DOL Announces Higher Minimum Salaries Beginning July 1 for White Collar Employees to Be Exempt from FLSA Overtime and Minimum Wage Requirements

Yesterday, the Department of Labor announced that it had finalized new FLSA regulations that will increase the minimum salary that must be paid to exempt executive, administrative and professional employees and minimum hourly rate for computer employees in order for them to qualify for the FLSA exemptions from overtime and minimum wage requirements.   In general, the minimum salary level will increase to $844/week (or $43,888/year) on July 1, will increase to $1,128/week (or $58,656/year on January 1) and will be readjusted based on inflation every three years thereafter on July 1.    There are slightly different levels for employees in academic positions, American Samoa and Northern Marinara Islands.   The minimum salary level for Highly Compensated Employees will also increase to $132,964/year on July 1 and to $151,164 on January 1.  The new regulation is set forth below:

§ 541.600 Amount of salary required.

(a) Standard salary level. To qualify as an exempt executive, administrative, or professional employee under section 13(a)(1) of the Act, an employee must be compensated on a salary basis at a rate per week of not less than the amount set forth in paragraphs (a)(1) through (3) of this section, exclusive of board, lodging or other facilities, unless paragraph (b) or (c) of this section applies. Administrative and professional employees may also be paid on a fee basis, as defined in § 541.605.

(1) Beginning on July 1, 2024, $844 per week (the 20th percentile of weekly earnings of full-time nonhourly workers in the lowest-wage Census Region and/or retail industry nationally).

(2) Beginning on January 1, 2025, $1,128 per week (the 35th percentile of weekly earnings of full-time nonhourly workers in the lowest-wage Census Region).

(3) As of July 1, 2027, the level calculated pursuant to § 541.607(b)(1).

(b) Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, U.S. Virgin Islands. To qualify as an exempt executive, administrative, or professional employee under section 13(a)(1) of the Act, an employee in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands employed by employers other than the Federal Government must be compensated on a salary basis at a rate of not less than $455 per week, exclusive of board, lodging or other facilities. Administrative and professional employees may also be paid on a fee basis, as defined in § 541.605.

(c) American Samoa. To qualify as an exempt executive, administrative, or professional employee under section 13(a)(1) of the Act, an employee in American Samoa employed by employers other than the Federal Government must be compensated on a salary basis at a rate of not less than $380 per week, exclusive of board, lodging or other facilities. Administrative and professional employees may also be paid on a fee basis, as defined in § 541.605.

(d) Frequency of payment. The salary level requirement may be translated into equivalent amounts for periods longer than one week. For example, the $1,128 per week requirement described in paragraph (a)(2) of this section would be met if the employee is compensated biweekly on a salary basis of not less than $2,256, semimonthly on a salary basis of not less than $2,444, or monthly on a salary basis of not less than $4,888. However, the shortest period of payment that will meet this compensation requirement is one week.

(e) Alternative salary level for academic administrative employees. In the case of academic administrative employees, the salary level requirement also may be met by compensation on a salary basis at a rate at least equal to the entrance salary for teachers in the educational establishment by which the employee is employed, as provided in § 541.204(a)(1).

(f) Hourly rate for computer employees. In the case of computer employees, the compensation requirement also may be met by compensation on an hourly basis at a rate not less than $27.63 an hour, as provided in § 541.400(b).

(g) Exceptions to the standard salary criteria. In the case of professional employees, the compensation requirements in this section shall not apply to employees engaged as teachers (see § 541.303); employees who hold a valid license or certificate permitting the practice of law or medicine or any of their branches and are actually engaged in the practice thereof  (see § 541.304); or to employees who hold the requisite academic degree for the general practice of medicine and are engaged in an internship or resident program pursuant to the practice of the profession (see § 541.304). In the case of medical occupations, the exception from the salary or fee requirement does not apply to pharmacists, nurses, therapists, technologists, sanitarians, dietitians, social workers, psychologists, psychometrists, or other professions which service the medical profession.

9. Amend § 541.601 by revising paragraph (a), the first sentence of paragraph (b)(1), and paragraph (b)(2) to read as follows:

 § 541.601 Highly compensated employees. (a) An employee shall be exempt under section 13(a)(1) of the Act if the employee receives total annual compensation of not less than the amount set forth in paragraph (a)(1) through (4) of this section, and the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee identified in subpart B, C, or D of this part:

(1) Beginning on July 1, 2024, $132,964 per year (the annualized earnings amount of the 80th percentile of full-time nonhourly workers nationally).

(2) Beginning on January 1, 2025, $151,164 per year (the annualized earnings amount of the 85th percentile of full-time nonhourly workers nationally).

(3) As of July 1, 2027, the total annual compensation level calculated pursuant to § 541.607(b)(2).

(4) Where the annual period covers periods during which multiple total annual compensation levels apply, the amount of total annual compensation due will be determined on a proportional basis.

(b)(1) Total annual compensation must include at least a weekly amount equal to that required by § 541.600(a)(1) through (3) paid on a salary or fee basis as set forth in §§ 541.602 and 541.605, except that § 541.602(a)(3) shall not apply to highly compensated employees. * * *

(2) If an employee’s total annual compensation does not total at least the amount set forth in paragraph (a) of this section by the last pay period of the 52-week period, the employer may, during the last pay period or within one month after the end of the 52-week period, make one final payment sufficient to achieve the required level. For example, for a 52-week period beginning January 1, 2025, an employee may earn $135,000 in base salary, and the employer may anticipate based upon past sales that the employee also will earn $20,000 in commissions. However, due to poor sales in the final quarter of the year, the employee only earns $14,000 in commissions. In this situation, the employer may within one month after the end of the year make a payment of at least $2,164 to the employee. Any such final payment made after the end of the 52-week period may count only toward the prior year’s total annual compensation and not toward the total annual compensation in the year it was paid. If the employer fails to make such a payment, the employee does not qualify as a highly compensated employee, but may still qualify as exempt under subpart B, C, or D of this part. * * * * *

10. Amend § 541.602 by revising the first sentence of paragraph (a)(3) and the first sentence of paragraph (a)(3)(i) to read as follows:

