In another of the six opinion letters issued by the U.S. Department of Labor on August 28, 2018, the DOL clarified in FLSA2018-21, that an employer that sells technology to merchants that allow them to accept credit card payments from mobile devices is indeed, a “retail or service establishment,” for purposes of the Fair Labor Standards Act exemption. While this seems to apply to a pretty limited amount of employers (for which the rest of you are wondering why you care about this and are still reading this post), the opinion letter provides guidance applicable to all.

First, the DOL references the recent U.S. Supreme Court Encino Motorcars case, noting that exemptions under the FLSA should be fairly – not narrowly – interpreted. Thus, the DOL recognizes that it “must apply a ‘fair reading’ standard to all exemptions to the FLSA – including the Section 7(i) exemption”. In doing so, the DOL opines that just because the employer sells its product to commercial entities does not mean it does not qualify for the retail and service establishment exemption. Further, the DOL notes that courts have confirmed that case law does not require a physical location accessed by the public, that a business is open to the public if they receive orders on the phone, for example.

Additionally, the DOL noted that the sales of the product (a credit card reading platform) are indeed retail sales – not wholesale, because the employer does not sell large quantities of the platform to individuals, but instead tailors the product to their customers who then use it for their clients. That being said, the DOL does caution that, while it has “considerable discretion”, the courts have final say with respect to whether sales are recognized as “retail” in a particular industry.

The result? The FLSA’s retail or service establishment exemption applies (and thus, no overtime is due) to employees of an employer that sells customer technology to commercial clients, so long as the employee’s regular rate of pay exceeds 1.5 times minimum wage in the workweeks they work overtime and commissions constitute more than half of their earnings (in other words, usually commissioned inside sales representatives).

The U.S. Department of Labor’s August 28, 2018 Opinion Letter FMLA2018-1-A confirms that, in certain circumstances, an employer may “freeze” an employee’s attendance points during periods of Family Medical Leave Act (FMLA) leave. Attendance points are often used in a manufacturing or other settings when attendance is critical and HR needs a simple way to monitor and decide when to write up/terminate an employee. In this instance, the employer has a no-fault attendance policy whereby employees accrue attendance points over the course of 12 months “active service”, until a certain amount is hit (18 points), at which point they are automatically terminated.

Key here, is that employees do not accrue points for certain absences such as FMLA-protected, workers’ compensation, vacation, or other specified/approved leaves. However, the points collect over 12 months of “active service”, thereby freezing the points when the employee is on an approved leave. When the employee returns, their points pick up where they left off (thus, the points may be on their record for more than 12 months).

The DOL opines that such a method is acceptable under the FMLA, as the person is in no better or worse position because of taking FMLA. However, the DOL does caution that such practice is okay, so long as, “employees on equivalent types of leave receive the same treatment”. In other words, employers do need to be careful to ensure that all types of leave are treated the same and freeze the points for all approved absences (such as workers’ compensation, vacation, etc.), and may want to consider, for administrative purposes, a minimum time such as two weeks before absences freeze points.

 

The U.S. Department of Labor (DOL) has not forgotten about the proposed overtime regulation overhaul, though it’s been a bit sleepy on this issue this past year since its July 26 2017 Request for Information. On August 28, 2018, the DOL announced it will hold five “listening sessions” (none in Minnesota- the closest being Kansas City, MO). These sessions are open to the public and scheduled between September 7 and 24, 2018. Notably for those of us in Minnesota who are nowhere close to attending one, the DOL is asking for input on the following questions:

  1.  What is the appropriate salary level (or range of salary levels) above which the overtime exemptions for bona fide executive, administrative, or professional employees may apply?  Why?
  2. What benefits and costs to employees and employers might accompany an increased salary level? How would an increased salary level affect real wages (e.g. increasing overtime pay for employees who current salaries are  below a new level but above the current threshold)? Could an increased salary level reduce litigation costs by reducing the number of employees whose exemption status is unclear? Could this additional certainty produce other benefits for employees and employers?
  3. What is the best methodology to determine an updated salary level? Should the update derive from wage growth, cost-of-living increases, actual wages paid to employees, or some other measure?
  4. Should the Department more regularly update the standard salary level and the total-annual-compensation level for highly compensated employees? If so, how should these updates be made? How frequently should updates occur? What benefits, if any, could result from more frequent updates?

Realistically, this indicates it is going to be a long while yet before we see any changes to the overtime regulations, I do believe.

On August 28, 2018, the U.S. Department of Labor (DOL) issued 6 new opinion letters, 2 related to the FMLA which has not occurred since 2009. While I’ll write about them separately, this is exciting news! The letters provide employers with compliance assistance related to the administration of the Fair Labor Standards Act (FLSA) and the Family Medical Leave Act (FMLA). As I tell employers all the time, while their situation may be unique to them, you’d be surprised how frequently we address the same facts/issues (granted, the actual facts are not identical, but you get my drift) and thus we’re able to take our knowledge of how past situations worked out, and use them to handle the current situation. Similarly, the DOL’s opinion letters provide employers with guidance based on similar issues/facts and can be a great tool for employers when handling certain situations.

