DOL Announces Minimum Wage Increase for Federal Contractors

On September 15, 2017, the U.S. Department of Labor (“DOL”) announced the 2018 minimum wage rate for covered federal contractors and subcontractors, as required by Executive Order 13658.

Beginning January 1, 2018, the minimum wage for covered contractors will increase from $10.20 per hour to $10.35 per hour. The minimum cash wage for tipped employees performing work on or in connection with a covered federal contract will also increase from $6.80 per hour to $7.25 per hour, effective January 1, 2018. If the worker’s tips combined with the required cash wage of at least $7.25 per hour do not equal the minimum rate, then the contractor must increase the cash wage paid to a tipped employee to bring him or her up to $10.35 per hour.

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Donald Trump’s Labor Secretary Revokes Obama-Era DOL Joint Employer and Independent Contractor Guidance

By Philippe A. Lebel

On June 7, 2017, U.S. Secretary of Labor Alexander Acosta announced that the U.S. Department of Labor (DOL) is withdrawing two major pieces of informal guidance issued during the Obama administration, pertaining to joint employment and independent contractors under the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201 et seq.

The two Administrator Interpretations Letters were issued by the former head of the DOL’s Wage and Hour Division, David Weil. The first guidance letter, Administrator’s Interpretation No. 2015-1, took an aggressive position regarding misclassification of employees as independent contractors. It stressed that the “economic realities” of worker-employer relationships were paramount—i.e., whether, as a matter of economic reality, a worker was dependent on the putative employer—and suggested that most workers should be classified as employees. Although it relied on case law, the Administrator Letter provided additional refinements and, significantly, de-emphasized consideration of “control”—a major element under most common law tests.

The second letter, Administrator’s Interpretation No. 2016-1, pertained to joint employment relationships. It relied largely on regulations promulgated under the Migrant and Seasonal Worker Protection Act, 29 U.S.C. §§ 1801 et seq., and also focused heavily on “economic realities.” The joint employer guidance took a very expansive approach to the entities that potentially could be held liable for wage and hour violations.

The DOL issues Administrator Interpretations Letters to provide cross-industry guidance on wage and hour laws and regulations. Administrator Interpretations Letters are not—strictly speaking—“binding” on courts, although they are generally entitled to deference. Although the two at-issue Administrator Interpretations Letters were in place for a relatively brief period, they were nonetheless influential. Notably, Administrator’s Interpretation No. 2015-1 was cited by U.S. District Court Judge Edward Chen in the O’Connor v. Uber Technologies, Inc. class action pending in the Northern District of California.

In withdrawing the two Obama-era Administrator Interpretations Letters, Secretary Acosta did not indicate whether the DOL under the Trump administration would issue further guidance on joint employment or independent contractors, but this certainly sends a signal that the current administration may take a much narrower view of what constitutes an employer-employee relationship. In a news release, the DOL stated that withdrawal of these two letters “does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Worker Protection Act, as reflected in the department’s long-standing regulations and case law.”

It remains unclear what the lasting implications of the withdrawal will be. We will continue to monitor developments on the federal and state levels regarding joint employment and independent contractor issues.

Resolving Split, Second Circuit Denies FLSA-NYLL Liquidated Damages Double Recovery

By William R. Horwitz

Last week, the U.S. Court of Appeals for the Second Circuit resolved a split among the four New York district courts regarding whether a plaintiff can recover cumulative liquidated damages awards under both the Fair Labor Standards Act (federal law) and the New York Labor Law (state law) for the same wage and hour violation.  In Chowdhury v. Hamza Express Food Corp., 2016 WL 7131854 (2d Cir. Dec. 7, 2016), the Court held that a plaintiff cannot receive double recovery.  The decision will have a significant practical impact on wage and hour litigation.

The Facts

In Chowdhury, the plaintiff, a deli worker, filed a lawsuit against his employer for, among other things, allegedly failing to pay him for overtime work in violation of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”).  During the litigation, the employer repeatedly failed to comply with the district court’s orders, prompting the court to strike the Answer, enter default judgment against the employer, and proceed to an evidentiary hearing to calculate the plaintiff’s damages award.  After the hearing, the court awarded plaintiff $42,997.50 ($21,498.75 for unpaid overtime wages and $21,498.75 for liquidated damages).  Plaintiff appealed, arguing that he was entitled to an additional $21,298.75 in liquidated damages, because he was entitled to recover liquidated damages under both the FLSA and the NYLL.

The Law

Under both the FLSA and the NYLL, non-exempt (hourly) employees are generally entitled to receive pay at the rate of time-and-a-half for each hour they work over 40 hours in a week.  A plaintiff who succeeds on a claim under either statute typically recovers compensatory damages (unpaid wages) and reasonable attorneys’ fees and costs.

