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CA Supreme Court Rejects FLSA De Minimis Rule, Opening the Floodgates for Off-the-Clock Claims

In a long-awaited decision, the California Supreme Court has just rejected the applicability of the Fair Labor Standards Act’s “de minimis” doctrine to California wage and hour law, in Troester v. Starbucks.

Troester was an hourly Starbucks employee who claimed unpaid wages for performing store-closing tasks after clocking out. These tasks included transmitting daily sales, profit and loss, and store inventory data to Starbucks’ corporate office, as well as activating the alarm and locking the front door. Starbucks conceded this was work time, but asserted that under the de minimis rule, this time could be ignored as these tasks took only 4-10 minutes each day (totaling 12 hours and 50 minutes over Troester’s 17 months of employment).

A U.S. District Court judge granted summary judgment to Starbucks based on the de minimis doctrine as developed under the FLSA, under which small amounts of work time may be disregarded in determining non-exempt employee compensation. To determine whether the doctrine applies in a given case, the federal courts look to “(1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.” Under the FLSA test, federal courts have held that up to 10 minutes of work time might qualify as de minimis.

When that decision was appealed to the Ninth Circuit, the federal court punted to the California Supreme Court, certifying the question of the applicability of the FLSA’s de minimis doctrine to claims for unpaid wages under California law. The California Supreme Court first ruled that California had not adopted the FLSA’s de minimis doctrine. It reasoned that California wage/hour law is more protective than the FLSA and explicitly requires that employees be paid for “all hours worked.”

The court then turned to the issue whether a more generic “de minimis principle” developed by California courts in various other contexts applies to wage and hour claims.” In response to that question, the court acknowledged that some extremely limited form of the de minimis doctrine might be applicable to wage/hour claims but held that it was not applicable in this case. Specifically, the court held that under California law, time worked on a regular basis and/or that is an expected part of an employee’s job is compensable and could not be considered de minimis. The court left open the possibility that the de minimis principle might apply where the work periods are so “irregular” or “brief” “that it would not be reasonable to require employers to compensate employees for the time spent on them.”

The court also addressed rounding practices, which both shave and add time. It noted that California law allows for employers to minimally round employees’ actual time punches, even after this decision, as long as rounding does “not result, over a period of time, in the failure to compensate the employees for all the time they actually worked.”

This decision makes the de minimis defense unavailable, except perhaps in very narrow circumstances that remain undefined. Previously, the California Division of Labor Standards Enforcement had seemed to endorse the FLSA doctrine, which California employers have relied upon in defending against off-the-clock claims for time spent on discrete tasks that were difficult to capture on timekeeping systems. It is unclear, for example, whether the defense might still apply to small increments of time spent checking emails or texts from home, answering sporadic calls on the weekends, or answering questions after clocking out.

The decision is also important because many California employers still have rounding policies in place that allow employees flexibility with how they spend small periods between the time they start or stop work and the time they clock in or out. Employers who maintain these flexible schedules for employees, affording them a few minutes here or there, and who do not routinely audit their systems to ensure that employees are being paid properly under these rounding practices for all time actually worked, may find their practices under new threats.

In addition, due to the court’s focus on technology’s ability to capture minute amounts of time as a reason for limiting or rejecting the de minimis defense, its decision may well lead to more workplace monitoring, surveillance, and disciplinary action as employers attempt to avoid major increases in their labor costs by ensuring that they are paying only for time actually spent working.

For more information, please contact Kirstin Muller in our Santa Monica office, KMuller@hkemploymentlaw.com, or Felicia Reid in our San Francisco office, FReid@hkemploymentlaw.com.

Dynamex and the Joint-Employer Standard: What Test Applies?

As most employers are undoubtedly aware, April’s dynamite Dynamex decision blew up the definition of “employer” for purposes of determining independent contractor status. The California Supreme Court utilized the newly adopted “ABC test” for determining whether an employer “suffers or permits” the work, thereby justifying classifying the worker an employee.  The knockout blow came in the ABC test’s second element: “that the worker performs work that is outside the usual course of the hiring entity’s business,” giving the ABC test the potential to significantly narrow the scope of workers properly classified as independent contractors.

