U.S. Dept. of Labor Proposed New Overtime Rules

The U.S. Dept. Of Labor is seeking to make employers pay overtime payments to any employee who works overtime including some presently exempt salaried employees.  The Dept. is seeking to better define true management employees who are exempt from the overtime rules from those employees that are given a title but not the responsibilities of a real manager , get a salary and are forced to work numerous overtime hours without pay.  The following is a statement of what the department is proposing as well as information for those who want to speak for or against the proposed amendment.

Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees

AGENCY: Wage and Hour Division, Department of Labor.

ACTION: Proposed rule and request for comments.

SUMMARY: The Fair Labor Standards Act (FLSA or Act) guarantees a minimum wage and overtime pay at a rate of not less than one and one-half times the employee’s regular rate for hours worked over 40 in a workweek. While these protections extend to most workers, the FLSA does provide a number of exemptions. The Department of Labor (Department) proposes to update and revise the regulations issued under the FLSA implementing the exemption from minimum wage and overtime pay for executive, administrative, professional, outside sales, and computer employees. This exemption is referred to as the FLSA’s “EAP” or “white collar” exemption. To be considered exempt, employees must meet certain minimum tests related to their primary job duties and be paid on a salary basis at not less than a specified minimum amount. The standard salary level required for exemption is currently $455 a week ($23,660 for a full-year worker) and was last updated in 2004.

By way of this rulemaking, the Department seeks to update the salary level to ensure that the FLSA’s intended overtime protections are fully implemented, and to simplify the identification of nonexempt employees, thus making the EAP exemption easier for employers and workers to understand. The Department also proposes automatically updating the salary level to prevent the level from becoming outdated with the often lengthy passage of time between rulemakings. Lastly, the Department is considering whether revisions to the duties tests are necessary in order to ensure that these tests fully reflect the purpose of the exemption.

DATES: Submit written comments on or before [INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].

ADDRESSES: You may submit comments, identified by Regulatory Information Number (RIN) 1235-AA11, by either of the following methods: Electronic Comments: Submit comments through the Federal eRulemaking Portal http://www.regulations.gov. Follow the instructions for submitting comments. Mail: Address written submissions to Mary Ziegler, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, D.C. 20210. Instructions: Please submit only one copy of your comments by only one method.

Contractors Performing Federal Contracts Subject to New Burdens

New Regulations Impose New Burdens on Federal Government Contractors

The federal government has issued several final and proposed regulations that place new obligations on contractors that submit offers to and enter contracts with federal government agencies and on subcontractors that perform under those contracts. These new regulations—not all of which are yet final and in force—implement presidential executive orders concerning the labor and employment practices of federal contractors and subcontractors. In imposing these new duties and prohibitions on contractors and subcontractors, some of these regulations require that contractors and subcontractors flow down certain specific contractual terms and clauses into their subcontracts.

The new and proposed regulations:

• require most contractors and some subcontractors to report to the contracting agency, in their offers and during contract performance, violations of 15 different labor and employment laws;
• require most contractors and some subcontractors to provide certain payment documentation to employees and a certain notice to independent contractors;
• limit arbitration (as opposed to litigation) of civil claims involving employment discrimination, sexual assault, or sexual harassment;
• expand prohibitions aimed at combatting human trafficking ;
• require contractors and subcontractors to report more data on employee compensation;
• prohibit pay-secrecy policies;
• prohibit discrimination based on sexual orientation or gender identity; and
• require contractors and subcontractors to pay applicable prevailing wages to their employees.

Reporting Violations of Labor and Employment Laws

A particular onerous new regulation which is not yet final or in force— implements the president’s “Fair Play and Safe Workplaces” executive order. The regulations require contractors bidding or proposing on federal contracts valued at more than $500,000 to disclose in their bids any administrative merits determination, arbitral award or decision, or civil judgment rendered against the contractor within the preceding three-year period for violations of any of 15 enumerated federal and state labor and employment laws. They also require potential subcontractors (at any tier) on subcontracts valued at more than $500,000 to disclose to contractors the same information. For every contract or subcontract of more than $500,000, the contractor or subcontractor must also disclose any violations every six months during performance. Information about violations disclosed by contractors will be made publicly available through the Federal Awardee Performance and Integrity Information System (FAPIIS).

