2019 Is a Busy Year for the FLSA

The federal Department of Labor is making up for lost time with a lot of activity by the Wage and Hour Division.  Three notices of regulatory changes have been proposed, as well as several enforcement actions and five Opinion Letters.  The regulations concern the minimum salary for white collar overtime exemptions, what to include in the regular rate for calculating overtime and who is a joint employer for purposes of the FLSA.  While all of the regulatory proposals could change before final enactment, employers can use the time to prepare for any adjustments.


White Collar Exemptions.  The prior administration proposed to raise the minimum salary to almost $50K (from $23K) and to require an automatic annual increase.  This regulation was enjoined at literally the last second.  Instead of moving to dismiss the litigation, the Trump Administration merely requested that it be stayed while it developed a slightly different proposal:  The proposal released on March 7, 2019 provides:

¡  Raise minimum annual salary from $23K to 35,308/year

¡  Raise highly compensated executive minimum salary from $100K to $134K

¡  No change in duties test

¡  No automatic annual increase

¡  Nondiscretionary bonuses and incentive pay (i.e., commissions) can count up to 10% of salary test if paid at least annually

Joint Employment. The DOL proposed a regulation on April 1 to regulate joint employment for purposes of the FLSA. The DOL would examine whether a business is a “joint employer”—equally liable for liability under federal wage and hour laws—with a simple four-part test, assessing whether the potential joint employer:

¡  hires or fires the employee;

¡  supervises and controls the employee’s work schedule or conditions of employment;

¡  determines the employee’s rate and method of payment; and

¡  maintains the employee’s employment records.

The DOL will ignore right to control, economic dependence, and business model or arrangements.


Regular Rate: The DOL proposed on March 28 a new regulation clarifying (but not necessarily changing) what is and is not included in the “regular rate” for purposes of calculating overtime pay.  This issue is still mostly governed by statute and is defined as any and all remuneration for employment paid to, or on behalf of, an employee. This includes not just cash wages but many other types of compensation (such as meals and lodging, commissions, shift differentials, certain nondiscretionary bonuses, etc.)   Nonetheless, the regular rate does not include other types of compensation, such as paid time off, show-up pay where the employee is paid for hours not worked, and discretionary bonuses.


The proposed regulation clarifies that certain compensation need not be included, such as:

¡  Cost of providing wellness programs, onsite specialist treatment, exercise opportunities, employee discounts on retail goods and services, and certain tuition benefits;

¡  Discretionary bonuses as provided in examples;

¡  “Call-back" pay and other similar payments similar when "infrequent and sporadic," but not when such payments are so regular that they are essentially prearranged;

¡  Reimbursed expenses which are not be incurred "solely" for the employer's benefit;

¡  Unused paid leave, meal periods and PTO pay;

¡  Most travel reimbursements

¡  Benefit plans contributions (like accident, legal services)

Settlements.  The DOL has also investigated two Ohio employers for failing to properly pay overtime, improper deductions and recordkeeping violations and recovered $37,658 from a Lebanon employer and $48,698 from a Dayton employer. 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Rejects Another Attack on Arbitration Agreements Involving FLSA Claims

This morning, the Sixth Circuit unsurprisingly granted the appeal of an employment services firm whose arbitration agreement was denied enforcement by the trial court in a collective FLSA action.  Gaffers v. Kelly Services, Inc., No. 16-2210 (6^th Cir. 8-15-18).  The Supreme Court’s decision earlier this year in Epic Systems rejected one of the legal arguments relied upon by the trial court: that arbitration agreements violate the NLRA when they preclude collective lawsuits.  This morning, the Sixth Circuit also reiterated that arbitration agreements are not precluded by the Fair Labor Standards Act either even though that statute also permits class action lawsuits. 

The plaintiff provided “virtual” call center support from home for the defendant employer.  He filed a lawsuit on behalf of himself and 1600 similar co-workers that he was not properly compensated under the FLSA for logging in and out of the employer’s computer network and during computer glitches.   Although he had never signed an arbitration agreement, about half of his co-workers had and the employer moved to refer those cases to individual arbitrations.  The trial court refused to enforce the arbitration agreements and the employer appealed.

The Supreme Court long ago held that the Federal Arbitration Act supported the enforcement of arbitration clauses in cases brought under the ADEA, which shares the exact same statutory enforcement  provisions with the FLSA.  Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 27 (1991).  In other words, when Congress adopted the ADEA, it incorporated the FLSA’s enforcement provisions.  Therefore, it is pretty clear that the FLSA does not preclude arbitration.