§ 541.602 Salary basis. * * * * * (a)(3) Up to ten percent of the salary amount required by § 541.600(a) through (c) may be satisfied by the payment of nondiscretionary bonuses, incentives, and commissions, that are paid annually or more frequently. * * *

(i) If by the last pay period of the 52-week period the sum of the employee’s weekly salary plus nondiscretionary bonus, incentive, and commission payments received is less than 52 times the weekly salary amount required by § 541.600(a) through (c), the employer may make one final payment sufficient to achieve the required level no later than the next pay period after the end of the year. * * * * * * * *

11. Amend § 541.604 by a. Revising the second, third, and fourth sentences of paragraph (a) and; b. Revising the third sentence in paragraph (b). The revisions and additions read as follows:

§ 541.604 Minimum guarantee plus extras. (a) * * * Thus, for example under the salary requirement described in § 541.600(a)(2), an exempt employee guaranteed at least $1,128 each week paid on a salary basis may also receive additional compensation of a one percent commission on sales. An exempt employee also may receive a percentage of the sales or profits of the employer if the employment arrangement also includes a guarantee of at least $1,128 each week paid on a salary basis. Similarly, the exemption is not lost if an exempt employee who is guaranteed at least $1,128 each week paid on a salary basis also receives additional compensation based on hours worked for work beyond the normal workweek. * * *

b) * * * Thus, for example under the salary requirement described in § 541.600(a)(2), an exempt employee guaranteed compensation of at least $1,210 for any week in which the employee performs any work, and who normally works four or five shifts each week, may be paid $350 per shift without violating the $1,128 per week salary basis requirement. * * *

12. Amend § 541.605 by revising paragraph (b) to read as follows:

§ 541.605 Fee basis. * * * * * (b) To determine whether the fee payment meets the minimum amount of salary required for exemption under these regulations, the amount paid to the employee will be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to at least the minimum salary per week, as required by §§ 541.600(a) through (c) and 541.602(a), if the employee worked 40 hours. Thus, for example under the salary requirement described in § 541.600(a)(2), an artist paid $600 for a picture that took 20 hours to complete meets the $1,128 minimum salary requirement for exemption since earnings at this rate would yield the artist $1,200 if 40 hours were worked.

13. Add § 541.607 to read as follows:

§ 541.607 Regular updates to amounts of salary and compensation required. (a) Initial update—(1) Standard salary level. Beginning on July 1, 2024, the amount required to be paid per week to an exempt employee on a salary or fee basis, as applicable, pursuant to § 541.600(a)(1) will be not less than $844.

(2) Highly compensated employees. Beginning on July 1, 2024, the amount required to be paid in total annual compensation to an exempt highly compensated employee pursuant to § 541.601(a)(1) will be not less than $132,964.

(b) Future updates—(1) Standard salary level.

(i) As of July 1, 2027, and every 3 years thereafter, the amount required to be paid to an exempt employee on a salary or fee basis, as applicable, pursuant to § 541.600(a) will be updated to reflect current earnings data.

(ii) The Secretary will determine the future update amounts by applying the methodology in effect under § 541.600(a) at the time the Secretary issues the notice required by paragraph (b)(3) of this section to current earnings data.

(2) Highly compensated employees.

(i) As of July 1, 2027, and every 3 years thereafter, the amount required to be paid in total annual compensation to an exempt highly compensated employee pursuant to § 541.601(a) will be updated to reflect current earnings data.

(ii) The Secretary will determine the future update amounts by applying the methodology used to determine the total annual compensation amount in effect under § 541.601(a) at the time the Secretary issues the notice required by paragraph (b)(3) of this section to current earnings data.

(3) Notice.

(i) Not fewer than 150 days before each future update of the earnings requirements under paragraphs (b)(1) and (2) of this section, the Secretary will publish a notice in the Federal Register stating the updated amounts based on the most recent available 4 quarters of CPS MORG data, or its successor publication, as published by the Bureau of Labor Statistics.

(ii) No later than the effective date of the updated earnings requirements, the Wage and Hour Division will publish on its website the updated amounts for employees paid pursuant to this part.

(4) Delay of updates. A future update to the earnings thresholds under this section is delayed from taking effect for a period of 120 days if the Secretary has separately published a notice of proposed rulemaking in the Federal Register, not fewer than 150 days before the date the update is set to take effect, proposing changes to the earnings threshold(s) and/or updating mechanism due to unforeseen economic or other conditions. The Secretary must state in the notice issued pursuant to paragraph (b)(3)(i) of this section that the scheduled update is delayed in accordance with this paragraph (b)(4). If the Secretary does not issue a final rule affecting the scheduled update to the earnings thresholds by the end of the 120-day extension period, the updated amounts published in accordance with paragraph (b)(3) of this section will take effect upon the expiration of the 120-day period. The 120-day delay of a scheduled update under this paragraph will not change the effective dates for future updates of the earnings requirements under this section.

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 change or be 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.

FLSA Cases Keeping Sixth Circuit Court Occupied

In the past month, the Sixth Circuit has issued a number of FLSA decisions affecting employers and employees.  Last week, the Court rejected objections to a class action settlement on behalf of exotic dancers.  Jane Does 1-2 v. Déjà Vu Consulting, Inc., No. 17-1801 (6^th Cir. 6-3-19).  In another, the Court rejected claims for overtime compensation by certain Fire Battalion Chiefs on the grounds that they were exempt employees and were not entitled to extra standby pay.  Holt v. City of Battle Creek, No. 18-1981 (6^th Cir. 6-3-19).   In another, the Court affirmed the trial court judgment imposing liability for unpaid overtime compensation for employees of a small lumber company, but remanded for a redetermination of the amount of damages due which did not include time spent on bona fide meal breaks or commuting to and from work.  Secretary of Labor v. Timberline South, LLC, No. 18-1763 (6^th Cir. 5-29-19).  In that case, the Court also refined the test for enterprise coverage for employers which only purchase and use equipment locally, but that which is manufactured out of state.  It also rejected the employer’s good faith defense for seeking incomplete advice from a non-expert.  Finally, the Court affirmed the dismissal of a FLSA retaliation claim where the plaintiff failed to show that she had ever communicated any complaints about unpaid overtime.   Rogers v. The Webstraurant Store, Inc., No. 18-6229 (6^th Cir. 5-23-19). Her “vague, non-adversarial conversations about staying late are not sufficiently “serious occasion[s]” to be considered complaints under the FLSA.”


