The DOL Announces Proposed Revisions to FLSA Regulations Doubling the Minimum Salary Requirement for Exempt Employees

More than 15 months after President Obama issued a Presidential Memorandum directing the Secretary of Labor “to propose revisions to modernize and streamline the existing [FLSA] overtime regulations,” the Department of Labor on June 30, 2015 finally issued a Notice of Proposed Rulemaking (NPRM) detailing its proposed revisions. These proposals include:

(1) Increasing the minimum salary requirement from $455 per week ($23,660 per year) to an expected $970 per week ($50,440 per year) in 2016;

(2) Increasing the minimum annual compensation requirement to qualify as a “highly-compensated” exempt worker from $100,000 to $122,148 annually;

(3) Creating a mechanism for automatically updating the minimum salary and compensation levels, by tying them to either (a) a fixed percentile of earnings for full-time salaried workers or (b) changes in the CPI-U (i.e., the Consumer Price Index for Urban Consumers).

Note that these are proposed revisions; they are not yet law. The NPRM will be published in the Federal Register and the public will be invited to comment on the revisions for a certain period (likely 60 days). After the comment period ends, the Department of Labor (DOL) may consider the comments; possibly make further revisions to the regulations; and publish a “Final Rule” in the Federal Register with an effective date on which it becomes law. Considering this timeline, it is likely that new regulations will not become law until mid-2016 or later. Usually, however, the “Final Rule” does not differ significantly from the NPRM, and thus employers now have a preview of the regulatory landscape they will face in 2016.

The DOL was widely expected to raise the minimum salary requirement, which has not been updated since 2004. However, most predicted that the DOL would couple a more modest (but still significant) increase with changes to the various “duties tests.”  This speculation was based upon remarks made by the president and the Secretary of Labor indicating a concern that too many employees, particularly retail managers, were exempt under the regulations even though they spent a large portion of their time performing non-exempt duties.

The DOL has not, however, proposed any specific revisions to the duties tests. Essentially, the DOL seems to believe that a dramatic increase in the minimum salary and compensation requirements will, standing alone, ameliorate concerns about potential misclassification, noting in the NPRM that “[a]djusting the salary level upward to account for the absence of a more rigorous duties test will ensure that the salary threshold serves as a more clear line of demarcation between employees who are entitled to overtime and those who are not, and will reduce the number of white collar employees who may be misclassified . . .”

Even though the DOL has proposed fewer revisions than expected, it is nonetheless “seeking comments” on other potential changes. For example, the DOL has reiterated the concern that “in some instances the current tests may allow exemption of employees who are performing such a disproportionate amount of nonexempt work that they are not [white collar] employees in any meaningful sense” and it is thus “seeking comments on whether the [duties] tests are working as intended.” Similarly, it seeks comments on whether to allow nondiscretionary bonuses and incentive payments to satisfy a portion of the salary basis test. Revisions to the regulations in these areas may possibly appear in the Final Rule.

Although a Final Rule will not take effect until 2016, employers should now start evaluating their employee classification policies to ensure compliance with, at the least, the expected increase in the minimum salary requirements. Given the magnitude of the increase, it’s likely that most employers will need to transition some employees, for whom meeting the new salary basis test is not feasible, from a salary to hourly role.

Should you have questions about this alert, please contact the authors or any other member of Drinker Biddle’s Labor and Employment Group.

Worth the Fight: Conditional Certification of FLSA Collective Actions is Not Automatic

By William R. Horwitz

Conventional wisdom holds that courts reflexively grant motions for conditional certification in Fair Labor Standards Act (“FLSA”) collective actions. As a result, some employers do not even oppose these motions. They are making a mistake. As two recent decisions demonstrate, an employer that opposes these motions has a chance to defeat them or, at least, narrow the scope of the collective.

The Allegations

Earlier this month, judges in the U.S. District Courts for the Southern and Eastern Districts of New York issued decisions on motions for conditional certification in Mata v. Foodbridge LLC, 2015 WL 3457293 (S.D.N.Y. June 1, 2015), and Anjum v. J.C. Penney Co., 2015 WL 3603973 (E.D.N.Y. June 5, 2015). The plaintiffs in both cases were non-exempt employees asserting claims for violations of the FLSA and New York Labor Law, alleging (among other things) that their employers failed to pay them overtime when they worked over 40 hours per week. In Mata, the defendants operated two restaurants and the plaintiff was a pizza counter worker. In Anjum, the defendants operated numerous department stores and the plaintiffs were former sales associates in a store in Staten Island.