The Sixth Circuit refused to deny enforcement on policy grounds because Congress is supposed to set policy, not courts.   Court’s interpret statutes, not Congressional intent.   It also rejected the argument – rejected earlier this year by the Supreme Court – that the arbitration agreement should not be enforced on grounds of illegality.   It also refused to treat the arbitration agreement as an illegal waiver under the FLSA because FAA endorsed arbitration as lawful.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.  

A Flurry of FLSA Activity

If you blinked this week, you will have missed an unusual amount of activity concerning the Fair Labor Standards Act.  First, there were two Administrator Opinion Letters.  Opinion Letter 2018-19 provided that employers are not required to compensate employees for frequent short rest breaks that are required by the employees’ medical condition and covered as intermittent leave under the FMLA, except to the extent that other employees are provided to paid rest breaks.  Opinion Letter 2018-18 discussed the non-compensability of travel time an employee spends outside of his or her regular working hours and to commute to and from home to a job site or regular work location.    Yesterday, a unanimous Sixth Circuit reversed a trial court judgement and admonished the DOL for prosecuting a church for spiritually coercing its members during Sunday sermons to volunteer without any expectation of compensation in the church’s for-profit restaurant side-by-side with paid staff.  Finally, ten days ago, the DOL issued brief enforcement guidance to its staff in Field Assistance Bulletin 2018-3 about how it will interpret the recent FLSA amendments concerning tip pooling until formal regulations are issued and to terminate its temporary non-enforcement period of the tip-pooling rules.

Opinion Letter on Medical Accommodation Rest Breaks. Last Thursday, the DOL issued Administrator Opinion Letter 2018-19 recognizing an exception to the general rule that short rest breaks (of under 20 minutes) are generally considered to be compensable time when those rest breaks are frequent, are covered by the FMLA and, thus, primarily benefit the employee instead of the employer.   As most employers know, short rest breaks (of up to 20 minutes in duration) are generally considered to be too short to give the employee an opportunity to use the time for his or her own benefit, and thus, those breaks primarily benefit the employer by keeping the employee’s mind and body fresh for work.  Thus, is it common for employers to provide for a couple of paid rest breaks during an 8-hour shift.   In the Opinion Letter, however, the employer asked about a non-exempt employee whose physician certified that the employee needed to have a fifteen minute rest break every hour.  This meant that the employee only worked 6 hours out of an 8-hour shift.   Based on a prior court opinion, the Acting Administrator concluded that the frequency of the accommodation rest breaks primarily benefitted the employee and not the employer.  Further, the FMLA provides that FMLA intermittent leave – which would cover such frequent rest breaks necessitated by a serious medical condition – need not be paid.   Accordingly, where an employee’s medical condition requires frequent short rest breaks, the employer need not compensate the employee for those rest breaks except to the extent that other employees are compensated for short rest breaks.   Thus, when an employer provides each employee two short paid rest breaks per shift, but the employee requires 7 short rest breaks per shift, the employer need not pay for five of those rest breaks.  What is left for interpretation and handwringing by employers and employees, however, is whether there is a clear dividing line between when frequency of the rest break breaks stop being for the primary benefit of the employer and become for primarily for the accommodation benefit of the employee.   The “primary benefit” analysis should also apply whether or not the employer is governed by the FMLA, but one can probably expect that to be litigated, as well as claims that other employees are provided with more than two paid rest breaks per day, etc.

Spiritual Coercion is Not Economic Coercion.  A northeast Ohio church operated a wholly-owned, but separately incorporated, for-profit restaurant in its community which employed and paid thirty-five individuals.  Accosta v. Cathedral Buffet, Inc., No. 17-3427 (4-16-18).   The church also pressured its members to volunteer at the restaurant (which never turned a profit and was substantially subsidized by the church) and to preach the good news to the restaurant’s patrons.   It was stipulated that not a single volunteer expected any form of compensation or was in any way economically dependent upon the church or restaurant. “Put simply, there was no economic relationship between the restaurant and the church member volunteers.“  The DOL prosecuted the restaurant for failing to maintain records of working hours or minimum wages paid to the volunteers and obtained a judgment in federal court of $388,508 in back pay and liquidated damages.  This forced the restaurant to close, laying off all of its 35 employees.  The church appealed and the Sixth Circuit reversed.   Adults who volunteer without any expectation of any sort of economic compensation are not employees under the FLSA and are not required to be paid any compensation. 