Déjà Vu Consulting involved the settlement of class claims (brought under both Civil Rule 23 and FLSA § 216(b)) that exotic dancers had been misclassified as independent contractors to avoid paying minimum wages  and been subject to illegal wage deductions.  It was similar to prior litigation which involved many of the same dancers and defendants.  Many, if not all, of the 28,177 class members had signed agreements with the defendants containing arbitration clauses with prevailing parties being entitled to recover attorney’s fees, etc.   Accordingly, the Court found it was not an abuse of discretion for the trial court to affirm the settlement reached in light of the risk to the plaintiffs of being compelled to individually arbitrate their claims and possibly be financially liable to the defendants.   The Court also found that formal discovery was not necessary in light of the extensive discovery conducted in the prior case involving many of the same type of claims and parties.  The settlement provided for both injunctive and financial relief.   The financial settlement of $6.5M was divided among $1M in cash payments, $4.5 attributed to a secondary settlement pool that could be claimed while working at the defendant clubs in the future and $900K to class counsel.  The dissent would have remanded for a recalculation of the counsel fees because she characterized a requirement of the settlement – that the plaintiff dancers work at a defendant club to receive a financial benefit from the secondary pool of monetary relief – as a “coupon” under Class Action Fairness Act which can only be considered for purposes of evaluating attorney’s fees based on the coupons redeemed instead of merely the pool of money set aside.


Holt involved claims for unpaid overtime and standby time by two Fire Battalion Chiefs, the second in command in the Fire Department hierarchy. Their primary job duties involved management and administration.   They received an extra 1.5 hours of pay for each day when they were on call during the night shift (in addition to overtime if they were actually called back to work) and were required to monitor the radio and pager while on call.   They could not leave town or drink alcohol when on call because they might be called to a fire scene.


In evaluating their exempt status, the Court rejected the plaintiff’s argument that a narrow reading of exemptions should be given in light of the Supreme Court’s prior Encino Motorcar decision. The trial court found that Battalion Chief’s primary duty was managerial in nature because they

were required to directly supervise lower-ranking officers and personnel, evaluate personnel, administer and enforce department policy, and coordinate the day-to-day operations of the department . . . .  the battalion chiefs were expected to “take charge and operate as the incident commanders at the scene of a fire.”  

Further, one “was ‘in charge’ of all suppression personnel and [the other] was ‘in charge’ or ‘oversaw’ the training division.  Approximately 27 lieutenants and captains directly reported to [one] who monitored their adherence to standards.  Moreover, Chief [Hausman] testified that if any fire fighter ‘had a problem[,]’ he or she would take it to plaintiff Holt.”  In addition,  although the trial “court recognized that Plaintiffs did not have independent authority to hire, fire, or suspend fire fighters, it credited certain testimony as showing that Plaintiffs’ “suggestions and recommendations as to hiring, firing, advancement, promotion or any other change of status of other employees were given ‘particular weight.’”  The FLSA regulations do “not require courts to ask whether an employee’s recommendations as to personnel decisions were accepted every single time—instead, it presents the question of whether those recommendations were given “particular weight,” which is precisely what the district court found.”


In light of their management exempt status, the Court decline to evaluate whether they were also exempt administrative employees and whether their standby restrictions were so onerous as to require extra compensation.


Timberline concerned a small lumber company that harvested and transported lumber only inside the state of Michigan and bought and sold only from Michigan companies.   The operations manager consulted with an accountant and believed that some the employees were exempt agricultural workers and the transportation were exempt under the Motor Carrier Exemption Act, but did not consult with an attorney or explain why the office employees would be considered exempt.   The employer kept track of working hours for the hourly employees, but not the salaried employees.  Following a DOL investigation, the DOL filed a lawsuit and was awarded summary judgment in the amount of $439,437.42 in back pay and liquidated damages for unpaid overtime owed to 50 employees.


The first issue to be considered was whether the employer was a covered enterprise under the FLSA.  The employer argued that its equipment, though manufactured outside of the state,  was purchased locally and, as the end user of that equipment, could not be considered for purposes of §203(s)(1)(A)(1) of the FLSA that covers employers which have “employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person.”  The Court ultimately adopted the test utilized by the Eleventh Circuit to evaluate whether equipment used by an employer to create its product constituted goods or materials under the FLSA enterprise test.   The Eleventh Circuit considered an amendment to the FLSA to include “materials” as well as “goods” and the exception for “goods” when the employer was the ultimate enduser of the goods.  It cautioned that

the same items could be goods in one case, materials in another, and neither goods nor materials in still another case, depending on the use of the item in the context of each case.  “Where a catering business uses the china plates at a client’s banquet, the plates count as part of the ‘materials’ necessary for serving a catered meal.  But, where a department store sells the same china plates as stand-alone items, the plates count as ‘goods’ for that retailer.”  Id.  Those same plates hung as decorations on the lobby wall of an accounting firm, however, constitute neither goods nor materials “because the plates have no significant connection to the business’s accounting work.”

                 . . .

Applying the definition of “materials” from Polycarpe, the logging and harvesting equipment used by Timberline’s employees plainly constitute “materials” because the equipment is necessary to cut down trees and transport the timber, which in turn have a significant connection to Timberline’s commercial activities of harvesting and selling timber.

The Court rejected the employer’s argument that this would effectively impose the FLSA on every business which purchases computers that are all manufactured overseas and pens that are manufactured out of state because the DOL has never sought such broad enforcement.  The Court also noted that Polycarpe specifically mentioned that incidental and internal consumption of an item would not satisfy the requirement that the materials be used in the employer’s commercial activity.  “[C]overage here is not premised on employees’ incidental use of office items; rather, it is premised on employees’ regular and recurrent use of logging and harvesting equipment that is used to carry out the company’s commercial activity of harvesting timber.”