The Standard

In order to obtain conditional certification, plaintiffs must establish that they and the putative collective action members are “similarly situated” with respect to an alleged violation of the FLSA. In both Mata and Anjum, the courts discussed the “lenient standard” that courts apply to this analysis, indicating that it requires only a “modest factual showing.”

The Mata Conditional Certification Motion

In Mata, the plaintiff filed a motion to conditionally certify a collective action of all non-exempt employees working at the defendants’ restaurants including “cooks, line-cooks, dishwashers, food preparers, cashiers, delivery persons, and counter persons.” In support of the motion, the plaintiff only submitted his own declaration, in which he described his employment and compensation at the defendants’ restaurants and further alleged that, “through observations of and conversations with other employees, he learned that they were subject to similar violations.”

In deciding the motion, the Mata court acknowledged that a single declaration may provide enough evidence for a court to grant a motion for conditional certification. In this case, however, the court determined that “the declaration actually submitted by Plaintiff in support of his motion does not suffice.” According to the court, the plaintiff attested that he observed other employees working, but provided “no actual support demonstrating knowledge of a common scheme impacting the diverse array of employees” he sought to include. Nor did the plaintiff include sufficiently detailed descriptions of his observations of and discussions with co-workers. Thus, the court concluded that “conditional certification would be inappropriate at this juncture.”

The Anjum Conditional Certification Motion

In Anjum, the plaintiffs filed a motion to conditionally certify a collective action of sales associates in all 47 of defendants’ New York State department stores. In support of the motion, the four plaintiffs and five additional opt-ins submitted declarations detailing their experiences working off-the-clock.

With regard to the declarations, the Anjum court explained that “each of the four Named Plaintiffs has personally attested to the violations they claim occurred during their employment as Sales Associates at the Staten Island Store, and they have identified by name similarly situated employees at both the Staten Island Store and the Manhattan Store, at least some of whom have since opted-in to the collective action.” The court concluded that the plaintiffs satisfied their burden to demonstrate that sales associates in the Staten Island and Manhattan stores were similarly situated. However, according to the court, the plaintiffs presented “no firsthand evidence” of violations at any other stores, relying instead on hearsay and their “belief” that the thousands of employees in the defendants’ other New York stores were subject to the same unlawful policies. Therefore, the court certified the collective action, but limited its scope to sales associates working in the Staten Island and Manhattan stores, excluding thousands of employees working in the employer’s other 45 locations.

Conclusion

Courts plainly grant more FLSA motions for conditional certification than they deny. Nonetheless, this first step in the two-step procedure that plaintiffs must follow in FLSA cases is not automatic. As courts often state, the plaintiff’s burden of proof at this stage is low, but “it is not non-existent.” Accordingly, employers should rarely, if ever, consent to conditional certification. As the Mata and Anjum cases demonstrate, employers have a real opportunity to defeat these motions or narrow the scope of the collective.

 

What Are Your Company’s Wage & Hour Risks?

Wage & Hour class actions are being filed at a pace that dwarfs almost all other types of litigation. With a myriad of federal and state laws and regulation, employers not only need to take steps to minimize the risk of a suit, but also must be prepared to defend themselves. Launch the brief video below to hear how Labor and Employment Group partners Cheryl Orr and Stephanie Gournis are helping employers involved in employment class actions, as well as helping companies to minimize the risk of litigation.

 

Wage-and-Hour

 

California Employers: What You Need to Know for 2014 – Wage and Hour Laws and Penalties

A new year means new legislation and regulations for employers with operations in California.  Prepared by Kate Gold, partner in the Los Angeles office, and Alexis Burgess, associate in the Los Angeles office, this four-part series will take a look at some of the new laws and regulation affecting private employers doing business in California.

Wage and Hour Laws and Penalties

Minimum wage increase.  AB 10 raises the state-wide minimum wage from the current $8 per hour to $9 per hour, effective July 1, 2014, and then to $10 per hour, effective January 1, 2016.  Employers should note that employees currently classified as exempt must still meet the salary basis test to qualify for the particular exemption claimed.

Minimum wage penalties.  Under Labor Code section 1194.2, employees who have not been paid minimum wages may recover liquidated damages through civil actions or administrative wage hearings before the Labor Commissioner.  AB 442 extends the authority of the Labor Commissioner to award liquidated damages to affected employees through the labor commissioner citations process.  Thus, affected employees will be able to recover liquidated damages in an amount equal to the wages unlawfully unpaid plus interest thereon through either a civil action, an administrative hearing, or a citation issued by the Labor Commissioner.