An “administrative merits determination” includes the following notices or findings, whether they are final or subject to appeal or further review:

• a Summary of Unpaid Wages issued by the Department of Labor’s Wage and Hour Division;
• a letter issued by the Department of Labor’s Wage and Hour Division indicating that an investigation disclosed certain violations of the Fair Labor Standards Act or a violation of the Family and Medical Leave Act, the Service Contract Act, the Davis-Bacon Act, or Executive Order 13658 (Establishing a Minimum Wage for Contractors);
• a citation, notice of imminent danger, or notice of failure to abate from the Occupational Safety and Health Administration, or any state equivalent;
• a show-cause notice issued by the Office of Federal Contract Compliance Programs;
• a reasonable-cause determination issued by or a civil action filed on behalf of the Equal Employment Opportunity Commission;
• a complaint issued by any Regional Director of the NLRB;
• any other complaint filed by or on behalf of a federal agency with a federal or State court, an administrative judge, or an administrative law judge alleging that the contractor or subcontractor violated any provision of the applicable labor and employment laws; and
• any order or finding from any administrative judge, the Department of Labor Administrative Review Board, the Occupational Safety and Health Review Commission (or state equivalent), or the National Labor Relations Board that the contractor or subcontractor violated any provision of the applicable labor and employment laws.

This definition requires contractors and subcontractors to disclose “administrative merits determinations” that can be issued following nothing more than an investigation by the relevant government agency. They are not limited to notices and findings issued following adversarial or adjudicative proceedings such as a hearing on the merits, nor are they limited to notices and findings that are final and not appealable.

Contractor's in the industry are calling these proposed regulations the “blacklisting” rules. Contracting officers will evaluate any reported violations both prior to and after contract awards to determine whether contractors are responsible and have satisfactory records of integrity and business ethics to be awarded or continue performance of a contract with the federal government. 

After a contract award and during performance, the ongoing semi-annual analysis could lead contracting officers to refer contractors and subcontractors to the Department of Labor for action (which may include a new or enhanced labor compliance agreement), to decline to exercise contract options, to terminate contracts, or to refer contractors and subcontractors to agency suspending and debarring officials.

The applicable labor and employment laws covered by these regulations are:

• The Fair Labor Standards Act, 29 U.S.C. chapter 8;
• The Occupational Safety and Health Act;
• The Migrant and Seasonal Agricultural Worker Protection Act;
• The National Labor Relations Act;
• The Davis-Bacon Act, 40 U.S.C. chapter 31, subchapter IV;
• The Service Contract Act, 41 U.S.C. chapter 67;
• Executive Order 11246 (Equal Employment Opportunity);
• Section 503 of the Rehabilitation Act;
• The Vietnam Era Veterans’ Readjustment Assistance Acts;
• The Family and Medical Leave Act;
• Title VII of the Civil Rights Act;
• The Americans with Disabilities Act;
• The Age Discrimination in Employment Act;
• Executive Order 13658 (Establishing a Minimum Wage for Contractors); and
• OSHA-approved State Plans.

Future regulations will identify additionally applicable “equivalent state laws” to be included.

Again, these proposed regulations are not yet final or in force, but they provide a good indication of what to expect from final regulations that are surely forthcoming.

Payment Documentation to Employees and Notice to Independent Contractors

The May 28, 2015 proposed regulations—which are not yet final or in force—further implement the president’s “Fair Play and Safe Workplaces” executive order by requiring most federal contractors and some of their subcontractors to provide certain payment documentation to employees and a certain notice to independent contractors. Contractors and subcontractors at any tier must include provisions that flow down these requirements into subcontracts of more than $500,000.

Contractors and subcontractors with a federal contract or subcontract of more than $500,000 who are treating any individual performing work under the contract or subcontract as an independent contractor and not as an employee must provide a document to the individual that informs the individual of this independent-contractor status. Contractors must provide the document to the individual either prior to the work beginning or at the time the contractor and the individual form a contract.

Where a significant portion of a workforce is not fluent in English, contractors and subcontractors must provide the wage statement and the independent-contractor notification in English and in the language(s) with which the workforce is more familiar.

Although not yet final, these regulations are certain to become binding in the new future.