The Court next rejected the employer’s Motor Carrier exemption because its drivers never left the State of Michigan even though they held CDLs and had DOT registration numbers:

The dispositive inquiry here is not whether Timberline’s employees held commercial driver’s licenses or whether its trucks had DOT registration numbers; rather, the dispositive inquiry is whether Timberline’s drivers transport goods in interstate commerce, thus rendering Timberline a motor private carrier.  49 U.S.C. § 13102(15); Vaughn, 291 F.3d at 904.  Courts have consistently interpreted this to mean that drivers must travel or transport the goods across state lines, or transport the goods in a “‘practical continuity of movement’ across State lines from the point of origin to the point of departure.”

Further, the employer failed to show that its timber was used by its buyers in interstate commerce.   On the contrary, it disclaimed knowledge of what use was made of the timber it sold.


Third, as for calculating back pay, the DOL had argued that employees’ regular rate include the compensation that they had received for their meal and commuting time – which otherwise is not considered working hours for purposes of the FLSA – because the employer traditionally and customarily paid employees for such time and the Portal-to-Portal Act referred to including such time of customarily compensated.  Neither the DOL nor the Court had made any effort to determine how many of the employees’ paid hours constituted such commuting or meal break time.  The Court rejected that argument:

Although the plain language of the Portal-to-Portal Act suggests that home-to-work commutes are deemed compensable if the employer has a custom or practice of compensating for such work, 29 C.F.R. § 785.34 explains that “ordinary travel from home to work (see § 785.35) need not be counted as hours worked even if the employer agrees to pay for it.”  And, 29 C.F.R. § 785.35 says plainly that “[n]ormal travel from home to work is not worktime.”  The reason is that the FLSA only requires overtime compensation for “actual work or employment,” Tenn. Coal, Iron & R. Co., 321 U.S. at 597, “[a]nd even where there is a contract, custom, or practice to pay for time spent in such a ‘preliminary’ or ‘postliminary’ activity, section 4(d) of the Portal Act does not make such time hours worked under the Fair Labor Standards Act, if it would not be so counted under the latter Act alone,” . . . “The general rule . . . is and always has been that the FLSA does not treat ordinary home-to-job-site travel as compensable.”  Kuebel v. Black & Decker Inc., 643 F.3d 352, 360 (2d Cir. 2011).  The same is true of “bona fide meal periods.”  29 C.F.R. § 785.19; see also Ruffin v. MotorCity Casino, 775 F.3d 807, 811-15 (6th Cir. 2015) (examining whether meal periods were compensable under the FLSA as “work”).

The Court remanded for the DOL and trial court to calculate how many hours the employees had been paid for commuting and meal breaks and to deduct that from the damages calculation.  Nonetheless, “Defendants may not use the amounts paid for those otherwise non-compensable work periods as an offset against the amounts owed.”


Fourth, the Court also rejected the employer’s argument that liquidated damages should not be awarded or should at least be reduced because it acted in good faith in consulting with its accountant about the agricultural exemption and in paying its employees well above the industry average.  An employer is required to show that it took affirmative steps to comply with the FLSA, but nonetheless violated it.   The employer did not provide sufficient information to the accountant about all of the employees and the accountant did not profess to be a FLSA expert.  Further, the employer knew that not all of the employees would qualify under the agricultural exemption and did not take reasonable steps to investigate the status of the other workers.  It did not even convincingly argue the agricultural exemption before the trial court and did not appeal that issue to the Sixth Circuit.  As for the generous compensation, that matter is irrelevant for purposes of FLSA compliance in the absence of good faith and reasonable grounds for non-compliance.


The plaintiff in Rogers had failed to demonstrate appropriate customer service skills and had been placed on a performance improvement plan.  She alleged that she had been terminating for complaining about unpaid overtime, but she failed to show that she had made any such complaints that could be objectively perceived as a complaint.  Her first “complaint” was really an apology for being late and asking whether she could attribute the 15 minutes that she worked past her shift the prior evening towards the 25 minutes that she had been late.  Her second “complaint” related to the tone of her voice when asking if she was supposed to work on her PIP outside of regular work hours.    Her third “complaint” related to notes that she sent her manager about how she was engaging in “self-reflection” outside of work hours and that she had been told to do this on “her own time.”  Indeed, he manager contacted her about whether she was working unauthorized overtime in order to give her back time that she had worked.  The plaintiff then admitted that she had not been recording all of her time working, but did not think that would be a concern.


Even if the allegations were true, the Court found that they could not constitute “complaint” under the FLSA that could support a retaliation claim. “The Supreme Court has said that the act of filing an FLSA complaint must contain ‘some degree of formality,’ such that a reasonable employer would understand it ‘as an assertion of rights protected by the statute and a call for their protection.’” However, “none of them even indicated that Rogers was complaining  or used any synonym or similar expression.”  Moreover, it is not clear that the employer could have realized that she was making a complaint.

While an employee need not explicitly mention the FLSA, she must do something to give fair notice that she is actually complaining about overtime or a lack of fair compensation, i.e. the core things the FLSA protects.  Kasten, 563 U.S. at 14.  Rogers’s vague, non-adversarial conversations about staying late are not sufficiently “serious occasion[s]” to be considered complaints under the FLSA.

                 . . . .

Not every grumble or “expression[] of concern or discomfort or frustration” by an employee constitutes an FLSA complaint.  Robinson v. Wal-Mart  Stores, Inc., 341 F. Supp. 2d 759, 763 (W.D. Mich. 2004).  Instead, an employee’s expressions  must be “sufficiently clear and detailed” to count as a complaint.  Kasten, 563 U.S. at 14.  Rogers’s allegations provide no information on how a mere tone of voice can be that clear.  Moreover, no required inference can save her lawsuit from that lack of clarity.

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.

Supreme Court Rejects Obama FLSA Regulation

This morning, in a curious decision, a divided Supreme Court rejected a 2011 FLSA regulation on a relatively narrow overtime pay exemption at 29 U.S.C. §213(b)(10)(A) for car dealership service advisors – those employees who meet with you when your car is making a strange noise and sell repair services to you at an extraordinary price.  Eninco Motorcars LLC v. Navarro, No. 15-415 (U.S. 6-20-16).