The Supreme Court held as much in Portland Terminal when it defined a volunteer as a “person who, without promise or expectation of compensation, but solely for his personal purpose or pleasure, worked in activities carried on by other persons either for their pleasure or profit.”  Portland Terminal, 330 U.S. at 152 (emphasis added).  The Alamo Court reiterated this test, making clear that when a religious organization undertakes a commercial endeavor, its workers are only covered under the FLSA if they “engage in those activities in expectation of compensation.”  Alamo, 471 U.S. at 302.

Further, the Court rejected the DOL argument that spiritual coercion could be substituted for the lack of compensation expectation and found that the FLSA only covered economic coercion, not spiritual admonishment or coercion.  Thus, it did not matter if the church members were afraid of going to hell if they failed to volunteer.

But although the FLSA might aim to curb the societal ills caused by low wages, it does so through a comprehensive system of economic regulations.  The Act does not go so far as to regulate when, where, and how a person may volunteer her time to her church.  After all, the giving of one’s time and money through religious obligation is a common tenet of many faiths.  For instance, the Bible calls upon Christians to “use whatever gift you have received to serve others, as faithful stewards of God’s grace in its various forms.”  1 Peter 4:10 (NIV).  In the Islamic faith, believers are instructed to “show kindness unto parents, and unto near kindred, and orphans, and the needy.”  The Qur’an, An-Nisa 4:36.

The Court distinguished this case from Alamo Foundation v. Secretary of Labor, where the individuals resided for long periods of time at the employer, were economically dependent on the Foundation and were compensated with clothing, room and board instead of with money.   Those individuals expected to be compensated, just not in cash, and, thus, were employees.   Further, a for-profit farm with an understanding with a church to provide “volunteer’ child labor was still covered when the children were coerced by their parents, church and community to pick nuts.

Finally, the Court rejected the DOL argument that permitting the church to use volunteer labor gave it an economic advantage over secular businesses.  Pointedly, the Court noted that the Supreme Court had specifically observed in the Alamo Foundation case that true volunteers are never covered by the FLSA even if they volunteer for a for-profit business and gave as examples:

“driv[ing] the elderly to church, serv[ing] church suppers, or help[ing] remodel a church home for the needy.”   . . .  These activities could all be seen as competing with other businesses, yet they are still exempted from FLSA coverage because the workers do not expect to receive an economic benefit in return for their service.  A church van competes with a taxi service.  A Catholic fish fry competes with a fast food restaurant.  A volunteer homebuilding project competes with a construction company.  Granted, Cathedral Buffet was organized to turn a profit (although there is little evidence that the restaurant ever generated revenue for the church).  But, as the Court made clear in Portland Terminal, what matters is not the object of the enterprise, but instead the purpose of the worker.  Portland Terminal, 330 U.S. at 152-53 (emphasis added).

The concurring opinion admonished the DOL for applying the FLSA when a “pastor spiritually ‘coerced’” his flock to volunteer and attempting to “regulate the spiritual dialogue between pastor and congregation” in violation of “the Free Exercise Clause of the First Amendment.”

One can agree that the Reverend’s comments were in poor taste, and yet see that the Department [of Labor] has no business regulating them.  For the power that the Department purports to exercise here is out of bounds even under Employment Div. v. Smith, 494 U.S. 872 (1990).  There, of course, the Court held that a neutral law of general applicability does not violate the Free Exercise Clause when the law burdens religious exercise only incidentally.   . . .  But here the Department’s actions meet none of those criteria.  The Department seeks to regulate spiritual conduct qua spiritual conduct, and to impose significant liability as a result.  The very criterion by which the Department would impose liability is expressly spiritual.  Hence this is not a case, like Smith, where illegal conduct (there, smoking peyote) remained illegal even though it was religiously motivated.  Instead, the Department’s position here is that otherwise legal conduct—such as volunteering at a church restaurant—becomes illegal if the worker’s pastor spiritually pressures her to engage in it.  (Under this regime, one supposes, whether a pastor can invoke the Book of James—“a person is justified by works and not by faith alone[,]” James 2:24—might be determined on a case-by-case basis.)  The Department’s actions therefore “target[] religious conduct for distinctive treatment[,]”  . . . and their burdens upon religious exercise would come by design.

Nor is the Department even competent to make the spiritual judgment it purported to make here.   . . . .  Hence it is beyond the ken of federal agencies, or the courts, to determine that congregants were spiritually coerced even though the congregants themselves say they were not—which is what 134 members of Grace Cathedral said under oath here.