Wage claim attorneys’ fees.  Labor Code section 218.5 awards attorneys’ fees and costs to the prevailing party in any action for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, regardless of whether the prevailing party is the employer or employee.  Under SB 462, a prevailing employer may only recover attorneys’ fees and costs if the court determines that the employee filed suit in bad faith.

Domestic worker overtime.  AB 241 enacts the Domestic Worker Bill of Rights, which provides that a “domestic work employee who is a personal attendant” will be eligible for overtime at 1.5 times his or her regular rate of pay if he or she works more than nine hours in any workday or more than 45 hours in the workweek.  Individuals and entities employing in-home help should determine whether they or their employees qualify for an exemption.

Heat illness recovery periods.  Under Cal/OSHA regulations, employees that work outdoors in temperatures exceeding 85 degrees Fahrenheit must be allowed, and encouraged, to take a cool-down rest for at least five minutes when they feel the need to do so in order to avoid overheating.  SB 435 now adds this “heat illness recovery period” to the requirement in Labor Code section 226.7 that employers provide employees with meal and rest breaks.  Thus, an employer’s failure to provide a heat illness recovery period to non-exempt employees will now result in penalties under Labor Code section 226.7 amounting to one additional hour of pay at the employee’s regular rate of compensation for each workday that the recovery period is not provided.

Criminal withholding.  Labor Code section 218.5 makes it a crime for an employer to willfully fail to remit agreed-upon payments to health and welfare funds, pension funds, or other various benefit plans, with failure to remit more than $500 constituting a felony.  SB 390 amends section 218.5 to include an employer’s failure to remit withholdings from an employee’s wages made for state, local, or federal tax purposes.

Prevailing wages.  Employers who provide services or construction work for any public entities must pay current prevailing wages, which are usually significantly higher than the minimum wage.  Prevailing wage laws have been updated for 2014 in the following ways:

  1. AB 1336 and SB 377 amend the process and timeline for assessing prevailing wage violations.  Under these provisions, a notice of completion of a public work filed with a county recorder must also be given to the Labor Commissioner, and the awarding body or political subdivision which accepts a public work must also provide notice of that acceptance to the Labor Commissioner.  The new laws then extend the deadline for the Labor Commissioner to serve a civil wage and penalty assessment alleging a violation of the prevailing wage law from 180 days (roughly six months) to eighteen months after the filing of a valid notice of completion with the applicable county recorder, or after acceptance of the public work, whichever occurs last.  Moreover, if notice is not given in a timely manner to the Labor Commissioner, the deadline to serve an assessment shall be tolled for the length of the delay.
  2. AB 1336 also amends prevailing wage law to allow a court to award liquidated  damages and civil penalties, whereas such relief was previously recoverable only in an administrative action brought by the Labor Commissioner.
  3. Existing  law requires affected contractors to keep detailed payroll records  relating to public works and produce these as necessary, with names and  social security numbers redacted, to a joint labor-management committee.  AB 1336 amends this rule to require redaction of social security numbers only.
  4. SB 377 also establishes specific deadlines for the Director of the Department of Industrial Relations to respond to a request for a determination of whether a specific project or type of work is a public work within the meaning of the prevailing wage law.
  5. SB 7  prohibits a charter city from receiving or using state funding or financial assistance for a construction project if the city has awarded, within the prior 2 years, a public works contract without requiring the contractor to comply with prevailing wage provisions.  Small project exemptions apply.  SB 7 was enacted on the heels of a decision by the California Supreme Court holding that, under the California Constitution, the wage levels of workers employed by charter cities on locally funded public works projects are a municipal affair not subject to state regulation.  Thus, the constitutionality of this new law may be the subject of future litigation.
  6. SB 54  extends prevailing wage requirements to privately financed refinery construction projects.
  7. SB 776 prohibits contractors from counting payments for monitoring and enforcing prevailing wage laws towards their obligation to pay prevailing wages.

Unless otherwise noted the laws and regulations discussed above go into effect on January 1, 2014.  These summaries are not exhaustive, so employers who may be affected by California’s new laws should contact their attorneys to ensure that they are prepared for compliance and to update their employee policies and manuals as appropriate.

Kate Gold and Elena Min Author Daily Journal Article

Los Angeles Partner Kate Gold and associate Elena Min recently authored for The Daily Journal an article on changes to Section 218.5 of California’s Labor Code.  The change, enacted through Senate Bill 462, curbs an employer’s ability to recover prevailing party attorney fees and costs in a lawsuit seeking unpaid wages, fringe benefits, or health and welfare or pension fund contributions.