 

The statute covered  “any salesman, parts-man, or mechanic primarily engaged in selling or servicing automo­biles” at a covered dealership.  Even though no formal regulation had ever been enacted by the DOL on this provision, its initial 1970 interpretation at 29 C.F.R. §779.372(c)  – that service advisors (who do not sell cars or service cars) were non-exempt – was rejected by the federal courts. In 1978, an opinion letter conceded that services advisors could be exempt.   In 1987, the W&H Field Operations Manual stated that DOL would no longer challenge the service advisor exemptions.

 

 In 2008 – 21 years after the statute was passed, the DOL began formal notice-and-comment rulemaking and indicated that it would formally adopt the judicial interpretation of § 213(b)(10)(A).  However, with almost no explanation, the regulation ultimately adopted in 2011 took the same position as in 1970 – that service advisors were non-exempt because they did not sell cars.  29 C.F.R. §779.372(c)(1). The Supreme Court ruled that this 2011 regulation was not entitled to any judicial deference because the DOL failed to explain why it was changing a long-standing interpretation upon which numerous employers and employees had relied.  Accordingly, the case was remanded to the Court of Appeals to revisit the case, interpreting only the statute and not the regulation.  The dissent agreed that the regulation was procedurally deficient and would have reached the final question and interpreted the statute.

 

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.

DOL Releases Long-Awaited Regulatory Proposals Governing Overtime Compensation Exemptions and the New Salary Basis Test

This morning, the Department of Labor released its long-awaited proposals to revise the Fair Labor Standards Act regulations governing the entitlement to exemption from overtime compensation.  As expected, the DOL proposes to increase the minimum salary which would qualify a position for an overtime exemption (i.e., exempt jobs) from $455/week (or $23,660/year, which is beneath the poverty rate for a family of four) to $921/week (or $47,892).  (Interestingly, the DOL’s website indicates that the new annual salary would be $50,440 and not the amount listed in its proposed regulations).   Thereafter, and somewhat like Ohio minimum wage law, the DOL proposes to peg the minimum salary amount to “the 40th percentile of weekly earnings for full-time salaried workers” so that the minimum salary level would increase annually.   The DOL also proposes to raise the exempt salary rate for highly compensated workers from $100,000/year to $122,148/year (with a similarly escalator clause pegged at the 90^th percentile), but proposes no other changes to the highly compensated exempt worker regulations.  While the DOL is not currently proposing to modify the duties test for exempt positions, it is inviting comments on whether it should do so in order to further limit the amount of non-exempt work which may be performed by exempt employees.

The DOL discusses for many pages why it substantially increased the minimum salary.  In short, it contends that the 2004 FLSA regulations combined the lower salary level for the traditional long duties test with short duties test (which typically required a higher minimum salary level) to create the standard duties test and, therefore, short-changed many exempt employees.  It also criticizes how the 2004 salary level was set differently than in past years and that it relied on regional instead of national data.  The current proposal also chose a salary level that made the minimum wage approximately same ratio to the minimum exempt salary as it had been in 1958 and 1970.

The DOL notes that many employers prefer to pay their salaried employees a significant portion of their compensation through non-discretionary bonuses and incentive payments to give the employees a sense of ownership in their work and to improve their performance.  Historically, the FLSA regulations have not considered these payments as part of the salary basis test (except for highly compensated employees).  However, the DOL is considering including these bonus and incentive payments into the new salary basis test, so that employers do not entirely eliminate these pay-for-performance systems.  However, if it were to adopt such revisions, the DOL would only permit 10% of such bonuses to be considered as part of the mandated $921 weekly salary amount needed to meet the overtime exemption and would require that such bonuses be paid out weekly or monthly, instead of merely annually or quarterly as most of them currently are.  (This, of course, reflects that most of the bureaucrats making the rules have been paid by the government with steady tax income so long that they have no understanding of how the real world works in the private sector).   The DOL also would not permit “catch up payments” as are currently permitted for highly compensated exempt employees.

Likewise, the DOL seeks comments about whether to include commission payments in the salary level test on the grounds that they are similar to nondiscretionary bonuses.

The proposed new regulation still would not consider discretionary bonuses as part of the salary level test and would still exclude room and board, etc. from the calculation.  It would similarly exclude “payments for medical, disability, or life insurance, or contributions to retirement plans or other fringe benefits.”  It also maintains separate tests for the movie industry and American Samoa.  In addition, certain professions remain outside the salary basis tests, including lawyers, judges, physicians and academic administrative personnel.

All in all, the only surprise in the proposed regulations was that the DOL did not modify the 2004 standard duties test for exempt positions.  The proposed minimum salary rate has been whispered in employment law sectors and the news media for many months.  However, employers should remain vigilant in case the DOL changes its position about the duties test and whether and how it will permit incorporation of bonuses, commissions and incentive payments into the salary basis test.

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.

Supreme Court Upholds DOL Interpretation of Non-exempt Status of Mortgage Loan Officers from APA Procedural Objection

This morning, a unanimous Supreme Court upheld a 2010 administrative interpretation from the Department of Labor explaining that the white collar FLSA administrative exemption regulation excluded most mortgage loan officers and found that administrative interpretations – which are not binding on courts – do not need to satisfy the notice and comment provisions applicable to regulations, or rules, under the Administrative Procedures Act.  Perez v. Mortgage Bankers Ass’n., No.13-1041 (U.S. 3-9-15). Contradictory administrative interpretations had been issued by the DOL in 1999, 2001, 2006 and 2010.  When 2010 interpretative opinion was released, litigation ensued and the appellate court concluded that the interpretative rule could not be changed without prior notice and comment.  The Supreme Court reversed.  “Because an agency is not required to use notice-and-comment proce­dures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or re­peals that interpretive rule.”

According to the Court’s opinion, in 1999, 2011 and 2010, the DOL issued administrative opinion letters that mortgage loan officers did not satisfy the FLSA regulation for the administrative employee exemption.    In 2004, the administrative employee exemption regulation was updated and specifically noted that “an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” However, in 2006, the DOL issued an administrative opinion letter that mortgage loan officers would generally satisfy the regulatory exemption.  That letter was withdrawn in 2010 in favor of a W&H Administrator’s Interpretation which concluded that mortgage loan officers were non-exempt. This litigation ensued.  Without analyzing the substance of the 2010 W&H interpretation, the D.C. Court of Appeals ultimately found that the DOL could not change its administrative interpretation of its own regulation without going through the APA’s notice and comment procedures.  The Supreme Court reversed on the grounds that the notice-and-comment procedures do not apply to administrative interpretations of its own regulations.