Tip Pooling. As previously reported here, Congress amended the FLSA in March concerning the sharing of tips.   Earlier this month, the DOL issued a brief Field Assistance Bulletin to address some of the many questions left open by the statutory amendment.  The DOL indicates that it will proceed with formal APA rulemaking to replace the existing and superseded regulation.   Until that regulation is finalized, however, the DOL indicates:

employers who pay the full FLSA minimum wage are no longer prohibited from allowing employees who are not customarily and regularly tipped—such as cooks and dishwashers—to participate in tip pools.  The Act prohibits managers and supervisors from participating in tip pools, however, as the Act equates such participation with the employer’s keeping the tips.  As an enforcement policy,  WHD will use the duties test at 29 C.F.R. § 541.100(a)(2)-(4) to determine whether an employee is a manager or supervisor for purposes of section 3(m).

In addition, an employer’s administration of

a permissible tip pool does not constitute either unlawful retention of tips or unlawful tip pool participation under the Act by employers, managers, or supervisors.  Additionally, the provisions in WHD Field Operations Handbook 30d05 concerning tips charged on credit cards still apply.

Finally, the DOL announced that end of its temporary period of non-enforcement of the tip-pooling rules that has been in place since July 2017: 

WHD’s July 20, 2017 non-enforcement policy concerning retention of tips by tipped employees paid the full FLSA minimum wage will not apply to new investigations beginning on or after March 23, 2018.  When an investigation covers periods before and after March 23, 2018, and the employee was paid at least the full FLSA minimum wage, violations of section 3(m) may only be cited if they occurred after March 23, 2018.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Divided Supreme Court Rules That FLSA Exemptions Should Not Be Construed Narrowly

This morning, a divided 5-4 Supreme Court rejected an Obama-era FLSA regulation and found that automobile service advisors were exempt under the FLSA.    Encino Motorcars LLC v. Navarro, No. 16-1362 (4-2-2018).    Section 213(b)(10)(A) of the FLSA exempts  “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” and “if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers” at a covered dealership.  The question presented was whether this exemption covered service advisors—employees at car dealerships who consult with customers about their servicing needs and sell them servicing solutions.  After decades of this exemption covering services advisors, the Obama Administration determined in 2011 that it did not.  Notably, the Court explicitly rejected the rule that FLSA exemptions are to be construed narrowly. “Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.’”

The Court observed that when the FLSA was enacted in 1938, all car dealership employees were exempt.  That exemption was narrowed over the years until the current version was enacted in 1974.  A number of courts found this exemption to cover service advisors and the DOL agreed in an opinion letter in 1978.   In 2011, the Obama DOL reversed course and issued a formal regulation finding that service advisors were not exempt under the FLSA.  The plaintiffs filed suit for unpaid overtime over the prior three years.  The Ninth Circuit found the statute to be ambiguous and deferred to the Obama 2011 regulation.  The Supreme Court previously reversed this decision on the grounds that the regulation was procedurally defective by changing decades of reliance on the prior determinations without a reasoned explanation.  The Court remanded the matter to determine whether service advisors were covered under the statute.  Although it found that service advisors were “salesmen” engaging primarily ‘in servicing automobiles,” the Ninth Circuit again determined that they were not covered by the statutory exemption because they did not actually service the cars themselves.  A divided Supreme Court again reversed.

The parties agreed that if the service advisors were covered, it was as salesmen (i.e., someone who sells goods or services).   They also agreed that service advisors were not engaged in the selling of automobiles.  The only question was whether they were primarily engaged in the servicing of automobiles when they never actually repaired or serviced the automobiles themselves.    The Court found that the service advisors sold customers services for their automobiles.  The Court also found that the service advisors were involved in servicing the automobiles even if they never repaired the vehicles because they met and listen to the customer, suggested repair and maintenance services,  and explained the work.  That the advisors did not physically repair the cars was not important when partsmen were similarly exempt even though they spent little time under the hood.

In other words, the phrase “primarily engaged in . . . servicing automobiles” must include some individuals who do not physically repair automobiles themselves but who are integrally involved in the servicing process. That description applies to partsmen and service advisors alike.

This conclusion was reinforced by the statutory language:

The text of the exemption covers “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.” §213(b)(10)(A). The exemption uses the word “or” to connect all of its nouns and gerunds, and “or” is “almost always disjunctive.” United States v. Woods, 571 U. S. 31, 45 (2013). Thus, the use of “or” to join “selling” and “servicing” suggests that the exemption covers a salesman primarily engaged in either activity.