Under the FLSA and the NYLL, a successful plaintiff may also recover liquidated damages.  Specifically, the FLSA entitles a successful plaintiff to liquidated damages in an amount equal to 100% of unpaid wages, unless the employer demonstrates “that the act or omission giving rise to such action was in good faith” and that the employer “had reasonable grounds for believing that [such] act or omission was not a violation of the [FLSA].”  29 U.S.C. § 260.  Similarly, the NYLL entitles a successful plaintiff to liquidated damages in an amount equal to 100% of unpaid wages, “unless the employer proves a good faith basis to believe that its underpayment of wages was in compliance with the law.”  N.Y. Lab. Law § 198.

The Decision

In Chowdhury, the Second Circuit observed that “[t]he NYLL is silent as to whether it provides for liquidated damages in cases where liquidated damages are also awarded under the FLSA.”  The Court considered the fact that permitting cumulative liquidated damages under the FLSA and the NYLL would permit an award of “200 percent in liquidated damages in addition to any underlying wage liability.”  The Court reasoned that, “[h]ad the New York State legislature intended to provide a cumulative liquidated damages award under the NYLL, … it would have done so explicitly in view of the fact that double recovery is generally disfavored where another source of damages already remedies the same injury for the same purpose.”

The Court explained that the legislative history of the NYLL supports this reasoning.  According to the Court, the legislature recently amended the statute twice (in 2009 and 2010) to align it with the FLSA.  Now, the liquidated damages provisions of the FLSA and NYLL are “identical in all material respects, serve the same functions, and redress the same injuries.”  As a result, absent any indication to the contrary, the Court held that it interprets the NYLL’s liquidated damages provision “as satisfied by a similar award of liquidated damages under the federal statute.”

The Court affirmed the district court’s liquidated damages award.

Conclusion

Under both the FLSA and the NYLL, liquidated damages awards can substantially increase a plaintiff’s recovery.  However, the Chowdhury decision definitively limits an employer’s exposure, clarifying that liquidated damages should equal 100% – not 200% – of unpaid wages.  The difference is large in a single plaintiff case, and may be staggering in a case involving multiple plaintiffs or, even worse, a hybrid class and collective action.  Also, by resolving this unsettled question, the Chowdhury decision enables parties to calculate potential damages and exposure more accurately, which should help them make better settlement and strategy decisions.

National Preliminary Injunction Blocks New FLSA Salary Test from Taking Effect on December 1, 2016

By Mark E. Terman and Gerald T. Hathaway

A federal court issued a national preliminary injunction prohibiting the Department of Labor’s new salary rule for Executive, Administrative, Professional, Outside Sales and Computer Employees from taking effect. The final rule, published on May 23, 2016 would have gone into effect on Dec. 1, 2016. We wrote about this previously and at this time, recommend that employers suspend, but not cancel their implementation plans.

The rule mandated that employees falling under the executive, administrative or professional exemptions must earn at least $913 per week ($47,476 annually), which would more than double the currently existing minimum salary level of $455 per week. In State of Nevada v. U.S. Dep’t of Labor, No. 4:16-cv-731 (E.D. Tex. filed November 22, 2016) District Court Judge Amos L. Mazzant III (appointed by President Obama) ruled that the Department of Labor cannot impose the new salary requirement as a condition of exempt status of executive, administrative or professional (“EAP”) employees because the plain language of the Fair Labor Standards Act focuses on the duties of exempt EAP employees, and not their level of pay.

The U.S. District Court for the Eastern District of Texas implemented a two-step process of evaluating the authority of the DOL to issue the new salary level, based on the Supreme Court’s 1984 decision in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 834 (1984).  The court stated that under the Chevron standard, the court must first assess whether Congressional intent with respect to how exempt employees are to be defined was clear (if it was, a regulation cannot contradict that clear intent).  The second step of the Chevron standard applies only if the Congressional intent was not clear, in which case the court would defer to the agency’s regulation unless it were “arbitrary, capricious, or manifestly contrary to” the FLSA.  Slip op. at 9.

Regarding the first step of the Chevron analysis, the court noted that the central section of the FLSA that creates the exemption, Section 213(a)(1), “provides in relevant part, that ‘any employee employed in a bona fide executive, administrative, or professional capacity … as such terms are defined and delimited from time to time by the regulations of the [DOL]’ shall be exempt from minimum wage and overtime requirements.”  Slip op. at 9.  The court assessed the plain meanings of the words, “executive,” “administrative,” and “professional,” as those terms were understood when the FLSA was originally passed, and cited the 1933 edition of the Oxford English Dictionary.  Slip op. at 10-11.  The court did not see a salary reference in those definitions, and noted that the use of the words “bona fide” as a qualifier to the terms “executive, administrative, or professional capacity” applied to the tasks actually performed by those exempt employees.  Slip op. at 11.  Thus the court concluded that “Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary.”  Slip op. at 12.