Employers across California have been justifiably concerned that their own workers could be considered misclassified under the new test.  Staffing agencies faced an additional concern; that courts would apply the ABC test to their unique relationship with the companies to whom they provide employees.  While litigation about what “the usual course of the hiring entity’s business” is sure to abound, a California Appeals court quietly addressed a joint employment issue that could be a big win for staffing agencies in the post-Dynamex world.

ABC Test Does Not Apply to Joint Employer Test . . .

The case, Curry v. Equilon Enterprises, LLC, resolved two important questions: 1) whether the ABC test applies to the joint employer analysis; and 2) if not, how should courts analyze independent contractor status for joint employment purposes.

Here, the Appeals court analyzed the “engage” prong of the joint employer test – which considers whether a worker is an employee or independent contractor – using the eight-factor common law test.  After concluding the Defendant was not the Plaintiff’s employer, the court went on to address the Plaintiff’s argument that the ABC test should be used instead when analyzing the joint-employment “engage” prong.  The court concluded that the California Supreme Court had not intended for the ABC test to apply in the joint employer context.  Specifically, the court noted:

“In the joint employment context, the alleged employee is already considered an employee of the primary employer; the issue is whether the employee is also an employee of the alleged secondary employer.  Therefore, the primary employer is presumably paying taxes and the employee is afforded legal protections due to being an employee of the primary employer.  As a result, the policy purpose for presuming the worker to be an employee and requiring the secondary employer to disprove the worker’s status as an employee [as required in the ABC test] is unnecessary in that taxes are being paid and the worker has employment protections. . . Placing the burden on the alleged employer to prove that the worker is not an employee is meant to serve policy goals that are not relevant in the joint employment context.  Therefore, it does not appear that the Supreme Court intended for the “ABC” test to be applied in joint employment cases.” (emphasis added)

. . .Maybe

Employers should be aware, however, that the Appeals court then went on to briefly analyze the “engage” prong using the ABC test, concluding that the test was not met in that case.  Curry has not yet been appealed, but should the California Supreme Court grant a petition to review the Appeals court’s decision, it could be reversed, putting the stricter ABC test into place in the joint employer context as well.

What Curry Means for Employers

For now, this seems like good news for staffing and temporary placement agencies, as well as for employers who rely on independent contractors for a significant portion of their workforce.  That’s because the Curry decision indicates that the use of staffing agencies could shield the agency’s client from both joint employment and independent contractor liability.  This is because the Plaintiff-worker will be limited to arguing their proper classification – as joint employees and as independent contractors of the second potential employer – within the context of the joint employer framework.  Because the joint employer analysis uses the more generous common law test, rather than the markedly stricter ABC test to determine independent contractor status, employers can craft policies and practices that support their classification of a worker as an independent contractor.

Stefanie Renaud is an associate in Hirschfeld Kraemer LLP’s Santa Monica office. You can reach her at (310) 255-1818 or srenaud@hkemploymentlaw.com.

U.S. Supreme Court Overturns Public Sector “Agency Fees” Rule, Overruling 40-Year Precedent

The U.S. Supreme Court on June 27th issued its long-awaited decision in Janus v. AFSCME, ruling that public sector employees are no longer required to pay “agency fees” to a union which has the right of exclusive representation under the law, even when the employee chooses not to join the union.  This holding overruled a 40-year precedent set by the Supreme Court’s decision in Abood v. Detroit Board of Education (1977), which permitted such fee arrangements.

Agency fees (also known as “shop fees” or “fair share” fees) are pro-rated portions of a union member’s dues, assessed on non-members.  Such fees are calculated to represent the cost of union expenditures related to the union’s collective bargaining efforts, but are not supposed to be related to the cost of a union’s political efforts.

