Minimum Wage

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Small businesses (100 or fewer employees) have less than one month left until the first phase of the Minneapolis Minimum Wage Ordinance goes into effect. The Minneapolis Minimum Wage Ordinance went into effect for large business (more than 100 employees) on January 1, 2018, when the minimum wage increased to $10.00. However, as I mentioned here, the ordinance differentiates based on employer size. Thus, on July 1, 2018, small employers are facing their first minimum wage increase under the ordinance, while large employers are on their second minimum wage increase.  Starting July 1, small Minneapolis employers must pay employees a minimum wage of $10.25 per hour, while large employers must pay $11.25 per hour.

A question I’m often asked by employers is whether they can decrease an employee’s rate of pay. This usually comes up after the business has a reason to do so, notifies the employee, and the employee responds that it’s unlawful and they’re going to report the company to the Minnesota Department of Labor and Industry, U.S. Department of Labor, or call an attorney. Despite the angry employee, it is not an unlawful pay practice, so long as the employer and employee do not have a contract for employment that specifically sets forth a rate of pay or other compensation terms.

That being said, there are some other considerations. For example, best practices would be to only decrease pay prospectively – in other words, before the hours have been worked.  This eliminates the argument that the money was “earned” at the previous rate. For example, if an employee is paid on April 15 for work performed from April 1 to April 14, and you tell the employee on April 10 that their hourly rate of pay is being decreased, the old rate of pay should be used from April 1 through April 10 and the new (lower) rate of pay could be used thereafter. However, from a personnel (employee happiness) perspective, it would be a better practice to make the change effective April 15 for the next payroll, or even the payroll following, in order to give employees plenty of time to juggle their finances if need be. It also would be a good idea to provide the employee with notice of the change in pay in writing that clearly states it is applicable starting on whatever date in the future.

Finally, of course it goes without saying, the employee must at least be paid minimum wage at all times – and be sure that you are using the most recent wage whether it be the federal minimum wage, Minnesota minimum wage, or city minimum wage (such as the Minneapolis Minimum Wage Ordinance).

 

In one of two DOL Opinion Letters issued on April 12, 2018, the DOL clarified an extremely frequent question employers have – when to pay a non-exempt (hourly) employee for travel time (and gave me a great excuse to finally post a picture of a Jeep!). In other words, when is travel time “work”.  DOL Opinion Letter FLSA2018-18 finally provides some guidance regarding the DOL’s interpretation with three very common scenarios. Specifically, we know compensable work time generally does not include commute time, but what happens when an hourly worker does not have a normal business to commute to but rather goes to different job sites? Well, we know that travel away from home communities is worktime when it “cuts across the employee’s workday”, which includes the same normal work hours on a Weekend day as well (i.e. 9 to 5). Thus, the DOL has long held it does not consider work time that time spent as a passenger outside of regular working hours (see my earlier blog). However, what happens when employees don’t have a fixed location or set hours each day?

OPINION LETTER FACTS: At this employer, hourly technicians do not have a fixed location but work at varying customer locations each day. They have no fixed schedule, though they often start at 7 am, and often work between 8 and 12 hours, sometimes having to spend the night and complete the service the following morning. Occasionally technicians travel out of town for training. They are provided with vehicles to use for personal and business and covers all fuel and maintenance.

Scenario 1: “An hourly technician travels by plane from home state to New Orleans on a Sunday for a training class beginning at 8:00 a.m. on Monday at the corporate office. The class generally lasts Monday through Friday, with travel home on Friday after class is over, or, occasionally, on Saturday when Friday flights are not available.”

  • The key question is how to determine when travel time is compensable when there is no regular workday.
  • The DOL “scrutinizes” claims that employees don’t have regular or normal work hours, as after reviewing time records usually work patterns emerge (in other words it is a loosing argument for 99% of employers that there is no normal workday)
  • Assuming there is no regular workday, an employer can choose the average start and end times for the employee’s workday.  The employer and employee (or representative) can also negotiate and agree on a reasonable amount of time which travel outside of home community is compensable. When these methods are used, no violation will be found for compensating employees only during those hours.
  • If the employee chooses to drive instead of ride as a passenger in a plane, the employer may count as “hours worked” time spent driving the car or time that would have had to have counted as hours worked if the employee had taken the plane.
  • Time between a hotel and the remote work site is considered home-to-work travel and not compensable.

Scenario 2: “An hourly technician travels from home to the office to get a job itinerary and then travels to the customer location. The travel time from home to office varies depending on where the technician lives and can range from 15 minutes to 1 hour or more. All of this travel is in an assigned company vehicle.”

