The Wage and Hour Division (WHD) launched their new program, the Payroll Audit Independent Determination (PAID) program on Tuesday, April 3, 2018. As I wrote about previously, PAID is the WHD’s 6-month pilot program that allows employers to self-audit their payroll practices. If an employer discovers an overtime or minimum wage violation under the Fair Labor Standards Act (FLSA), PAID allows them to voluntarily report it to the WHD. The goal behind PAID is to encourage resolution of claims promptly without litigation. The catch to the program is employees are not required to accept the back wages from the employer or release any private right of action against the employer. Thus, an employer could still be subjected to a lawsuit. Additionally, the DOL can reject participation in the program and conduct a full investigation after the employer voluntarily reported a violation. As I said in my last post, participating in the program is more like playing a game of Risk than a get out of jail free card…
On April 2, 2018, the Supreme Court ruled in Encino Motorcars v. Navarro that car dealership service advisors (individuals that consult and sell customers on servicing solutions at car dealerships), are exempt from the Fair Labor Standards Act’s (FLSA) overtime requirements. While this is certainly a win for car dealerships, the biggest win for all employers is the Supreme Court’s holding in this ruling that the FLSA is not to be read narrowly, but “fairly”:
Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.'”
Since 1966, service advisors have been deemed exempt under an exemption added to the FLSA covering “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles [. . .].” However, confusion sprung when, in 2011, the Department of Labor (DOL) issued a rule rejecting the interpretation of “salesman” to include service advisors.
Thus, in 2012, relying on the DOL’s rule, current and former Encino service advisors sued the Mercedes Benz dealer, claiming Encino violated the FLSA for failing to pay them overtime. The case has been bouncing around ever since. In 2016, the Supreme Court reversed the 9th Circuit Court of Appeals, finding it improper for courts to defer to the 2011 DOL rule, because “the regulation undermined significant reliance interests in the automobile industry by changing the treatment of service advisors without a sufficiently reasoned explanation.” Accordingly, this ruling finally puts the issue to rest – service advisors are exempt from the FLSA’s overtime requirement.
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.
While this blog is clearly for the hearty Up North employers (who I know, like me, are all completely ready for summer), I also know that many now have employees nationwide – including California. Thus, I don’t wan’t to dwell on this too much, but wanted to at least mention a new decision issued yesterday by the California Supreme Court that has a big impact on California employees who are given “flat sum” bonuses during a single pay period (i.e. attendance bonuses, if you work on Sunday, you will get an extra $20) and who work overtime.
In a March 5, 2018 opinion, the Court in Alvarado v. Dart Container Corp. of CA held that “the flat sum bonus at issue here should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of nonovertime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee’s overtime pay rate.” Finally, the Court decided that, even though the DLSE’s language was not clear, any such overtime is owed retroactively.
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
- 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).
- 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.
- 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.
- Pay your employees at least every 31 days.
- 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.
- 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.
- Do not require your employees to pool or share tips.
- 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.
- Get more information online. Visit www.dli.mn.gov/LaborLaw.asp for information about all Minnesota labor standards laws.
- 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.
On July 26, 2017, the Department of Labor asked the public for comments concerning revisions to the overtime rules. Only a week later, the DOL has received over 12,000 comments. However, it appears a move is underway whereby individuals are cutting and pasting the same statement literally thousands of times. It appears an individual posted the 70th comment on July 31, 2017 (WHD-2017-0002-2990), stating that President Ford set the salary threshold in 1975 at what would be $58,000 today, and thus, the DOL should keep the $47,476 in tact (or greater). From what I can tell, the remainder 11,930 submissions so far have simply cut and pasted this comment. This makes it incredibly difficult to find and review different positions and share them here. Perhaps the DOL could institute an “Agree” or “Disagree” feature in the future?
The United States Department of Labor officially published its Request for Information (RFI 1235-AA20); Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, today. In doing so, the DOL expressly acknowledged many employer’s concerns that the previously-set salary threshold of $913 per week was too high, it inappropriately excluded too many workers from the exemption who otherwise would pass the standard duties test, and it adversely impacted low-wage regions and industries. Accordingly, the RFI is intended to gather additional data regarding how the December 1, 2016 regulations affected employers and employees, and how the regulations could better be updated moving forward.