The challenge to agency fees was brought by an Illinois government employee, who argued that these payroll deductions were impermissible forced speech, in violation of his First Amendment right.  Mark Janus refused to join a public sector union because he opposed many of their positions, including their position during collective bargaining, which he believed failed to recognize the fiscal challenges facing the State of Illinois.  The Court noted that for Janus, the agency fees amounted to approximately $45 per month, and represented 78.06% of the amount of the dues charged to union members.

The Court held that the automatic deduction of agency fees from non-consenting public employee wages violates the First Amendment and could not continue.  The Court noted that forcing free and independent individuals to endorse ideas they find objectionable (i.e., through the use of agency fee arrangements) raised serious First Amendment concerns.  In so ruling, the Court expressly overruled Abood v. Detroit Board of Education decided by the Court in 1977, noting that Abood’s holding is inconsistent with standard First Amendment principles, and found agency fees to be unconstitutional in the public sector.

Going forward, unions are immediately prohibited from collecting agency fees or any other payments to the union from non-members of unions.  For employers, this will mean adjusting payroll to ensure that deductions for agency fees or other payments to the union are not being made for non-union employees, unless the employee affirmatively consents to pay the fee.  An agency fee provision in a collective bargaining agreement is insufficient employee affirmative consent.  By affirmatively agreeing to pay, employees are waiving their First Amendment rights.  According to the Court, such a waiver cannot be presumed and the employee must clearly and affirmatively consent before any money is taken from them.

In anticipation of the Janus decision, the California Legislature enacted SB 866 which was signed by Governor Brown the day Janus was issued and became effective immediately.  Among other requirements and prohibitions on public employers, SB 866 requires a public employer to honor employee authorizations for dues deduction provided by the union, and the public employer must direct all employee requests to cancel or change deductions to the employee organization.  A public employer cannot request a copy of an employee authorization from the union unless a dispute arises regarding its existence or terms.  It remains to be seen how all the provisions of SB 866 will fare against Janus in the event of a legal challenge, but for now it is California law.

Finally, it is important to note that Janus applies only to public sector context.  In the private sector, the Court last considered agency fees in Communications Workers of America v. Beck (1988).  In that case, the Court found that the NLRA prohibits agency fees if a union member chooses to opt-out.  The Court, in that case, did not have the opportunity to review whether agency fees in the private sector would violate the First Amendment (and noted so in Janus), and therefore such fees are still Constitutionally permissible in the private sector.

U.S. Supreme Court Punts On Religious Defense To Gay Discrimination in Masterpiece Cakeshop Case

Can a religious preference belief ever support a defense to anti-discrimination laws?  That was the question the U.S. Supreme Court faced and avoided in Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission earlier today.

The issue revolved around a cake shop whose devout Christian owners refused to bake a wedding cake for a gay couple who was getting married.  After the couple filed a charge with a state agency claiming they “had been denied ‘full and equal service’ at the bakery because of their sexual orientation,” the store owners claimed that their religious objection to gay marriage was protected by the Free Speech and Free Exercise clauses of the First Amendment and superseded the couple’s right to be free of sexual orientation discrimination.

The case made its way to the U.S. Supreme Court and the court could have decided the validity of the argument that a sincerely held religious belief can serve as a defense to discriminatory conduct.  But instead, the Court decided that anti-religious statements made by one of the state commissioners, among them comparing the store owners’ religious views to those offered by defenders of slavery and the Holocaust, violated the First Amendment.

In a dissenting opinion, Justice Ruth Bader Ginsburg advocated for the gay couple, arguing that the evidence of hostility relied upon by the majority, including comments by one or two members of the four-member Commission, was not the kind the Court had previously held to violate the Free Exercise clause.  Justice Ginsburg reached the question that the majority would not, finding that Phillips’ refusal to bake a wedding cake for the couple denied them a good or service that he would have provided to a heterosexual couple, and thus violated CADA as determined by the Court of Appeal.