The APA define rules broadly to include “statement[s] of general or particular applicability and future effect” that are designed to “implement, interpret, or prescribe law or policy.” Certain rules must go through a notice and comment procedure before being adopted by a government agency.  “Section 4(b)(A) of the APA provides that, unless another statute states otherwise, the notice­ and-comment requirement “does not apply” to “interpreta­tive rules, general statements of policy, or rules of agency organization, procedure, or practice.”  Without defining precisely what constitutes an interpretative rule (vs. a legislative rule), the Court noted that the critical feature of interpretive rules is that they are “issued by an agency to advise the public of the agency’s construction of the statutes and rules which it adminis­ters.”  While “the absence of a notice-and-comment obligation makes the process of issuing interpretive rules comparatively easier for agencies than issuing legislative rules, . . . interpretive rules “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.”  Accordingly, the appellate court erred in not applying the exception in §4(b) of the APA to the W&H Administrator’s Interpretation of the FLSA administrative employee exemption issue.

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 change or be 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: First Level Supervisors May Lose FLSA Exemption if Recommendations Are Disregarded

On Thursday, the Sixth Circuit Court of Appeals reversed summary judgment entered in favor of an employer on FLSA overtime claims brought by a group of first-level supervisors who claimed that they had been misclassified as exempt executive employees.   Bacon v. Eaton Corp., No. 13-1816 (6^th Cir. 5-1-14).   The Court found there to be a factual dispute as to whether the plaintiffs had sufficient control over personnel decision so as to fit within the exemption’s definition. “As a matter of law, an employee who merely carries out the orders of a superior to effectuate a change of status is not performing exempt executive duties.” 

The Department of Labor (“DOL”) has established a four-part test to determine whether or not an employee has been appropriately classified under the executive exemption. See 29 C.F.R. 541.100. An employee who is an exempt executive is one who is “(1) [c]ompensated on a salary basis at a rate of not less than $455 per week . . . ; (2) [w]hose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; (3) [w]ho customarily and regularly directs the work of two or more other employees; and (4) [w]ho has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.”

The plaintiffs only disputed the fourth prong and the Court determined that the employer was entitled to judgment if it could show “that Plaintiffs were instrumental in other employment status changes such as reassignments or changes in benefits or pay.” The plaintiffs disputed that their personnel responsibilities were given any weight.  For instance, the plaintiffs disputed that their evaluation of probationary employees was given any weight since the probationary employees were generally hired as a matter of course and the evaluations were often turned in only after the employee’s probationary period had been completed.   Moreover, they did not participate in job interviews and were never trained to do so.  Their job descriptions also lacked any indication that they made suggestions about hiring, firing or other personnel actions.   They also presented evidence that their recommendations about personnel actions were frequently disregarded and that all decisions were made by their managers and directors. 

This Court has defined a change of status as a tangible employment action that constitutes “a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.” . . . Furthermore, temporary reassignments that do not cause pay or benefit reductions are not changes of status, as a matter of law.

The DOL provides the following three-prong test for determining whether an employee has significant influence over other employees’ “changes of status”: “[1] whether it is part of the employee’s job duties to make such suggestions and recommendations; [2] the frequency with which such suggestions and recommendations are made or requested; and [3] the frequency with which the employee’s suggestions and recommendations are relied upon.” See 29 C.F.R. 541.105. Occasional suggestions and recommendations do not suffice to demonstrate that an employee had significant influence over other employees’ changes of status.

The Court concluded that the employer could not demonstrate undisputed facts concerning the plaintiff’s level of personnel responsibilities:  “As a matter of law, an employee who merely carries out the orders of a superior to effectuate a change of status is not performing exempt executive duties.”  While the employer argued that the plaintiff first-level supervisors implemented progressive disciplinary actions, the plaintiffs produced evidence that their disciplinary actions were removed from personnel files and given the same level of punishment for repeated rule violations.  

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 change or be 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.

FLSA Expands in 2015 to Cover Most Home Care Workers

[Editor's Note:  The D. C. District Court temporarily enjoined on December 22, 2014 and January 2, 2015 certain provisions of the new rule, including the definition of "companionship services" and the differing treatment of individuals/families and home health care agencies.]

As the federal government shut down on October 1, the Department of Labor published in the Federal Register the final regulation expanding coverage of the Fair Labor Standards Act to reach most home care/domestic service workers beginning on January 1, 2015. Although the revisions to domestic service worker regulations take only one page in the Federal Register, the DOL’s explanation for the changes takes 104 pages.  Among the most important changes are that the FLSA exemption for individuals providing “companionship services”  will no longer be available to cover individuals employed by third-party employers OR who spend more than 20% of their working time performing personal care services (such as housekeeping, cooking, dressing, bathing, managing finances, grooming, or transportation, etc.).  This means that FLSA coverage could now extend to families which employ a home care worker to care for grandma when that individual spends more than 20% of his or her time each week cooking, cleaning or driving grandma on her errands or to medical appointments, etc.

In 1974, Congress created a FLSA exemption for live-in domestic service workers and those workers who provided companionship services.  29 U.S.C. §213(a)(15) and (b)(21).  These exceptions provide that the minimum and overtime wage provisions do not apply to

·        any employee employed on a casual basis in domestic service employment to provide babysitting services, or

·        any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves

Likewise, the overtime provisions do not apply to “any employee who is employed in domestic service in a household and who resides in such household.”  Since that time, the home care industry has changed considerably and the DOL felt it was necessary to update its 1975 regulations.

Because the regulations are so short, here are a few of the material changes:

·        Domestic service employment. The term domestic service employment means services of a household nature performed by an employee in or about a private home (permanent or temporary). The term includes services performed by employees such as companions, babysitters, cooks, waiters, butlers, valets, maids, housekeepers, nannies, nurses, janitors, laundresses, caretakers, handymen, gardeners, home health aides, personal care aides, and chauffeurs of automobiles for  family use. This listing is illustrative and not exhaustive.