Unsurprisingly, statutory context can overcome the ordinary, disjunctive meaning of “or.”  The distributive canon, for example, recognizes that sometimes “[w]here a sentence contains several antecedents and several consequents,” courts should “read them distributively and apply the words to the subjects which, by context, they seem most properly to relate.”  2A N. Singer & S. Singer, Sutherland Statutes and Statutory Construction §47:26, p. 448 (rev. 7th ed. 2014).

But here, context favors the ordinary disjunctive meaning of “or” for at least three reasons.  First, the distributive canon has the most force when the statute allows for one-to-one matching.  But here, the distributive canon would mix and match some of three nouns—“salesman, partsman, or mechanic”—with one of two gerunds— “selling or servicing.”  §213(b)(10)(A).  We doubt that a legislative drafter would leave it to the reader to figure out the precise combinations. Second, the distributive canon has the most force when an ordinary, disjunctive reading is linguistically impossible.   . . .But as explained above, the phrase “salesman . . . primarily engaged in . . . servicing automobiles” not only makes sense; it is an apt description of a service advisor.  Third, a narrow distributive phrasing is an unnatural fit here because the entire exemption bespeaks breadth.  It begins with the word “any.”  . . .   And it uses the disjunctive word “or” three times. In fact, all agree that the third list in the exemption—“automobiles, trucks, or farm implements”— modifies every other noun and gerund.  But it would be odd to read the exemption as starting with a distributive phrasing and then, halfway through and without warning, switching to a disjunctive phrasing—all the while using the same word (“or”) to signal both meanings.

The Court also rejected the Ninth Circuit’s opinion on the grounds that FLSA exemptions should be construed narrowly:

We reject this principle as a useful guidepost for interpreting the FLSA.  Because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”  Scalia, Reading Law, at 363.  The narrow construction principle relies on the flawed premise that the FLSA “‘pursues’” its remedial purpose “‘at all costs.’”   . . .  But the FLSA has over two dozen exemptions in §213(b) alone, including the one at issue here.  Those exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement.  . . . .(“Legislation is, after all, the art of compromise, the limitations expressed in statutory terms often the price of passage”).  We thus have no license to give the exemption anything but a fair reading.

The Court also rejected the Ninth Circuit’s reliance on legislative history, which that court had initially found to be inconclusive, because the legislative history never specifically noted the existence of “service advisors.”   As would be true with respect to “sex” in Title VII, the silence of legislative history cannot overcome clear statutory language:

Even for those Members of this Court who consider legislative history, silence in the legislative history, “no matter how ‘clanging,’” cannot defeat the better reading of the text and statutory context. If the text is clear, it needs no repetition in the legislative history; and if the text is ambiguous, silence in the legislative history cannot lend any clarity.   . . . Even if Congress did not foresee all of the applications of the statute, that is no reason not to give the statutory text a fair reading.   . . .

The dissent found that only three automobile employees were exempt: salesmen, partsmen and mechanics.  It refused to create a fourth category for service advisors.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Omnibus Budget Bill Amends FLSA to Address Tip-Credit Debate

On Friday, Congress passed and President Trumped signed a $1.3T omnibus budget bill.  To reach this compromise, a number of substantive legal provisions were enacted, including a resolution of the tip-credit debate that has been raging since at least when I began practicing law.    This debate involves whether employees who receive tips (but are paid at least minimum wage and overtime without the benefit of a tip credit) must share (or “pool”)  their tips with back-of-the-house employees (like hostesses, dish washers, bus boys, cooks, hair-washers, etc.) and whether those back-of-the-house employees may include supervisors (who can be required to work 80 hours per week without overtime and receive little more than $23K per year in annual salary) and managers.  The Obama DOL had issued regulations in 2011 answering both questions in the negative, but those regulations were challenged in litigation that is currently pending before the Supreme Court (for arguably being inconsistent with the FLSA), were suspended in July 2017 for 18 months by the Trump Administration and were the subject of new APA rulemaking announced in December 2017 to formally rescind and replace them.  Some states responded by eliminating the tip credit altogether.   The new amendments to the Fair Labor Standards Act in Title XII of the Omnibus Bill clarify that employers may never require employees to share tips with managers and supervisors and create explicit new penalties to enforce this.  The former Obama Era regulations are also formally repealed (to the extent that they regulate tip pooling).  While the Trump DOL has announced that this will permit sharing of tips with the remaining back-of-the-house employees, the statutory language may create an argument for wait staff who object to sharing any of their tips with any other employees.  Of course, most restaurant employees likely work for “fast food” restaurants these days and never get tips, so this statute really only affects hotel, resort, and sit-down restaurant and diner employees and other tipped employees, like hair dressers.