So, what now?  The Supreme Court appeared very reluctant to wade into the thorny issue of when, if ever, a religious practice can serve as a defense to a neutral and generally applicable law like anti-discrimination laws in effect around the country.  As one Justice noted, a decision in 1990 found that for the most part such a defense is unavailable.  No one would reasonably argue, for example, that religious beliefs could serve as a defense to laws prohibiting race, sex or disability discrimination – why should sexual orientation discrimination be any different?

At the same time, it has been only three years since the Supreme Court decided that laws prohibiting gay marriage were unconstitutional.  Justice Anthony Kennedy, a centrist, was the deciding vote on both cases involving gay marriage and is widely rumored to be considering retirement from the court.  Were he to be replaced by a more conservative justice, the Supreme Court may well be forced to tackle the difficult issue they avoided today.

China Westfall

Things That Keep Your Employment Lawyer Up at Night: Record Retention

Under a number of California and federal laws, employers are legally required to maintain certain employment-related records for a fixed period of time.  Changes in the past few years have altered many of the record retention guidelines employers may be familiar with, opening employers up to the risk for civil penalties and large awards of back pay.

Why it matters

There are many common, real-life situations that employers face where records retention can be especially important.  First and foremost, good record retention leads to good defenses.  When litigation eventually crops up – an employee claiming wrongful termination, or making a claim for missed meal breaks – employers must have their own side of the story.  The best way to back that up is with good documentation.  If employers are not keeping the right records, getting accurate records in the first place, or when records are lost or prematurely destroyed, their best defense can be compromised and lead to allegations of a “cover up.”  Missing or inconsistent documents may cause employers an unnecessarily uphill battle if an employee challenges their reasons in court.

Being prepared for litigation is particularly salient given the California Supreme Court’s recent decision in Dynamex Operations West, Inc., which modified the test for determining whether a worker is an independent contractor or employee in California.  An employer who loses a challenge to the worker’s classification as a contractor will be responsible for producing time and wage records required for employees by federal and California law.  Employers without such documentation could face large penalties and back wage awards.

Government investigations, including immigration raids, are another area of risk.  In the current political climate, California employers are arguably more likely to be targeted for such raids than employers in other states, and many California businesses have already been subject to enhanced ICE scrutiny.  Finally, new California laws such as the Paid Sick Leave law and Los Angeles and San Francisco’s “Ban the Box” laws also carry their own, not widely known record retention requirements.

Keep Calm and Document On

But the single most important reason to keep such records is that under the law, employers have to.  For how long?  Generally speaking, for at least four years after the end of employment.  This includes payroll, wage and personnel records, applications and hiring documents, requests for family leave and/or sick time, as well as time and attendance records.  Some notable exceptions – with potentially longer retention requirements –  include income tax records (6 years), workers’ compensation-related documents (5 years from later of date of injury or last benefit payment, and 2 years from date of closure), and CAL-OSHA records (length of employment plus 30 years).

 

The table below lists the retention minimums under the most common federal laws:

Fair Labor Standards Act (FLSA) Application and hiring, payroll, time and attendance, wages, schedules, collective bargaining or other employment agreements 3 Years
Family Medical Leave Act (FMLA) Requests for and documents related to FMLA leave and eligibility 3 Years
Title VII of the Civil Rights Act of 1964 (Title VII) Hiring and personnel-action records 1 Year
Americans with Disabilities Act (ADA) Hiring and personnel-action records 1 Year
Age discrimination in Employment Act (ADEA) Hiring and personnel-action records 1 Year
Immigration reform and Control Act I-9 and related documentation 3 years from hire or 1 year from termination

 

Finally, employers should note that the Lily Ledbetter Fair Pay Act (FPA) allows disparate pay claims under the Equal Pay Act on any basis protected by Title VII, the ADEA, the ADA, the Genetic Information Nondiscrimination Act, and the Rehabilitation Act.  Further, the FPA essentially eliminates the statute of limitation for disparate pay claims, because it resets the clock for employees to file a new disparate pay claim every time the employee receives a paycheck.  However, back wages are only available for two years.  Consequently, we recommend that employers keep documents necessary to defend a federal disparate pay claim for at least two years after employment ends.