Limiting Arbitration of Employment-Discrimination and Sexual-Harassment Claims

The May 28, 2015 proposed regulations seek to further burden employers by limiting arbitration of civil claims involving employment discrimination, sexual assault, or sexual harassment. The limitation does not apply to employees covered by a collective bargaining agreement negotiated between a contractor and a labor organization representing the employees. The limitation also does not apply to employees or independent contractors who entered into a valid contract to arbitrate prior to the contractor bidding or proposing for a contract containing the arbitration-limiting clause required by these regulations, unless, however, the contractor is permitted to change the terms of the contract with the employee or independent contractor or the contract with the employee or independent contractor is renegotiated or replaced.

Reporting Employee Compensation Data

The government has proposed new regulations requiring federal government contractors and subcontractors to submit an annual “Equal Pay Report” on employee compensation to the Office of Federal Contract Compliance Programs. The rule would apply to contractors and subcontractors at any tier that employ more than 100 workers and that hold contracts with federal government agencies, or subcontracts under contracts with federal government agencies, worth $50,000 or more for at least 30 days. Such contractors and subcontractors would report their number of employees, wages, and hours worked, each by categories of race, ethnicity, and sex. The comment period on these regulations expired in January, and a final rule is forthcoming.

Discrimination Based On Sexual Orientation or Gender Identity Prohibited

On December 3, 2014, the Department of Labor issued a final rule implementing an executive order prohibiting federal contractors and subcontractors from discriminating on the basis of sexual orientation or gender identity. Longstanding prior law prohibited federal contractors and subcontractors from discriminating against any person because of race, color, religion, sex, or national origin. The new rule adds sexual orientation and gender identity to that list, and the Equal Opportunity clause (FAR 52.222-26) and the Affirmative Action Compliance Requirements for Construction clause (FAR 52.222-27)—which are required in all federal contracts and subcontracts—have been amended accordingly.

Minimum Wage for Employees of Federal Government Contractors

On October 7, 2014, the Department of Labor published final regulations establishing a minimum wage of $10.10 per hour for certain employees of federal contractors and subcontractors with contracts subject to the Davis-Bacon Act or the Service Contract Act. The minimum wage will be updated annually, with notice given 90 days before any change becomes effective. The Federal Acquisition Regulation interim rule applying the minimum-wage policy requires that a newly established contract clause, FAR 52.222-55, be included in all covered contracts and flowed down to all covered subcontracts at any tier.

Flowing Down FAR Clauses into Subcontracts

Most of these new and proposed regulations require that contractors and subcontractors flow down certain specific contractual terms and clauses into their subcontracts. These new and revised flow-down requirements are in addition to dozens of already existing flow-down obligations. Contractors, subcontractors, and their counsel should take care to consider updating their subcontracts to include these new and revised clauses as necessary. If a contractor or subcontractor were incorporating the substance of these clauses by full text rather than by reference, they should be particularly careful to note not only the wholly new clause to be added (FAR 52.222-55, Minimum Wages Under Executive Order 13658) but also the substantial revisions to clauses that were previously included (FAR 52.222-26, -27, -50).

While most of the substance of the newly proposed regulations are covered in one way or another by existing laws, the Government seems to be under the impression that by promulgating still more regulations, will somehow make compliance a certainty.  It appears to me that additional regulations in areas that are already highly regulated will create more non-compliance than compliance due to the sheer volume of regulations that a contractor must keep abreast of.  Only time will tell.

Withholding Payroll Taxes on Lost wages

Cifuentes v. Costco Wholesale Corp. (CA2/3 B247930 6/26/15) Withholding Payroll Taxes on Lost Wages

 In the past, when an employee successfully sued his employer for lost wages, the employer could not withhold appropriate taxes from the award.  That has now changed.  At this point employers are allowed (probably should) withhold taxes from an adverse judgment to an employee for lost wages.  At least if you didn't beat him in court, you can save face by making him pay his appropriate taxes to the IRS.

Cifuentes won a judgment for lost wages against his former employer, Costco Wholesale Corporation (Costco).  Costco withheld federal and state payroll taxes from the award.  Cifuentes claimed the judgment was not satisfied, citing the decision in Lisec v. United Airlines, Inc. (1992) 10 Cal.App.4th 1500, 1507 (Lisec), that an employer is not required to withhold payroll taxes from an award of lost wages to a former employee.  Believing it was bound by Lisec, the trial court ruled the withholding was improper and denied Costco's motion for acknowledgment of satisfaction of the judgment.  We conclude this was error.

