $10.25 per hour, and large businesses $11.25 per hour. Thereafter, the hourly wages increase each July 1 until 2024, when all employers that fall under the Minneapolis ordinance will need to pay the minimum wage of $15 per hour. You can read more about it on the City’s website here.

Minnesota employers should be careful to be familiar with all wages laws and ordinances that may apply to your business.  For example, a business can be a small employer under the $7.87 Minnesota State minimum wage (based on annual gross revenue), but a large business (more than 100 employees) under the Minneapolis Ordinance; in this case the employer would need to pay the higher of the minimum wage rates – the $10 per hour under the Minneapolis Ordinance.

On November 10, 2017, the Minnesota Chamber of Commerce filed another lawsuit against the City of Minneapolis, this time challenging the Minneapolis minimum wage ordinance, set to take effect on January 1, 2018. In a press release, the Chamber noted that, “a patchwork of inconsistent local laws creates an administrative nightmare for employers, especially those with facilities in multiple locations.” Sound familiar? Recall earlier this year, the Chamber also sued the City of Minneapolis over its Sick & Safe Leave Ordinance under a similar theory. The Minnesota Court of Appeals recently affirmed part of the decision in that suit (against the Chamber), but notably, temporarily enjoined the City from enforcing that ordinance against businesses without a physical location in the City of Minneapolis.

As it stands, Minnesota State minimum wage is currently $9.50 per hour, and increases annually each year by inflation. Thus, effective January 1, 2018, Minnesota’s minimum wage will be $9.65 per hour. Minneapolis’ ordinance, on the other hand, requires a minimum wage of $10 per hour starting January 1, 2018 for large businesses (more than 100 employees). Starting July 1, 2018, Minneapolis requires $10.25 per hour minimum wage for small businesses, and $11.25 per hour for large business. By July 1, 2022, the Minneapolis Ordinance requires a $15 minimum wage for large business, and the same by July 1, 2014 for small businesses. Thereafter, the minimum wage increases by inflation January 1 of every year.

Until the Court rules otherwise, however, employers (even those with collective bargaining agreements) must follow the Minneapolis Minimum Wage Ordinance if it is applicable to your business. If you are not sure whether the ordinance applies to your business (i.e. employers not located in Minneapolis but who have employees working in or passing through Minneapolis), I’d encourage you to seek counsel before the end of the year.

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.