Over the DOL’s arguments to the contrary, the court held that “nothing in the EAP exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level.”  Slip op. at 12.

The court at footnote 2 of its decision said it was “not making a general statement on the lawfulness” of the existing salary tests, but “is evaluating only the salary-level test as amended under the Department’s Final Rule.”  Slip op. at 12 n.2.  While the court made this limitation, surely this court’s ruling will find its way in the defense of the hundreds of FLSA cases currently pending.

As of now, employers need not implement the new salary requirements, or convert exempt employees to non-exempt status on December 1.  Surely, emergency appeals will follow, and the 5th U.S. Circuit Court of Appeals may weigh in on the matter soon.

In his injunction decision, Judge Mazzant also noted that he considered briefs already filed on an expedited motion for summary judgment led by the U.S. Chamber of Commerce.  Odds seem good that his ruling on that motion, which is still pending, will be consistent with his injunction decision.

We will keep you posted as further developments occur.

 

Ruling Postponed on Whether the DOL Exemption Rules will be Enjoined Before December 1, 2016

By Mark E. Terman and Gerald T. Hathaway

Since our November 10 Post, Will the DOL Exemption Rules Be Enjoined Before December 1, 2016?, federal District Court Judge Amos L. Mazzant, III heard nearly 3.5 hours of argument today on the Emergency Motion for Preliminary Injunction to stop nationwide implementation of the Department of Labor’s May 16, 2016 Final Rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees.  If not enjoined, this Final Rule will require that, by December 1, 2016, employees be paid a weekly salary of at least $913 (annually, $47,476) to maintain “white collar” exemption from overtime and other federal Fair Labor Standards Act requirements, as long as the employees’ duties satisfy the exemption rules too.

The Court took the matter under advisement, projected that a ruling will be issued Tuesday, November 22, and if the motion is denied, a further hearing will be set on November 28 (the same day a motion for summary judgment, led by the US Chamber of Commerce, is also set in the action).

This really is coming down to the wire for employers who should be prepared to implement changes to comply with the Final Rule if it is not enjoined.

The action is, State of Nevada, et al. v. DOL (USDC, Eastern District of Texas, case No., 4:16-cv-00731-ALM).  The Court’s Minute Entry today is here.

Will the DOL Exemption Rules Be Enjoined Before December 1, 2016?

By Mark Terman and Gerald T. Hathaway

The Department of Labor’s May 16, 2016 Final Rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees require that, by  December 1, 2016, employees must be paid a weekly salary of at least $913 (annually, $47,476) to maintain “white collar” exemption from overtime and other federal Fair Labor Standards Act requirements, as long as the employees’ duties satisfy the exemption rules too.  We wrote about this previously.

Last month, twenty-one states, led by Nevada and Texas, filed an emergency motion to enjoin implementation of the Final Rule in a federal court action commenced the month before.  State of Nevada, et al. v. DOL (USDC, Eastern District of Texas, case No., 4:16-cv-00731-ALM).  At its core, the action challenges DOL authority to increase the salary threshold and set automatic increases, and whether the Final Rule infringes on state government employer’s sovereignty.  This blog post does not analyze the merits of this action, but instead updates our clients and friends on its status given that we are now just a few weeks away from December 1.

The Court granted expedited consideration and briefing, and set a hearing for oral argument on the injunction motion for November 16, 2016 at 9:00 a.m.

Also pending is a motion for expedited summary judgment led by the US Chamber of Commerce.  Briefing is underway on a rapid schedule.  The Court’s October 31, 2016 Order states that if a hearing becomes necessary, it will be scheduled for November 28, 2016.

We’ll monitor the case and update our blog if Court Orders issue impacting the December 1 deadline.

In the meantime, employers should assume that the Final Rule will not be enjoined and be ready as of December 1 to:  (1) retain exempt classification of employees by paying the new minimum salary amount (assuming their duties also satisfy the exemption requirements), or (2) reclassify some or all employees as non-exempt, pay regular and overtime hourly rates of pay, and follow other FLSA requirements applicable to non-exempt employees.

Assuming that the Trump administration will want to reverse the Final Rule, that process will be complicated and slow due to the date this regulation became final and the regulatory process needed to accomplish reversal.