  1. Compensabilty of voluntarily attending benefit fairs and wellness activities (FLSA2018-20)
  2. Commissioned sales employee overtime exemption related to internet sales (FLSA2018-21)
  3. Volunteer status of nonprofit members when acting as credentialing examination graders (FLSA2018-22)
  4. Movie theater overtime exemption when dining services offered (FLSA2018-23)
  5. “No-fault” attendance policies and roll-off of attendance points related to FMLA (FMLA2018-1-A)
  6. Organ donors’ eligibility for FMLA (FMLA2018-2-A)

Check out my subsequent blogs for more information about the above.

On June 6, 2018, in Ayala v. CyberPower Systems (USA), Inc., the United States Court of Appeals for the Eighth Circuit, applying Minnesota law, confirmed that a compensation agreement did not alter the employee’s at-will status. As I know you all know, under Minnesota law, the general presumption is of at-will employment, meaning employers are free to terminate an employee for any lawful reason, and employees may resign at any time for any reason. While the employers and employees can contract around this presumption, the parties must have a clear intention to do so. So, how did it get to a lawsuit?

In 2006, Daniel Ayala began working for CyberPower Systems as the Vice President, an at-will employee. Six years later, Ayala was promoted to Executive Vice President and General Manager for Latin America. As a result, Ayala and CyberPower entered into a new agreement entitled “Compensation Agreement,”  that outlined the Ayala’s salary and bonus structure under his new position. The agreement was to “remain in place until sales reached $150 million USD.” Under the “Employment terms,” section, the agreement stated, “[t]he above mentioned agreement outlines the new salary and bonus structure to remain in place until $150 million USD is reached. It is not a multiyear commitment or employment contract for either party.”

CyberPower terminated Ayala before sales reached $150 Million. Ayala then filed a lawsuit against CyperPower, claiming the agreement altered the at-will employment presumption, and instead promised him employment until $150 million in sales was reached. The court disagreed, and found the agreement “unambiguously did not modify Ayala’s status as an at-will employee.” The court’s analysis focused on that fact the title and content of the agreement solely concerned compensation. This is notable as the majority of employers title such a document “Employment Agreement,” not “Compensation Agreement”. Further, the court noted, “the agreement later reiterates that, rather than guaranteeing Ayala’s employment, it sets out only his compensation until the sales threshold is met.” Therefore, the court found the agreement did not express CyberPower’s clear intention to alter the at-will employment status.

Accordingly, employers looking to enter into a compensation agreement with an employee without altering the at-will employment status should clearly state the agreement pertains only toward a compensation plan, and consider titling it “Compensation Agreement” instead of “Employment Agreement.” In addition to the title, the content in the agreement should focus only on compensation terms and avoid detailing or describing other employment terms.

Many laws governing employment contain anti-retaliation prohibitions. Indeed, many claims, demands and lawsuits are accompanied by retaliation allegations. For example, the Minneapolis and St. Paul paid sick leave ordinances both make it unlawful for an employer to take adverse employment actions against an employee for requesting to use earned paid sick leave hours.  The Equal Pay Act similarly disallows retaliation for asserting discrimination under that Act.

On June 12, 2018, in Brazil v. Arkansas Dep’t of Human Servs., the Eighth Circuit dismissed an employee’s retaliation claim, since the employee had changed jobs with the employer after commencing the suit, and was thus, not subjected to the adverse employment action that caused her to sue in the first place. The employee alleged her employer retaliated against her after she had filed a lawsuit against it for violation of her civil rights by subjecting her to manual labor and fewer opportunities for promotion. The employee asked the court to require the employer to transfer her to a “suitable position under the direction of different supervisors.” However, since filing the retaliation claim, the employee had transferred to new division with different supervisors. Thus, the court found the employee had already received what she sought in her lawsuit. Further, the court held that, “a speculative possibility of future harm is not enough to preserve a live case or controversy” necessary for a lawsuit. The lesson here is that an intervening event in a current employee’s employment may aid in cutting off a retaliation claim (similar to re-hiring someone who was wrongfully terminated).

When is the last time you seriously worked on updating your job descriptions…with input from the hiring manager for that job? On May 11, 2018, the Eighth Circuit Court of Appeals (this includes Minnesota), in Faidley v. United Parcel Service of America, Inc., held that the employer, United Parcel Service (UPS), was not required to accommodate an employee’s request to work no more than 8 hours a day, because an essential function of his job position was working overtime. Faidley had been working for UPS roughly 25 years, when a back injury began causing him problems while working shifts longer than 8-hours. Faidley’s doctor issued a permanent work restriction, limiting him to working no more than 8-hours a day. Faidley then requested an accommodation with UPS for his current position (package driver). UPS denied the accommodation request, determining that working overtime was an essential function of the package driver position.