In the 23 years since Lisec, the Internal Revenue Service (IRS) and the vast majority of federal appellate courts have broadly interpreted the applicable Internal Revenue Code (IRC) provisions as requiring an employer to withhold payroll taxes for all "wages" arising from the employer-employee relationship, even after that relationship has terminated.  Persuaded by these authorities, we adopt this prevailing view and conclude Costco properly withheld the payroll taxes.  The judgment having been satisfied, we reverse the trial court's order and remand with instructions. 

Employees who work thru lunch not entitled to compensation

The California Supreme Court addressed the nature of an employer’s duty vis-’a-vis meal breaks in wage and hour cases: “[W]e conclude an employer’s obligation is to relieve its employee of all duty, with the employee thereafter at liberty to use the meal period for whatever purpose he or she desires, but the employer need not ensure that no work is done.” Brinker Restaurant Corp. v. Sup. Ct. (Adam Hohnbaum) (Cal. Sup. Ct.; April 12, 2012) (Case No. S166350).

Wage-averaging applies to commission based compensation

Not only does the California prohibition on wage averaging apply to hourly and piece-rate systems, in late 2012, the U.S. District Court for the Southern District of California held that the prohibition extends to commission-based systems as well.

In Balasanyan v. Nordstrom, Inc., a class of sales person employees challenged defendant Nordstrom’s commission-based compensation plan. Under Nordstrom’s plan, at the end of each pay period, Nordstrom calculated each salesperson’s commissions and compared the commissions to the amount they would have earned had they been working at an hourly rate.

If an employee’s commissions equaled or exceeded the hourly rate, Nordstrom paid the commissions. If not, Nordstrom paid the commissions plus the amount necessary to bring the employee to the guaranteed minimum rate for the time the employee spent selling. Although Nordstrom paid its salesperson a separate hourly rate for “non-sell” time (more than 30 minutes of stocking and more than 40 minutes of pre-opening and post-closing time), Nordstrom included 30 minutes of stocking and 40 minutes of pre-opening and post-closing time into each employee’s “selling” time. However, Nordstrom did not separately compensate its salespeople for this time. Thus, the plaintiff-employees alleged that Nordstrom underpaid its salespeople because it did not separately compensate them for 30 minutes of stocking and 40 minutes of pre-opening and post-closing time, and instead included this time in commissions.

Nordstrom argued that its commission system was lawful. According to Nordstrom, the relevant wage order permits employers utilizing a commission-based system to pay its employees commissions for all hours worked, even if some of the work is not directly related to selling. In the alternative, Nordstrom argued that it could pay commission to compensate its salespeople for non-selling time as part of the services provided in connection with sales.

Nordstrom also contended that its employment agreement, which sets forth its compensation plan, should govern.

Agreeing with the plaintiff-employees, the court found that under Armenta, “employees must be directly compensated at least minimum wage for all time spent on activities that do not allow them to directly earn wages.” The court noted that even though Armenta did not specifically discuss commissions, the case applied to Nordstrom’s commission-based system because “Nordstrom’s employees are not being compensated directly for stocking, pre-opening, or post-closing time, during which they usually cannot earn a commission. Thus, Armenta dictates that because the employees are not being compensated for those activities, the compensation plan violates California law. As to Nordstrom’s second argument, the court noted that other cases, including Cardenas, held that activities that are indirectly related to the commission- or piece-rate based work must be separately compensated. Additionally, the court disregarded the fact that the employees had agreed to be compensated in this manner,because “neither employers nor employees ‘may contract away an employee’s right to earn minimum wage for each hour worked.”

After Balasanyan, employers must separately compensate their commission-based employees for all non-selling time, i.e., time not directly related to earning a commission.

Figure this one out

NLRB ruling: Employees not authorized to work in U.S. can be reinstated 
The National Labor Relations Board ruled that employees who are not authorized to work in the U.S. can be reinstated in cases where employers knew of their status and later fired them. The NLRB concluded that "conditional reinstatement is the only means available to the Board to provide relief to the discriminatees and the principal means of deterring future unfair labor practices." The National Law Review/Jackson Lewis Labor & Collective Bargaining Blog.