The RFI can be found at regulations.gov, where comments may be electronically submitted with a single click. Given the pending litigation in the District of Texas and the 5th Circuit Court of Appeals, the DOL is merely asking for public comment at this time, versus publishing a formal Notice of Proposed Rulemaking. The DOL acknowledges that the RFI is issued consistent with President Trump’s February 24, 2017 Executive Order 13777, “Enforcing the Regulatory Reform Agenda” which tasks federal agencies to identify regulations for repeal, replacement, or modification which meet certain requirements, such as hindering job growth.
The DOL is asking employers to weigh in on eleven (11) questions (summarized below):
- Should the DOL simply update the 2004 salary level ($455/wk) for inflation?
- Should multiple salary levels be created, and if so, how (size of employer, region, etc.)?
- Should there be different salary levels for executive, administrative and processional (as it was prior to 2004)?
- Should the DOL return to using the long and short test salary levels (and would the duties test need to change if so)?
- Does the 2016 salary threshold ($913/wk) in effect negate the duties test? And if so, at what threshold does it not negate the duties test?
- What actions did employers take to prepare for the December 1, 2016 regulation (i.e., increase salaries, change hours, reduce pay, etc.)?
- Would it be preferable to base exemptions on duties only (no salary threshold)?
- Does the $913/wk threshold exclude occupations traditionally covered as exempt?
- Is the 10% non-discretionary bonus and incentive payment credit towards satisfying the salary threshold appropriate?
- Should the highly compensated thresholds have multiple levels, and if yes, how (i.e. size of employer, region, etc.)?
- Should the salary levels be automatically updated periodically, and if so, how/when?
The public has until September 25, 2017, to submit comments. Following the close of the comment period, employers can expect more waiting, as usual. It appears from the RFI that the DOL will not be issuing a Notice of Proposed Rulemaking while the cases are ongoing, so as is the norm, we will continue to wait.
The United States Department of Labor announced today that, as indicated in the 5th Circuit Appeal recently, it will be publishing a new Request for Information (RFI) concerning the overtime regulations (technically, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees”) tomorrow. The July 26, 2017 RFI will seek public comments regarding the salary level test (recall the DOL told the 5th Circuit that it was dropping the $913/wk overtime threshold), the duties test, varying cost-of-living (i.e. the fact that one salary threshold may be inappropriate nationwide), inclusion of non-discretionary bonuses and incentive payments, highly compensated employee salary test, and automatic updating of such salary levels.
The RFI will be open for 60 days during which the public may submit comments.
On June 30, 2017, the Department of Labor filed its reply brief with the 5th Circuit Court of Appeals. A copy of the brief can be found here. Thus, the Texas lawsuit that has put the overtime regulations overhaul on hold nationwide, is now in the hands of the 5th Circuit. Any question as to whether the Department of Labor would chose to withdraw the appeal has been answered in the negative. Significantly, however, the Department of Labor has withdrawn its appeal with respect to the legality of the specific $913 per week ($47,476/year) salary threshold:
“The Department has decided not to advocate for the specific salary level ($913 per week) set in the final rule at this time and intends to undertake further rulemaking to determine what the salary level should be. Accordingly, the Department requests that this Court address only the threshold legal question of the Department’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule. In light of this litigation contesting the Department’s authority to establish any salary level test, the Department has decided not to proceed immediately with issuance of a notice of proposed rulemaking to address the appropriate salary level….Instead, the Department soon will publish a request for information seeking public input on several questions that will aid in the development of a proposal.”
Accordingly, the question now is simply whether the Department of Labor has the authority to set a specific threshold or whether Congress must do so. And again, we wait.
I was presenting a “Hot Topics in Employment Law” update at our 12th Annual Labor Law Forum in Bloomington, Minnesota today, and realized that I had gotten woefully behind on staying updated as to the status of the FLSA white-collar overtime regulations overhaul. So, here it is. As of April 19, 2017, the 5th Circuit Court of Appeals has granted the U.S. Department of Labor’s second unopposed motion to extend the deadline to file its reply brief, as the nominee to be the Secretary of Labor had not yet been confirmed. The Court granted the motion, allowing the DOL until Friday, June 30, 2017 to file its reply brief (or withdraw its appeal).
On April 28, 2017, R. Alexander Acosta was sworn in as the 27th United States Secretary of Labor. Accordingly, I suspect there will be no more delays, and, looking into my crystal ball, will not be shocked if the DOL chooses to withdraw its appeal.