Stefanie Renaud

California Supreme Court Significantly Narrows Independent Contractor Definition

On April 30, 2018, the California Supreme Court announced an extremely narrow, pro-employee test for determining whether a worker is properly classified as an independent contractor.  The new standard, set forth in Dynamex Operations West, Inc. v. Superior Court, is so stringent that workers rights’ advocates are predicting a sweeping re-classification of workers throughout the state.  Although the decision’s impact will fall most heavily on the gig economy, every California business that relies, in whole or part, on independent contractors rather than employees, should carefully audit their employee and contractor’s current classifications and make any necessary changes as soon as possible.

The Court’s decision abandons the multi-factor standard established in1989 in favor of a simple, three-prong test, termed the “ABC test.” To be properly classified as an independent contractor, all three of the following factors must be met:

(1) The worker must be free, in everyday tasks, from the hirer’s control and direction;
(2) The work performed must be outside the usual course of the hiring entity’s business; and
(3) The worker must be customarily engaged in an independent occupation or business of the same type as the work he or she is performing for the hiring entity.

The first “ABC” factor resembles the “right to control” standard used for years, just simpler and more streamlined.  The second factor, however, requiring the work provided be outside the usual course of hirer’s business strikes a huge blow to business models based on leveraging the services of independent contractors as a revenue stream, such as Uber, DoorDash, GrubHub, and FedEx.  Though these “gig economy” businesses have had some legal success arguing they don’t exert sufficient control over drivers to be considered employers, it would be hard to assert that drivers are performing a task that isn’t a standard feature of their business.

The third, “ABC” factor requires that the worker truly operate his or her own business offering the same type of work performed for the hiring entity.  To qualify, the worker should actively serve other clients, and have all the trappings of an independent business (business license, advertising, capital investment, insurance, economic risk, and possibly employees of their own).

This decision should prompt California employers of all sizes and across all industries to re-think their contractor relationships.  Employers should seek the assistance of counsel to ensure that all contractor classifications are appropriate, and to ensure than any internal audit is protected by attorney-client privilege.

Aura Adams and Stefanie Renaud

 

Update on New York Anti-Sexual Harassment Training

Since our May 7 blog post covering new sexual harassment legal requirements for New York State employers, on May 9, New York City Mayor De Blasio signed a series of bills further altering the sexual harassment landscape for employers in New York City.

The most significant change, which will be effective on April 1, 2019, requires employers employing 15 or more employees to conduct annual interactive sexual harassment training that meets specific statutory parameters. The New York City action follows the action by New York State, which greatly changed requirements relating to sexual harassment for virtually all employers in the State. Although the City and State training requirements are similar, in large part, there are some differences. For example, the City law requires that training cover bystander intervention, which is not required under the State law.  New York City employers will have to comply with both legal regimes.

The new City law also:

  1. Mandates a new sexual harassment posting and distribution of an information sheet to new employees when they are hired (Effective September 6, 2018);
  2. Extends the statute of limitations for filing claims of gender-based harassment from 1 to 3 years (Effective Now);
  3. Expands exposure for gender-based harassment under the NY City Human Rights Law to all City employers regardless of the number of people employed (Effective Now).

Should you have any questions concerning the new New York laws, or anti-abusive conduct training for managers and employees, please contact Keith Grossman at (310) 255-1821, kgrossman@hkemploymentlaw.com, or Glen Kraemer at (310) 255-1800, gkraemer@hkemploymentlaw.com

Keith Grossman
Glen Kraemer

New York State Ups the Ante on #TimesUp for Employers

In response to the #Metoo movement and the increased national dialogue regarding sexual harassment in the workplace, the State of New York (and, subject to signature by Mayor De Blasio, New York City as well) have issued sweeping new legal requirements and prohibitions that have greatly changed the landscape for most NY employers.