In Faidley, overtime was determined to be an essential function of the employee’s job due to the unpredictable nature of workloads and weather, combined with the adverse effects UPS would suffer if packages were not delivered on time or other drivers had to be sent to finish a person’s delivery because that individual could only work 8 hours. Further, the job description and collective bargaining agreement with the union indicated that working overtime was a requirement for the package driver position. Based on this evidence, the Court agreed that working overtime was an essential function of a package driver, and UPS’s denial of an accommodation was not in violation of the American’s with Disabilities Act.

Thus, when presented with requests to accommodate an employee’s restricted hours due to a disability, keep in mind that you have a much better chance of having it affirmed (if sued) if you have documentation to support your position. The key here is that employers should make sure that this information is explicitly written in the job description and any collective bargaining agreement. Further, employers should be able to articulate objective reasons as to why the overtime is an essential function of the job. In other words, it may be time to dust off your job descriptions and look at them. Make sure they are current (jobs morph over time), and accurately reflect the job duties and essential functions. Be as specific and accurate (and reasonable) as possible. For example: work overtime up to 20 hours per week; lift up to 50 pounds; stand up to 10 hours, etc. The job description must reflect the job to be useful – do not try to be “Minnesota nice” with it and use as a recruiting tool. If 20 hours of overtime is essential, state it. This doesn’t mean you have a lost cause if you don’t specifically have it in there, but it sure will make the defense a lot stronger (and our job a lot easier!).

In 1974, the Supreme Court of the United States issued a decision in American Pipe & Constr. Co. v. Utah that allowed individuals to bring a claim after the statute of limitations ended if the court did not allow a class action complaint that encompassed them to go forward. Ultimately, the American Pipe holding tolled (paused), the statute of limitations on a claim brought by an individual while a court was deciding the appropriateness of the class action claim. However, on June 11, 2018, in a 9-0 decision, the Supreme Court limited the American Pipe tolling rule to individual claims, not successive class action suits.

In China Agritech, Inc. v. Resh, an employee, Michael Resh, filed a class action a year and a half after the statute of limitations for his claim expired. Prior to the statute of limitations expiring, the court had denied two class action claims. The employee argued that his claim was timely because the rejection of the two prior class actions tolled the statute of limitations. The Court rejected his argument and found his claim was untimely since it was filed after the statute of limitations expired. Importantly, the Court further held that the tolling rule established in American Pipe did not apply to successive class action claims, because it could result in an endless extension of the statute of limitations (the statute of limitations would be extended each time a class action was filed).

While the Court’s holding in China Agritech limits the ability of plaintiffs to bring class action claims, it also exposes employers to multiple individual claims if the court does not allow a class action suit to proceed.

 

With summer starting and with it the rise of seasonal workers, I thought it would be a good time to review the fluctuating work week method (FWM) that can be used to determine overtime pay under the Fair Labor Standards Act for employees who are paid on a salary basis and whose hours fluctuate week to week.  While this can be a very useful method of paying overtime to seasonal or other employees whose overtime fluctuates with certain times of the year, it also brings with it confusion.  Many times the confusion surrounding the calculation and application of the FWM exposes employers to potential liability under the Fair Labor Standards Act for failure to pay overtime wages.

What is the Fluctuating Work Week Method?

Under the Fair Labor Standards Act (FLSA), employers are required to pay employees time and a half (150%) of the “regular rate” for all hours over 40 hours per workweek. The U.S. Department of Labor (DOL), the agency that enforces and interprets the FLSA, allows employers to pay employees who receive a fixed salary and work fluctuating hours, overtime at half (50%) the employee’s regular rate.

Which employers use the FWM calculation?

Generally, seasonal employers use the FWM to provide employees a predictable set salary regardless of the amount of hours they work each week (e.g. workers whose hours are influenced by the weather).

When can an employer use the FWM calculation?

In order to use the FWM calculation for overtime, the following conditions must be met:

  1. The employee’s salary must be sufficient to compensate him/her at a rate not less than minimum wage, regardless of how many hours worked, whether few or many.
  2. The employee receives a fixed salary – this does not change even if they work less than 40 hours a week (exception for unpaid leave of absence for entire day or more due to illness).
  3. The employee’s hours fluctuate from week to week.
  4. The employer and employee have a clear mutual understanding that the employee will be paid a salary and overtime at half his/her regular rate, regardless of how many hours worked.
  5. The employee received overtime equal to at least half his/her regular rate of pay for all hours worked over 40 hours.

How to calculate an employee’s regular rate

To calculate an employee’s regular rate of pay, divide the employee’s weekly salary by the total number of hours worked that week.  Overtime is then paid at 0.5 times that regular rate, since the 1.0 of the 1.5x has already been paid via the salary.  The more hours the employee works per week, the less the overtime rate (because it is spread over more hours).

Alternatively, the DOL allows an employer to calculate an employee’s regular rate based on a 40-hour workweek. Thus, an employer may divide the employee’s weekly salary by 40 hours, regardless of how many hours the employee worked that week. The DOL permits this calculation since the regular rate at 40 hours will always be higher than if the employer were to use the employee’s actual hours when the employee has worked overtime.

Should I use the FWM?

With a clear understanding of the conditions and calculations, the FWM can be a great tool for employers to save on costs, and provide year-round salary predictability for non-exempt employees.

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.