·        Companionship services. As used in [the FLSA]  the term companionship services means the provision of fellowship and protection for an elderly person or person with an illness, injury, or disability who requires assistance in caring for himself or herself.

o   The provision of fellowship means to engage the person in social, physical, and mental activities, such as conversation, reading, games, crafts, or accompanying the person on walks, on errands, to appointments, or to social events.

o   The provision of protection means to be present with the person in his or her home or to accompany the person when outside of the home to monitor the person’s safety and well-being.

o   Persons who provide care and protection for babies and young children who do not have illnesses, injuries, or disabilities are considered babysitters, not companions.

·        The term companionship services also includes the  provision  of care if the care is provided attendant to and in conjunction with the provision of fellowship and protection and if it does not exceed 20 percent of the total hours worked per person and per workweek.

o   The provision of care means to assist the person with activities of daily living (such as dressing, grooming, feeding, bathing, toileting, and transferring) and instrumental activities of daily living, which are tasks that enable a person to live independently at home (such as meal preparation,  driving, light housework, managing finances, assistance with the physical taking of medications, and arranging medical care).

o   The term companionship services does not include domestic services performed primarily for the benefit of other members of the household and does not include the performance of medically related services provided for the person. The determination of whether services are medically related is based on whether the services typically require and are performed by trained personnel, such as registered nurses, licensed practical nurses, or certified nursing  assistants; the determination is not based on the actual training or occupational title of the individual performing the services.

·        Third party employers of employees engaged in companionship services and of live-in domestic service employees may not avail themselves of the minimum wage and overtime exemptions for such employees even if the employees are jointly employed by an individual, family or household (who remains entitled to claim the exemption) using the services.

·        Employers are required to maintain records of hours worked by each covered domestic service employee. However, the employer may require the domestic service employee to record the hours worked and submit such record to the employer.

·        No records are required for casual babysitters.

The FLSA exemption for babysitters remains unchanged by these changes, but I thought it might be interesting for readers to be reminded that a regulation for babysitters exists:

§ 552.104  Babysitting services performed on a casual basis.

·        Employees performing babysitting services on a casual basis, as defined in § 552.5 are excluded from the minimum wage and overtime provisions of the Act. The rationale for this exclusion is that such persons are usually not dependent upon the income from rendering such services for their livelihood. Such services are often provided by (1) Teenagers during non-school hours or for a short period after completing high school but prior to entering other employment as a vocation, or (2) older persons whose main source of livelihood is from other means.

·        Employment in babysitting services would usually be on a “casual basis,” whether performed for one or more employees, if such employment by all such employers does not exceed 20 hours per week in the aggregate. Employment in excess of these hours may still be on a “casual basis” if the excessive hours of employment are without regularity or are for irregular or intermittent periods. Employment in babysitting services shall also be deemed to be on a “casual basis” (regardless of the number of weekly hours worked by the babysitter) in the case of individuals whose vocations are not domestic service who accompany families for a vacation period to take care of the children if the duration of such employment does not exceed 6 weeks.

·        If the individual performing babysitting services on a “casual basis” devotes more than 20 percent of his or her time to household work during a babysitting assignment, the exemption for “babysitting services on a casual basis” does not apply during that assignment and the individual must be paid in accordance with the Act's minimum wage and overtime requirements. This does not affect the application of the exemption for previous or subsequent babysitting assignments where the 20 percent tolerance is not exceeded.

·        Individuals who engage in babysitting as a full-time occupation are not employed on a “casual basis.”

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 change or be 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.

Ohio Court of Appeals Rejects Retaliation Claim Based on FLSA and Ohio’s Prompt Wage Payment Act

Last week, the Ohio Court of Appeals in Cuyahoga County rejected the claim of a home health worker that she was fired for complaining about not receiving overtime pay or paid vacation. Hurd v. Blossom 24 Hour We Care Ctr., Inc., 2012-Ohio-3465. The Court found that the plaintiff was exempt under the companionship exemption from overtime pay under the FLSA and, thus, was not protected by the FLSA for complaining about a failure to pay overtime pay. Interestingly, the Court found the plaintiff’s good faith belief in making the complaint was irrelevant because the “good faith belief standard” only applied in Title VII claims. It also found that she was similarly unprotected for complaining about the failure to provide her with a paid vacation because she had a pending breach of contract action covering that very issue. Ohio law does not require employers to provide a paid vacation and without showing the existence of a prior agreement for paid vacation, she could not prevail on a wage payment claim. Therefore, a public policy claim was unnecessary in this case, according to the Court. What seemed to be a more significant motivating factor was that the employer apparently had a legitimate reason to terminate her employment based on a prior criminal record and her failure to timely submit to a background check.

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 change or be 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 Upholds Exempt Status of Pharmaceutical Sales Reps

This morning, a divided Supreme Court upheld the outside sales exemption that has traditionally applied to pharmaceutical sales representatives. Christopher v. SmithKline Beecham Corp., No. 11–204 (6-18-12). The pharmaceutical sales reps (aka detailers) focus their sales and promotional efforts on physicians who prescribe medications because the medications cannot be obtained by consumers from pharmacies or pharmaceutical companies without a prescription. Their “primary objective was to obtain a nonbinding commitment from the physician to prescribe those drugs in appropriate cases.” They typically worked 40 hours/week calling on physicians and another 10-20 hours attending special events, reviewing product information, etc. They are typically paid a base salary and incentive pay based on sales in their sales territories. The DOL recently took the position in 2009 that because title to the medications did not transfer from the sales rep to the physician, there was no sale. In other words, the exemption required the consummation of a sale. Therefore, the DOL had argued that the detailers were not entitled to the exemption that applies to outside sales representatives and should be paid overtime for simply providing and promoting information about the medications. However, the Court’s majority concluded that the detailer’s activities constituted sales activity. Moreover, the Court refused to defer to the DOL’s recent interpretation of its regulations as creating “unfair surprise” to an industry practice that had existed for decades. The exemption regulations apply to a variety of activities, including consignment relationships, which do not require the transfer of title. Ultimately, the Court noted that obtaining a nonbinding commitment from a physician to prescribe one of the employer’s drugs is the most that the detailers may legally do to ensure the eventual disposition of the employer’s medical products and constitutes an “other disposition” of the employer’s products for purposes of the outside sales exemption regulation and statute at 29 U. S. C. §203(k). The Court also found it relevant that the detailers were handsomely compensated, obviating a need for overtime wages.