  • Time spent commuting between home and work is not compensable. Travel between site after arriving at work is. If an employee is required to report to a meeting place or pick up tools, travel from that site to the job site is part of the day’s work, regardless of contract, custom or practice.

Scenario 3: “Hourly technicians drive from home to multiple different customer locations on any given day.”

  • Same outcome as above.

Again, it’s still very fact specific, so keep in mind that this is an opinion letter related to one employer – but can be used as guidance for the rest.

As food industry businesses are well aware, in Minnesota, you cannot take a credit for tips when computing minimum wage, nor can an employer require tip pooling (Surly Brewing recently paid $2.5 Million in back wages for alleged tip pooling).  In response to cities in Minnesota passing or introducing higher minimum wage ordinances (such as $15 in Minneapolis and St. Paul), Republican lawmakers introduced a bill that would allow employers to pay their tipped employees a lower minimum wage. The bill is in response to concerns from primarily restaurants and bars, regarding the strain a higher minimum wage will incur on them.  The House committee is currently debating this proposed bill.

Under the bill, large employers (employers with annual gross receipts of $500,000 or more), may cap an employee’s minimum wage at $9.65, so as long as the employee makes an average of $14 per hour, including tips.  For small employers (employers with annual gross receipts of $500,000 or less), an employer may cap an employee’s base wage at $7.87 if the employee makes an average of $12 per hour, once the tips are included. If an employee does not make $14 or $12 per hour, depending on the employer’s size, the employer is required to pay them the higher of the Minnesota or federal minimum wage. Stay tuned!

On March 23, 2018, President Trump signed into law the Consolidated Appropriations Act. As you may remember, earlier this year the U.S. Department of Labor (DOL) sought comments related to rescinding portions of the 2011 Obama Administration’s ban on tip-sharing arrangements (see my earlier blog here). However, the Act eliminated the issue before the DOL could address it. Under the Act, “employers who pay the full FLSA minimum wage are no longer prohibited from allowing employees who are not customarily and regularly tipped—such as cooks and dishwashers—to participate in tip pools.” However, there are two important caveats worth mentioning. First, the Act does not eliminate the prohibition on managers and supervisors from participating in tip pools. Second, the Minnesota Fair Labor Standards Act (MnFLSA) prohibits employers from requiring employees to share tips (it has to be their choice to tip pool).  Thus, while the FLSA now allows tip pooling, employers in Minnesota are still prohibited from requiring employees to share tips.  Additionally, the Act amends the FLSA to prohibit employers from keeping tips.

The DOL issued a Field Assistance Bulletin on April 6, 2018, further detailing the impact of the amendment, noting it expects to proceed with rulemaking in the near future to address what this means exactly. Importantly, the DOL stated that when determining whether an employee is a supervisor or manager for purposes of tip pooling, it will use the duties test set forth at 29 CFR 541.100(a)(2)-(4). This test looks at whether the individual’s primary duty is management of the business or a department or subdivision, whether that person customarily and regularly directs the work of two or more employees, and whether the individual may hire or fire other employees or whose suggestions and recommendations as to hiring/firing/promotions/other change of status is given particular weight. Violations of the amended Act may result in recovery of all tips unlawfully held by the employer plus an equal amount as liquidated damages as well as possible civil money penalties.

The Equal Pay Act (EPA) requires that all individuals are paid equally for performing the same job, regardless of gender. But what does that mean exactly? When are jobs equal? On March 21, 2018, in Berghoff v Patterson Dental Holdings, the Honorable Judge Frank ruled that jobs of males and females “need not be identical to be considered equal under the EPA”, and that “job titles and classifications are not dispositive.” (D. Minn., March 21, 2018, Case No. 16-2472). Judge Frank noted there are only four exceptions to the EPA: “(1) a seniority system; (2) a merit system; and (3) a system that measures quantity or quality of production; or (4) that the pay differential was based on a factor other than gender.” In this case, the employer argued that the Plaintiff’s compensation was lower not because she was female, but because the product she marketed for the company generated less revenue than her male counterparts (who marketed products that brought in higher revenue for the company). While the jobs being compared were “essentially [all] marketing positions”, and the revenue generated by each of the respective products being marketed is relevant, the Court held that fact issues “surrounding the economic analysis on that point” precluded summary judgment. In sum, because there was a dispute regarding the use of revenue streams to show that the Plaintiff’s job involved less responsibility, the lawsuit goes on. However, Judge Frank similarly hinted that Plaintiff’s claim appeared weak and that “settlement would serve the interests of all parties.”

Take away for employers? Especially as your company grows, restructures, or changes compensation and commission plans, take a look at similar positions and ensure that there is no apparent pay disparity based on gender (or anything other than the four exceptions noted above).