The DOL has lauded this compromise as permitting back-of-the-house employees (“cooks, bussers, dishwashers”) to share in tips in certain circumstances (i.e., when the employer is not relying on the tip credit to satisfy its minimum wage obligations), while excluding employers from keeping any portion of the tip for itself.    Let’s face it, the amount of the tips often reflects more than the quality of the wait staff’s service; it also reflects the cost and quality of the food and ambient surroundings (i.e., cleanliness and décor).   

Nonetheless, the language of the amendment is less than clear about resolving this issue.  While it seems clear that rescinding the Obama era rule forbidding all tip pooling means that tip pooling is permissible in certain circumstances, the language in the statue provides: 

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. (italics added for emphasis).

By prohibiting “keeping” of tips for “any” purpose, “including” but not limited to distributing to managers and supervisors, this will likely lead to litigation about whether requiring the sharing of tips with cooks and other back-of-the-house employees is “keeping” of tips and is prohibiting as an “any” purpose that is clearly not limited to just sharing with supervisors and managers.  I do not think that this is what was intended, but decades of litigation about whether tip pooling is legal was based on less than this.   To further confuse the matter, the repeal language only repeals those tip-pooling regulations that are not addressed by this new amendment (because the clearly inconsistent language has just been superseded by statute) and leaves it to the DOL to fill in the rest because those 2011 regulations “shall have no further force or effect until any future action taken by the Administrator of the Wage and Hour Division of the Department of Labor.”  As I mentioned earlier, this debate has been waging for decades, so it seems that this may just be kicking the can a little farther down the road.  But, maybe I am just being a little too cynical .  . .  How many employers are going to risk getting sued to find out?

I am including a edited version of the amendments as well as the actual language of the Omnibus bill.   These are how the amendments will look (without the strike-outs, red letters or bolding) in Chapter 29 of the U.S.  Code:

§203 (m) (1)“Wage” paid to any employee includes the reasonable cost, as determined by the Administrator, to the employer of furnishing such employee with board, lodging, or other facilities, if such board, lodging or other facilities are customarily furnished by such employer to his employees: Provided, That the cost of board, lodging, or other facilities shall not be included as a part of the wage paid to any employee to the extent it is excluded therefrom under the terms of a bona fide collective-bargaining agreement applicable to the particular employee: Provided further, That the Secretary is authorized to determine the fair value of such board, lodging, or other facilities for defined classes of employees and in defined areas, based on average cost to the employer or to groups of employers similarly situated, or average value to groups of employees, or other appropriate measures of fair value. Such evaluations, where applicable and pertinent, shall be used in lieu of actual measure of cost in determining the wage paid to any employee.

(2)(A) In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee’s employer shall be an amount equal to—  (1) (i) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on August 20, 1996; and

(2) (ii) an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in paragraph (1) clause (i) and the wage in effect under section 206(a)(1) of this title. The additional amount on account of tips may not exceed the value of the tips actually received by an employee. The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection, and all tips received by such employee have been retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.

(B) 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.

§216 (b) Damages; right of action; attorney’s fees and costs; termination of right of action 

Any employer who violates the provisions of section 206 or section 207 of this title shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages. Any employer who violates section 3(m)(2)(B) shall be liable to the employee or employees affected in the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and in an additional equal amount as liquidated damages.  Any employer who violates the provisions of section 215(a)(3) of this title shall be liable for such legal or equitable relief as may be appropriate to effectuate the purposes of section 215(a)(3) of this title, including without limitation employment, reinstatement, promotion, and the payment of wages lost and an additional equal amount as liquidated damages. An action to recover the liability prescribed in either of the preceding sentences may be maintained against any employer (including a public agency) in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated. No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought. The court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action. The right provided by this subsection to bring an action by or on behalf of any employee, and the right of any employee to become a party plaintiff to any such action, shall terminate upon the filing of a complaint by the Secretary of Labor in an action under section 217 of this title in which (1) restraint is sought of any further delay in the payment of unpaid minimum wages, or the amount of unpaid overtime compensation, as the case may be, owing to such employee under section 206 or section 207 of this title by an employer liable therefor under the provisions of this subsection or (2) legal or equitable relief is sought as a result of alleged violations of section 215(a)(3) of this title.