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 change or be 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: Failure to Pay Any Salary to Exempt Employee Can Violate the FLSA

This morning the Sixth Circuit issued an interesting, yet concise, FLSA decision, which is no small feat. Orton v. Johnny’s Lunch Franchise, LLC, No. 10-2044 (6th Cir. 2-22-12). In this case, the plaintiff former-executive alleged in his complaint that his former employer and the company’s president (also deemed an employer under the FLSA) failed to pay him any salary or reimburse him for expenses in the last five months that he worked in 2008 because of cash-flow problems. The defendants moved to dismiss the complaint on the grounds that the president was not an employer and on the grounds that the plaintiff was exempt. Ultimately, the district court dismissed the complaint and refused the plaintiff leave to amend on the grounds that he was an exempt employee and cannot assert a claim for back wages under the FLSA. The court held that the employer’s failure to pay any salary to the plaintiff for five months was insufficient to convert him to a non-exempt employee (who was owed minimum wages and overtime). The Sixth Circuit reversed and remanded on the grounds that the district court improperly placed the burden of proving the exemption on the plaintiff and that the employer was required to prove under the 2004 FLSA regulations that its deductions from salary actually received were permissible under the salary-basis regulations. This obviously could not be done at the 12(b)(6) stage without an evidentiary record.

First, the Sixth Circuit noted that an employee’s exempt status is an affirmative defense that must be plead in the employer’s answer and proven by evidence. Although the court was critical of the district court for overlooking this significant issue, there may have been some confusion in that the plaintiff may have conceded that his position would be exempt in normal circumstances and did not challenge the court’s finding on appeal.

Second, the Court found the 2004 amendment to the FLSA regulations modified the law on whether a failure to pay any salary is actionable under the FLSA. The former regulation provided in relevant part that:

“An employee will be considered to be paid ‘on a salary basis’ within the meaning of the regulations if under his employment agreement he regularly receives each pay period . . . .” 29 C.F.R. § 541.118(a) (1973) (emphasis added).

However, the 2004 regulation changed this to:

An employee will be considered to be paid on a “salary basis” within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed . . . . 29 C.F.R. § 541.602(a) (2004) (emphasis added).

The Sixth Circuit previously addressed the impact of the 2004 changes on the salary-basis test in Baden-Winterwood v. Lifetime Fitness, Inc., 566 F.3d 618, 627-28 (6th Cir. 2009). “The new regulation now “focus[es] on pay received,” rather than the terms of the employment agreement, but the regulation still requires that a defendant show that the plaintiff was paid: “(1) a predetermined amount, which (2) was not subject to reduction (3) based on quality or quantity of work performed.” The district court improperly relied on decisions applying the pre-2004 regulation, which had made the employee’s employment agreement the starting place for any analysis.

The new (2004) regulations, which all parties correctly agree are applicable in this case, establish that employment agreements are no longer the relevant starting point for whether an employee is paid on a salary basis. Baden-Winterwood, 566 F.3d at 627. The question is therefore not what Orton was owed under his employment agreement; rather, the question is what compensation Orton actually received.

In this case, the plaintiff alleged that he was not paid any salary or wage from August until he was laid off in December 2008. The complaint also mentioned that this was because the defendants had trouble making payroll. “Whether Orton’s allegations “suggest” one reason for the deduction in salary is irrelevant; his allegations do not preclude multiple reasons for the deduction, and it was the defendants’ burden—not the plaintiff’s—to establish that the reason for the deduction was proper.” In any event, this allegation does not meet the employer’s burden for proving that the alleged deduction was permissible under the FLSA.

For example, a company experiencing cash-flow issues cannot claim the exemption if the company prevents an otherwise salaried employee from coming in three days a week and then pays him less accordingly. Such a deduction in pay would undeniably be due to an absence occasioned by the employer, see 29 C.F.R. § 541.602(a), even though the employer decided to take the action due to cash flow problems. The regulation makes no exception for deductions in pay just because they were motivated by cash flow shortages. . . ..

That is not to say a company with cash flow issues is left with no recourse. Nothing in the FLSA prevents such an employer from renegotiating in good faith a new, lower salary with one of its otherwise salaried employees. The salary-basis test does not require that the predetermined amount stay constant during the course of the employment relationship. Of course, if the predetermined salary goes below a certain amount, the employer may be unable to satisfy the salary-level test, which explicitly addresses the amount an employee must be compensated to remain exempt.

The Court also found no legal significance in a complete reduction in pay rather than a partial reduction – as existed in pre-2004 case law because of a focus on the terms of the employment agreement. “ Therefore, to the extent these cases are at all instructive regarding the new regulations, they support the general principle that the reasons for the reductions in pay are dispositive, not the amount.”

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 change or be 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: Students Who Are Actually Learning Are Not Employees Under the FLSA

This morning, the Sixth Circuit Court of Appeals issued a rather rare child-labor decision. In it, the Court was required to decide whether students at a vocational school were student-learners or employees due minimum wage for the "work" they performed at the school (in a nursing, farming, maintenance or other workplace setting). The Court rejected the Department of Labor employee-trainee test in favor of one that determines whether the individual or the school primarily benefits from the services performed. In other words, "the proper approach for determining whether an employment relationship exists in the context of a training or learning situation is to ascertain which party derives the primary benefit from the relationship." In particular, the Court agreed that the students primarily benefitted from the work because the students were not displacing regular employees in performing essential services. Indeed, all of the work could be performed by the instructors without the assistance of the students if that were the defendant school's aim. Moreover, the education received by the students was effective at teaching necessary skills. Solis v. Laurelbrook Sanitarium and School, Inc., No. 09-6128.

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 change or be 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.