Written Disseminated Policies & Annual Interactive Training

Significantly, the sweeping NY State law will now require that every covered employer in the State (as defined, virtually all businesses) do the following:

  1. Have and disseminate to all employees a written anti-harassment policy that meets or exceeds specific statutory guidelines; and
  2. Conduct anti-harassment training for every employee (not just supervisors and managers) every year.

There are additional mandates and specific minimum requirements for the mandatory training, including that the training be interactive. As a result, training that is solely video-based will not satisfy the legal requirements. Further, because the law does not define what would constitute sufficiently “interactive” training, many canned computer training modules also may be legally insufficient.  It is clear though that live training that covers all the topics delineated in the statute would meet the training requirement.

No NDAs & No Mandatory Arbitration

In addition to the policy and training requirements, the new NY law prohibits confidential settlement agreements with NDAs for sex harassment claims unless non-disclosure is the claimant’s preference.  The new law also bars mandatory arbitration agreements for claims or allegations of sexual harassment except where such prohibition is inconsistent with federal law.

Covering Non-Employees

The new law extends the coverage of NY harassment and discrimination law relating to sexual harassment to certain non-employees: contractors, subcontractors, vendors, consultants and anyone else performing services in the workplace pursuant to a contract.  Employers can now be held responsible for sexual harassment against non-employees at their NY workplaces if supervisors, managers or other company agents knew or should have known about the harassment and failed to take immediate and effective corrective action.

When Do These Changes Apply?

Restrictions on Sexual Harassment Settlement Agreements with NDAs – Effective July 11, 2018

Prohibition on Mandatory Arbitration of Sexual Harassment Claims – Effective July 11, 2018

New Policy Dissemination & Annual Training Requirements – Effective October 9, 2018

Liability for Sexual Harassment of Non-Employees – Effective Immediately

What Should New York Employers Do?

Employers without an anti-harassment policy and training program should develop both following the guidelines delineated in the statute[1]. For employers that have a policy and training program, more work still needs to be done. Their policies should be reviewed carefully to insure they satisfy all the new requirements and revised policies should be committed to writing and distributed to all employees. Similarly, training programs should be reviewed and retooled to meet the new legal standard.This is also a great opportunity to make the training more “modern” by developing a program that is truly designed to change and improve culture and not merely to check the legally-required boxes. In the #metoo era, this is not just prudent but good business, and the right thing to do.

Employers will also want to review their mandatory arbitration agreements and consider modifications. All new settlement agreements involving sexual harassment claims will need to comply with the no-NDA rules. Finally, policies and training should encompass protections for non-employees and since this aspect of the new law is effective immediately employers should consider promptly conducting a thorough assessment of their work environments.

Stay Tuned

All New York employers will have to be nimble and move with some urgency to meet these new requirements; in particular, these new laws will have a dramatic effect on small and mid-sized businesses that often lacked the resources to voluntarily do the annual training that is no longer a choice. At a time when daily headlines uncover another incident of pervasive harassment, the legal, moral, and practical motivations for real change are significant, and this new law is likely only the first of more major changes to come.

This is the first in a series that will cover relevant legal and practical considerations for harassment prevention and response; look to this blog for further updates concerning these important employer obligations.

Should you have any questions concerning the new New York law, or anti-abusive conduct training for managers and employees, please contact Keith Grossman at 310-255-1821, kgrossman@hkemploymentlaw.com, or Glen Kraemer at 310-255-1800, gkraemer@hkemploymentlaw.com

Keith Grossman

Glen Kraemer

[1] New York City employers should also review and incorporate elements of the new New York City law, provided that Mayor De Blasio (as expected) signs the proposed legislation.

 

“Back of House” Tip Pooling Could Land California Employers in Hot Water

As mentioned in our blog post on the Department of Labor’s (“Department”) new opinion letters clarifying aspects of the Fair Labor Standards Act (“FLSA”), April has seen a lot of changes and clarifications to the FLSA. One topic that has been discussed at length is the practice of tip pooling – which is common in customer-service industries where employees receive tips, such as restaurants and car washes. The practice of tip pooling requires employees who have the most customer interaction, and typically receive tips, to share a portion of those tips with employees who have less direct interaction with customers, but still contribute to providing the customer’s service.