On March 6, 2018, the U.S. Department of Labor announced a new nationwide pilot program called “PAID” – Payroll Audit Independent Determination. For an initial 6 month trial period, employers can self-audit their wage and hour practices.  If violations are found, an employer can voluntarily report it to the DOL’s Wage and Hour Division (WHD), in hopes of resolving the potential violations without liquidated damages penalties (usually an amount equal to the back wages due) and with a release of claims (as to the violations only).

Why? The DOL is hopeful that employers who discover violations will come forward and pay the employee 100% due promptly, in exchange for a settlement waiver and no liquidated damages, lawsuit, attorneys’ fees, etc. In turn, employees are paid faster than in a lawsuit or DOL investigation, and 100% of what is allegedly due.

Who is eligible? All employers subject to the FLSA. The program cannot be used for any pending investigation, arbitration, lawsuit, or threatened lawsuit (with an attorney involved). Also repeat offenders are ineligible.

What’s the catch? The DOL notes that it is an employee’s right to not accept the back wages, and not release any private right of action against the employer (and they cannot be retaliated against for such refusal). Further, unlike a typical litigation settlement release, the release must be narrowly tailored to only the identified violations (i.e. overtime, minimum wage, off-the-clock, misclassification, recordkeeping (for every violation)), and time period for which the back wages are paid. The WHD can still conduct future investigations of the employer, and employers cannot use the program to repeatedly resolve the same violations. So, in reality, an employer could notify 100 employees that they were paid incorrectly, and 90 accept and 10 reject and file a lawsuit seeking liquidated damages and attorneys’ fees (since they were just told by the employer that they “stole” their wages).

That being said, an employer could, as always, pay the employee the alleged back wages due in a supplemental check, and thus cut off their alleged damages as to that portion (which makes it a lot less attractive as a case to a plaintiff’s attorney), but they will not get a release. Sure, the employee cannot be forced to cash the check, but that would be a remote occurrence. Of course, the employee could still sue, stating they are entitled to interest or liquidated damages, etc., but such suit would likely not sit as well before a court without additional claims (i.e. you were paid what you were due, why are you taking up our limited judicial resources…).

How does the process work? Employers wanting to participate must review the program information and compliance assistance materials that will be available on the PAID website.  The employer then conducts the audit and identifies the potential violations, affected employees, time frame, and back wages. Next, the employer contacts WHD to discuss the issues, and the WHD determines if it will allow the employer to participate in the program. If allowed, the employer must then submit information such as the backup calculations, scope of violations for release, certification that this is all in good faith and the materials have been reviewed, and that practices will be adjusted to avoid the same violation in the future. The WHD finally issues a summary of unpaid wages (this is likely the same form they use today except no liquidated damages will be assessed).  KEY – once this process has been completed, the employer must issue the back wages by the end of the next full pay period.  Thus, employers should be careful to not begin/end the process until ready and able to pay.

In reality…while some are calling it a “get out of jail free card” for employers, I really don’t see it. An employer who discovers an error after a good faith internal investigation can chose to report itself to the DOL. Now, they are on the DOL’s radar with an admission that they believe they have paid their employees in error. The DOL can reject participation in the program and conduct a full investigation. If the DOL allows participation, all affected employees will be notified of the error (who may not have otherwise known), and can chose to opt-out and file a private lawsuit against the employer that just came clean. Further, neither relieves the employer of a future DOL investigation. Get out of jail free card? I think not. More like playing a game of Risk.

As I briefly mentioned in my last post on the Minneapolis minimum wage increase, a Hennepin County District Court denied Graco Inc., the Chamber of Commerce, and two other business groups’ request for a temporary injunction. While the business groups dropped out of the lawsuit after the court denied the temporary injunction, Graco continued the suit, claiming the Minnesota state law mandating a lower minimum wage preempted the Minneapolis ordinance.

On February 27, 2018, the District Court ruled in favor of the City of Minneapolis, finding the Minnesota Fair Labor Standards Act (MFLS) merely sets a floor not a ceiling regarding minimum wage regulation. As a result, the Court held: “The Minneapolis Minimum Wage Ordinance is not repugnant to, but in harmony with the MFLS [. . .] because they both [are] minimum wage law[s] aimed at protecting the health and well-being of workers.” The Minnesota District Court has joined the majority of courts, including Wisconsin, in rejecting preemption challenges to city ordinances mandating higher minimum wages.

Employers should make sure they are in compliance with all relevant city, state, and federal laws governing minimum wage. As a reminder, the second phase of the Minneapolis minimum wage increase goes in effect on July 1, 2018. At this time, small employers (100 or fewer employees) must pay employees a minimum wage of $10.25 per hour, while large employers (more than 100 employees) must pay $11.25 per hour.

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.