§216 (c) Payment of wages and compensation; waiver of claims; actions by the Secretary; limitation of actions

The Secretary is authorized to supervise the payment of the unpaid minimum wages or the unpaid overtime compensation owing to any employee or employees under section 206 or section 207 of this title, and the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee of any right he may have under subsection (b) of this section to such unpaid minimum wages or unpaid overtime compensation and an additional equal amount as liquidated damages. The Secretary may bring an action in any court of competent jurisdiction to recover the amount of unpaid minimum wages or overtime compensation and an equal amount as liquidated damages. The right provided by subsection (b) to bring an action by or on behalf of any employee to recover the liability specified in the first sentence of such subsection and of any employee to become a party plaintiff to any such action shall terminate upon the filing of a complaint by the Secretary in an action under this subsection in which a recovery is sought of unpaid minimum wages or unpaid overtime compensation under sections 206 and 207 of this title or liquidated or other damages provided by this subsection owing to such employee by an employer liable under the provisions of subsection (b), unless such action is dismissed without prejudice on motion of the Secretary. Any sums thus recovered by the Secretary of Labor on behalf of an employee pursuant to this subsection shall be held in a special deposit account and shall be paid, on order of the Secretary of Labor, directly to the employee or employees affected. Any such sums not paid to an employee because of inability to do so within a period of three years shall be covered into the Treasury of the United States as miscellaneous receipts. In determining when an action is commenced by the Secretary of Labor under this subsection for the purposes of the statutes of limitations provided in section 6(a) of the Portal-to-Portal Act of 1947 [29 U.S.C. 255(a)], it shall be considered to be commenced in the case of any individual claimant on the date when the complaint is filed if he is specifically named as a party plaintiff in the complaint, or if his name did not so appear, on the subsequent date on which his name is added as a party plaintiff in such action. The authority and requirements described in this subsection shall apply with respect to a violation of section 3(m)(2)(B), as appropriate, and the employer shall be liable for the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and an additional equal amount as liquidated damages.

§216 (e) Civil penalties for child labor violations

(2) Any person who repeatedly or willfully violates section 206 or 207 of this title, relating to wages, shall be subject to a civil penalty not to exceed $1,100 for each such violation. Any person who violates section 3(m)(2)(B) shall be subject to a civil penalty not to exceed $1,100 for each such violation, as the Secretary determines appropriate, in addition to being liable to the employee or employees affected for all tips unlawfully kept, and an additional equal amount as liquidated damages, as described in subsection (b).

The Omnibus Act uses the following language:

Title XII – TIPPED EMPLOYEES

11 SEC. 1201. TIPPED EMPLOYEES. 12 (a) PROHIBITION ON KEEPING TIPS.—Section 3(m) 13 of the Fair Labor Standards Act of 1938 (29 U.S.C. 14 203(m)) is amended—

                (1) by redesignating paragraphs (1) and (2) as clauses (i) and (ii), respectively;

                (2) by inserting ‘‘(1)’’ after ‘‘(m)’’;  

                (3) by striking ‘‘any employee. In determining’’ and inserting the following: ‘‘any employee.  ‘‘(2)(A) In determining’’;  

                (4) in clause (ii) of paragraph (2)(A) (as so re-designated), by striking ‘‘paragraph (1)’’ and inserting ‘‘clause (i)’’; and

                (5) by adding at the end the following:

(B) 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.’’.

                (b) PENALTIES.—Section 16 of the Fair Labor 6 Standards Act of 1938 (29 U.S.C. 216) is amended—

                (1) in subsection (b)—

                                (A) by inserting after the second sentence the following: ‘‘Any employer who violates section 3(m)(2)(B) shall be liable to the employee or employees affected in the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and in an additional equal amount as liquidated damages.’’; and

                                (B) by striking ‘‘either of’’;

                (2) in subsection (c), by adding at the end the following: ‘‘The authority and requirements described in this subsection shall apply with respect to a violation of section 3(m)(2)(B), as appropriate, and the employer shall be liable for the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and an additional equal amount as liquidated damages.’’; and

                (3) in subsection (e)(2), by adding at the end  the following: ‘‘Any person who violates section 3(m)(2)(B) shall be subject to a civil penalty not to exceed $1,100 for each such violation, as the Secretary determines appropriate, in addition to being liable to the employee or employees affected for all tips unlawfully kept, and an additional equal amount as liquidated damages, as described in subsection 10 (b).’’