2011 Regulations and 2017/2018 Response

In December 2017, the Department of Labor (“Department”) raised a public furor after it released a proposed rule to rescind 2011 regulations. At their most basic, the 2011 regulations forbade employers from taking employee tips. Those regulations also prohibited employers from including back of the house employees – such as dishwashers, line cooks, and other kitchen staff – in tip pools, unless the employer paid at least the full minimum wage.

In response to the 2017 proposed rule, employee advocates claimed that rescinding the 2011 regulations would allow employers to steal employee tips, which raised a public outcry. In a surprising show of bipartisan cooperation, Congress responded to public pressure by including a modification to the Fair Labor Standards Act (“FLSA”) in the Consolidated Appropriations Act – the 2018 budget bill – stating that an “employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” Although the language of the amendment is brief, it packs a lot of punch!

Back of the House is Back in the Game!

Here is where we stand now: guidance issued by the Department on April 6, 2018, clarified that the 2018 amendment gives the 2011 regulations “no further force or effect.” In practical effect, this means that the FLSA once-again allows tip pooling with back of the house staff. However, for such a tip pool to be lawful, all employees must be paid the full minimum wage – the higher under either federal or state law – and no employer, “supervisor,” or “manager” may be included. Employers may not take a federal tip credit for any employees included in the pool. Also, any pooling arrangement should be proportionate with the amount of direct interaction each employee has with the public. In sum, where no state-specific guidance applies to tip pooling, employers may now include back of the house employees in tip pools.

Supervisor and Manager are Narrowly Defined

The April 6 guidance also explains that “managers” and “supervisors” should be determined using the same criteria used to determine if an employee qualifies as an “exempt executive;” that is, if the employee qualifies for the “executive employee” exception to the FLSA’s overtime requirements. Thus, a supervisor or manager must: (1) engage primarily in management of the “enterprise;” (2) “customarily and regularly” direct the work of two or more employees; and (3) have the authority to hire, fire, or promote employees. Because the exception for managers and supervisors is narrow – the test was written for an overtime exemption, after all – it is likely that most employees will not be considered managers or supervisors, regardless of job titles that imply managerial/supervisorial authority, such as “lead waitstaff” or “head cook”.

Penalties and Further Guidance

Finally, the April 6 guidance explains that the penalty for violating this amended provision of the FLSA is repayment of improperly taken tips, as well as a civil penalty of up to $1,100 per violation – if the violation is determined to be willful or repeated.  Further guidance is on the horizon, as the bulletin notes that the Department’s Wage and Hour Division “expects to proceed with rulemaking in the near future to fully address the impact of the 2018 amendments.” Employers should continue to be vigilant for additional guidance.

California Employers Still Benched

Despite changes to the FLSA – and the buzz surrounding them – tip pools that include back of the house staff are still unlawful in California. California law is clear that employers must pay employees the state minimum wage, and may not offset the employees’ wages with tips received. The law is also clear that tips belong to the “employee(s)” they were left for, not the employer, but allows for mandatory tip pooling with other employees in the “chain of service” to the customer. See Labor Code § 351. However, under a California Department of Labor Standards Enforcement letter from 2005, back of the house workers are not explicitly included in the “chain of service.” That guidance states that “employees who contribute to the service provided to a patron might conceivably include persons such as . . .  waitpersons, buspersons, bartenders, hostesses, wine stewards and ‘front room’ chefs in the restaurant industry.” Until further guidance is issued by the DLSE, employers should not assume that the DLSE’s position has changed, and that including back of house staff in tip pools is appropriate.