Scheduled to go into effect January 1, 2014, the amendment limits recovery of attorney fees and costs by a prevailing employer “only if the court finds that the employee brought the court action in bad faith.”

Kate and Elena said the amendment “strips employers of one possible weapon in their arsenal for deterring nonmeritorious wage and hour claims.”

“Attorneys for plaintiffs and defendants will likely disagree with the consequences of the amendment as well as its premise – that the two-way fee recovery of existing Section 218.5 has had a chilling effect on employees’ wage and hour claims under that section,” they wrote. “But the bottom line is that “bad faith” is a high standard to meet and the amendment makes fee recovery in Section 218.5 actions an uphill battle for employers.”

In the Second Circuit, Unpaid Overtime Claims Must Allege Specifics

By: William R. Horwitz

Earlier this month, the United States Court of Appeals for the Second Circuit, in Dejesus v. HF Management Services, 2013 U.S.App.LEXIS 16105 (2d Cir. August 5, 2013), held that plaintiffs cannot rely solely on vague allegations in asserting claims for unpaid overtime.  In this case, the plaintiff alleged that her former employer had failed to pay her overtime, but her Complaint lacked details such as the amount of overtime she had allegedly worked.  Instead, it simply parroted the language of the Fair Labor Standards Act (“FLSA”).  Affirming dismissal of the Complaint, the Second Circuit agreed with the district court that the allegations failed to state a claim.  This decision makes it more difficult for plaintiffs who lack a basis for an unpaid overtime claim to file a lawsuit in the hope of finding one during discovery.

Ramona Dejesus (“Dejesus”) worked for HF Management Services, LLC (“Healthfirst”), a company providing administrative and support services to healthcare organizations.  Dejesus alleged that she had worked more than forty hours per week for “some or all weeks” of her employment, but that Healthfirst had failed to pay her time and a half for the hours she worked over forty.  The Complaint did not indicate the number of overtime hours Dejesus had worked, her rate of pay or an estimate of the unpaid wages.

Dejesus filed the lawsuit in the United States District Court for the Eastern District of New York, alleging violations of the FLSA and the New York Labor Law (“NYLL”).  Both the FLSA and NYLL require an employer to pay non-exempt employees at an hourly rate of at least one and a half times their regular rate for each hour that the employees work in excess of forty hours in a workweek.  Healthfirst filed a Motion to Dismiss the Complaint arguing, among other things, that the vague allegations in the Complaint failed to state a claim for unpaid overtime.  The district court granted the motion.  Dejesus appealed and the Second Circuit affirmed.

In reaching its decision, the Second Circuit quoted the U.S. Supreme Court, which stated in Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), that, in order to state a claim, a Complaint must contain more than “‘[t]hreadbare recitals of the elements of a cause of action … supported by mere conclusory statements.’”  According to the Second Circuit, a plaintiff asserting an overtime claim must allege that he or she worked more than forty hours in a week without receiving the required compensation.  The Court indicated that “an approximation of overtime hours” is helpful, but not necessarily required in every case.  The Court further indicated that courts should consider the allegations in context and on a case by case basis to determine if they are sufficient.

The Second Circuit concluded that the allegations in Dejesus’ Complaint “did not plausibly allege that she worked overtime without proper compensation.”  The Court observed that Dejesus “did not estimate her hours in any or all weeks or provide any other factual context or content.”  The Court further observed that her Complaint “was devoid of any numbers to consider beyond those plucked from the [FLSA].”  According to the Court, Dejesus “was required to do more than repeat the language of the statute.”  The Court explained that the Complaint “tracked the statutory language of the FLSA, lifting its numbers and rehashing its formulation, but alleging no particular facts sufficient to raise a plausible inference of an FLSA overtime violation.”

The Court emphasized that plaintiffs are not required to “keep careful records and plead their hours with mathematical precision.”  However, the Court explained, plaintiffs must “draw on” their “memories and experience” in order to provide “complaints with sufficiently developed factual allegations.”  The Court affirmed the dismissal of Dejesus’ Complaint.

In recent years, employers have faced a wave of wage and hour lawsuits.  In many instances, it seems that plaintiffs pursue these actions – particularly class or collective actions – without any real knowledge of wage and hour violations but in the hope of finding them during the litigation.  The Dejesus decision is a welcome development for employers in the Second Circuit, because it requires plaintiffs, before filing a lawsuit, to at least come up with factual allegations supporting their claims.