What could possibly be next?

The key to beating an employee wage & hour claim

It seems like the wage and hour labor law sector is heating up with more and more disgruntled employees filing lawsuits for alleged unpaid overtime, work off the books, failure to allow mealtime breaks and rest breaks, insufficient information on check stubs being the most popular.  We were able to actually settle one yesterday after an all day mediation session based on the simple fact that our client, the contractor, maintained good written records.  In our case the employee was claiming he worked at least 2 hours of overtime everyday and 8 hours on Saturday without being compensated for any of his time for the last 3 years.  When pressed to prove this, the employee had no documents nor any witnesses to support his claim.  The real issue was after my guy performed an internal audit, he found that he had underpaid the employee approximately $1,850.  The dilemma--say nothing about the underpayment and hope the plaintiff misses it during his audit or disclose the shortfall and pay the employee.  The problem with the latter choice is that these employee based labor codes provide for the mandatory recovery of attorney fees if the plaintiff proves you failed to pay him everything he was due.  The employee was asking for $125,000 which included his claim and his attorney's fees to date.  We had tendered a Ca. Civil Procedure section 998 offer to compromise at $25,000 early in the litigation with the hope that this would cut off the continuing exposure of having to pay the plaintiff's attorneys fees as the matter worked its way thru the system.  We ultimately convince the claimant and the mediator that the employee's claim was bogus.  The attorney on the other hand was not wiling to give up his right to collect his fees. The economics of the matter made it foolish for the contractor to continue to litigate, pay his lawyer fees and ultimately the employees attorneys fees which would have to be paid since the employer admitted short paying the employee $1,850.  The matter settled very close to our client's CCP 998 amount.  The lesion- You as the employer have the burden of proof in establishing the accuracy and adequacy of your employee time related records.  IF you have not reviewed your record keeping procedures in a while, I suggest you do so sooner rather than later.  The construction industry has become the industry of choice for Plaintiff based employment attorneys.  The better records you maintain, the less likely you will be forced to pay around $25,000 (not including our fees of about $25,000) for an $1,850 inadvertent error.  Protect yourself. 

What Every Employer Needs To Know

TOP FOUR NEWLY-PUBLISHED LABOR AND EMPLOYMENT CASES

• Diego v. Pilgrim United Church of Christ (California Court of Appeal, November 21, 2014) 2014 DJDAR 15586. Held that discharge of an employee perceived to have reported an alleged violation of a statute or regulation to a government agency violates public policy, even if the employee did not actually make the report. Under Diego, perceived whistleblowers are protected from retaliatory discharge.

• Integrity Staffing Solutions, Inc. v. Busk (United States Supreme Court, December 9, 2014) 2014 DJDAR 16194. The Supreme Court unanimously held the FLSA does not require warehouse employees be paid for 25 minutes a day allegedly spent clearing anti-theft security screenings at the end of each day. Results under California law may vary.

• Aguilar v. ASARCO LLC (9th Circuit Court of Appeals, en banc, December 10, 2014) 2014 DJDAR 16273. This Case affirmed a Title VII award of $300,000 in punitive damages where only $1 nominal damages (and no compensatory damages) were awarded.

• Garden Fresh Restaurant Corporation v. Superior Court (California Court of Appeal, November 17, 2014) 2014 DJDAR 15365. When an arbitration agreement is silent about whether arbitration may proceed as a class or representative action, and silent about whether the trial court or arbitrator decides this issue, the trial court must decide. This is an issue not yet resolved by the United State Supreme Court.

PRACTICE TIPS

This month, Practice Tips uses three quotes to describe three pieces of advice employers should follow if they do not want to encourage employees to sue.

• “People must not be humiliated; that is the main thing.” --Anton Chekhov

• “Diplomacy is the art of telling plain truths without giving offense.” --Winston Churchill

• “It is not what a lawyer tells me I may do; but what humanity, reason, and justice tell me I ought to do.”
  --Edmund Burke

The Source of this Article is Cited by: Labor and Employment Law Section of The State Bar of California – California Labor & Employment Law e News