Finally, California is also subject to Ninth Circuit caselaw on this subject.  In 2009, a California Appellate court ruled that kitchen staff were included within the “chain of service” and eligible for tip pooling under Section 351. Similarly, in 2010, the Ninth Circuit itself held that back of the house staff could participate in tip pools, as long as the employer did not claim a tip credit. But, the Ninth Circuit’s 2016 ruling in Oregon Restaurant negated the effect of both prior precedents, holding that, under the Department’s 2011 regulations, kitchen and back of house staff may not be included in tip pools.  However, that decision is currently under appeal to the U.S. Supreme Court and may be reversed – potentially paving the way for back of house tip pooling in California.  While this area of law is rapidly evolving, California employers are cautioned not to include back of the house staff in any tip pool until consulting with counsel.

–Stefanie Renaud

April Snow Brings Employers Flurry of FLSA Guidance

April is already 17 days old and Washington D.C. is still under threat of snow – but bad weather has brought with it a flurry of action surrounding the Fair Labor Standards Act (“FLSA”). In addition to the United States Supreme Court’s big ruling that Service Advisors at automotive dealerships are FLSA exempt, the Department of Labor (“Department”) also recently issued two opinion letters confirming and clarifying details of the FLSA.

Opinion Letter Program Revived

Opinions letters are official statements of the Department’s Wage and Hour Division’s (“WHD”) policy, usually made in response to an inquiry from an employer.  The practice of issuing opinions letters was revived in June 2017, after the 70-year practice was temporarily halted in 2010. This year, the WHD has issued 19 opinion letters concerning topics under the FLSA.  This round of letters, issued April 12, 2018, discusses whether short breaks offered as an accommodation under the Family Medical and Leave Act (“FMLA”) are compensable (FLSA2018-19), and what types of employee travel time is compensable (FLSA2018-18).

Are FMLA Breaks Compensable?

With regards to FMLA-accommodation breaks, the Department reiterated that such breaks may be unpaid under the FMLA, and are non-compensable time for FLSA purposes – such as calculating FMLA eligibility and overtime wages. Typically, rest breaks of up to 20 minutes are considered “primarily for the benefit of the employer,” and are generally compensable working time under the FLSA. By contrast, breaks taken to accommodate serious health conditions are “primarily for the benefit of the employee,” making them non-compensable time. The Department cautioned that employers cannot treat accommodated employees differently than non-accommodated employees. Generally, that means the employer must credit the accommodated employee with the same number of paid rest breaks as non-accommodated employees.

In California, Labor Code Sections 226.7 and 1198, and related Wage Orders mandate that employers provide employees with a paid, ten-minute break for every four hours of work or major fraction thereof.  Thus, breaks offered beyond this requirement – as an accommodation under the FMLA, or under California’s Fair Employment and Housing Act – may be unpaid, and do not count as compensable time under the FLSA.

What Travel Time is Compensable?

With regards to employee travel time, the Department confirmed that commuting time from an employee’s home to their work location, fixed or otherwise, is not compensable time under the FLSA – unless the amount of time is “extraordinary.” By contrast, time spent travelling between job sites is compensable, whether the employee uses an employer-owner vehicle or not. When an employee travels away from home overnight, the Department confirmed that such travel time is compensable where it cuts across the “employee’s [regular] workday.”  Perhaps of greatest significance, the Department also addressed how an employer could calculate an employee’s “regular workday” in occupations where start and end times may vary greatly, or in the rare instance where the employee truly has no fixed hours of work. Employers can calculate “normal work hours” by (1) reviewing the employee’s time records for the preceding month to see if typical work hours emerge; (2) average the employee’s start and end times for workdays during the preceding month; and (3) in the “rare case” that the employee truly has no normal work hours, the employer and the employee (or their representative) may negotiate and agree on a reasonable amount of compensable travel time for travel away from the employee’s home community.  This advice may be particularly helpful for California employers whose employees work on a client-call basis or where the majority of the employee’s duties are performed in the field.

Takeaway

While the new opinion letters offer little in the way of ground-breaking news, they are a good reminder that employers should periodically audit their pay practices – especially regarding travel time and accommodations for serious health conditions – to ensure they are FLSA compliant.

–Stefanie Renaud