                (c) EFFECT ON REGULATIONS.—The portions of the final rule promulgated by the Department of Labor entitled ‘‘Updating Regulations Issued Under the Fair Labor Standards Act’’ (76 Fed. Reg. 18832 (April 5, 2011)) that revised sections 531.52, 531.54, and 531.59 of title 29,  Code of Federal Regulations (76 Fed. Reg. 18854–18856) and that are not addressed by section 3(m) of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(m)) (as such section was in effect on April 5, 2011), shall have no further force or effect until any future action taken by the Administrator of the Wage and Hour Division of the Department of Labor.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Affirms Dismissal of FLSA Action Where Employer Paid Twice the Required Overtime Premium Under Fluctuating Work Week Method

This morning, the Sixth Circuit affirmed the dismissal of a collective FLSA action on the grounds that the employer’s fluctuating work week overtime payroll practices did not violate the Fair Labor Standards Act.   Hall v. Plastipak Holdings, Inc. No. 17-1694 (6^th Cir. 2-28-18).   First, the Court noted that the employer paid its employees at twice overtime rate that was legally required under the FLSA regulations.  The plaintiffs’ arguments were based on a misunderstanding of how the fluctuating work week method operates.   Further, it was “absurd” for the plaintiffs to argue that they were not paid a “fixed salary” when their vacation pay banks were docked as they took vacation because that would result in employees being paid twice as much for not working.  The Court also rejected their argument that they were prevented from conducting discovery as to whether the employer would dock their salary if they missed work after exhausting their vacation banks because the plaintiffs never raised this argument before the trial court and cannot raise arguments – even good ones – for the first time on appeal.

As explained by the Court:

Various methods can be used to calculate this overtime premium, depending on the particular employment circumstances.  One such method is the “Fluctuating Workweek” (“FWW”) method, described in 29 C.F.R. § 778.114(a).  Under this approach, employees receive a fixed salary as compensation for all hours worked, whether above or below forty hours, plus an overtime premium for each overtime hour.  Id.

             . . .. .

The FWW method can only be used if four requirements are met: (1) the employee’s hours fluctuate from week to week; (2) the employee receives a fixed salary that does not vary with the number of hours worked (excluding overtime premiums); (3) the fixed salary at least equals the minimum wage; and (4) the employer and employee share a “clear mutual understanding” that the employer will pay the fixed salary regardless of the number of hours worked.  29 C.F.R. § 778.114(a).

The plaintiffs disputed that they were paid a fixed salary or that they had agreed to this method of compensation.    However, the plaintiffs had each signed a detailed agreement specifying how their overtime would be calculated and they would be paid, including numeric examples.  They also accepted paychecks using this method for years without complaint or objection.

The Court observed that the employer paid its employees a higher overtime rate than required by the FWW regulations:

[T]he FWW method calculates overtime premiums according to the following formula:

            overtime premium = ½ x (salary/40 hours +overtime hours) x overtime hours

The parties agree that [the employer] did not use this formula.  Instead, [it] used a different one: 

            overtime premium = (salary/40 hours)          x overtime hours

When compared, these formulae show that [the employer’s] approach was more generous than the FWW’s approach in two ways.  First, [the employer] used a higher base salary rate: it divided base salary by 40 hours, whereas the FWW method divides base salary by the sum of 40 hours and overtime hours.  Second, [it] paid the full salary rate for overtime hours, whereas the FWW method requires only a minimum of half of the salary rate.  Taken together, these changes ensured that Plaintiffs were paid more than twice the minimum overtime premiums.  That was plainly permissible.  § 778.114(a)

The Court rejected as “absurd” the plaintiffs’ argument that they were not paid a “fixed salary” when their accrued vacation pay banks were “docked” after they requested and took time off work.

Reducing an employee’s bank  of vacation time is obviously appropriate in such circumstances.  See DOL Opinion Letter FLSA,   . . .  Indeed, it would be absurd to suggest that a vacationing employee should be paid twice for not working, once because the employee took paid vacation  and a second time because the employee is guaranteed a fixed salary.

The Court also rejected the plaintiff’s objection to being paid the same rate of pay for both overtime and regular 40 hours because they misunderstood the FWW method.  Hourly employees are not guaranteed a “fixed salary” regardless of how many hours they work.  If they work less than 40 hours, they are paid less than 40 hours, whereas  under the FWW, they receive the same pay every week whether they work more or less than forty hours.  So, hourly employees have not been paid at all for the hours worked over 40 in a week, which means that their overtime is time and a half.  In contrast, FWW employees have already been paid a fixed salary for all hours worked, even those over 40.  Because they have already been paid the “time” with the fixed salary, they only get “a half” for the overtime hours.   Nonetheless, the defendant employer in this case paid them twice that amount and gave them not just time and a half, but time and time again.  Still, the employees brought suit because they wanted time and time and a half.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.