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.

The Importance of Being Prompt Under the FMLA

Last month, there were two developments with the Family and Medical Leave Act highlighting the strictness of deadlines.  In the first, the Department of Labor issued an opinion letter on March 14 which confirmed that employers must ordinarily provide written notice designating FMLA leave within five days of learning enough information that the leave qualifies under the FMLA even if the employee would prefer to delay the designation or is utilizing a paid leave policy.  Employers may also not designate more than twelve weeks of leave as covered by the FMLA even if the employer provides more generous paid leave policies.  Second, the Sixth Circuit affirmed an employer’s summary judgment after terminating the plaintiff for poor attendance when he called off late even on days when he was requesting intermittent FMLA leave.  Njaim v. FCA US LLC., No. 18-3831 (3-19-19).  


According to the Court’s opinion, the employer’s call off policy required employees to call off work at least 30 minutes before their shift.  The plaintiff was suffering from mental health and substance abuse issues.  Prior to requesting FMLA leave to obtain inpatient treatment, he had incurred several attendance points for failing to call off at least 30 minutes in advance.  Upon and after returning from treatment, he again failed to show up or call of work at least 30 minutes in advance (even when taking time off because of FMLA covered mental health conditions).  Accordingly, he has assessed with more points and ultimately terminated.


The Court found that the employee could not show that his absences on those days were covered by the FMLA because he failed to comply with the employer’s attendance policy. On one day, he failed to report to work on time and on the other he only called off ten minutes prior to his shift, in violation of company policy. “[A]n employee cannot “satisfy the first element of a prima facie FMLA case” when he does not follow the employer’s leave policies.  Alexander v. Kellogg USA, Inc., 674 F. App’x 496, 501 (6th  Cir. 2017).


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.

FLSA: Close But No Cigar; Employee Satisfaction Is No Substitute for Compliance

Last month, the Sixth Circuit Court of Appeals affirmed a $112K judgment for unpaid overtime to 28 restaurant employees in a lawsuit brought by the DOL, but affirmed the denial of liquidated damages based on the employer’s good faith attempt to comply with the FLSA by consulting with its CPA.  Acosta v. Min & Kim Inc., No. 18-1190 (6^th Cir. 3/18/19).    The Court also agreed that the employer’s payroll records did not comply with the FLSA for periods under review and the DOL was entitled to estimate the amount of the unpaid overtime.  Finally, the Court rejected the employer’s argument that its wages were generous by industry and minimum wage standards and none of the employees had complained.  “[C]ompliance with the Act turns on dollars-and-cents calculations, not employee-satisfaction surveys.”


According to the Court’s opinion, the restaurant continued the payroll system used by the seller of the business and essentially paid the employees an individually guaranteed amount each week as long as the employee worked each shift over six days each week.  However, that amount paid did not change based on the number of hours each employee worked, which averaged 52.   Accordingly, when employees worked more than 52 hours in a week, they still were not paid enough more to account for overtime pay at 150% of the regular rate of pay.

An employer may lawfully do what Hur and Kim claim they did here, starting with a fixed salary and a shift schedule and working backwards to compute hourly and overtime rates. To double check the employer’s overtime math, a Department of Labor investigator would deduct a baked-in overtime premium like this from the salary before dividing that figure by total hours to figure out the regular rate. 29 U.S.C. § 207(e)(5); see 29 C.F.R. § 778.114 (prescribing total hours, including overtime, as the divisor when employers pay by shift without regard to fluctuating hours).

So where did Hur and Kim go astray? They paid the agreed-upon salary no matter how many hours an employee worked in excess of 52, unless that employee worked a full extra shift. A salary that supposedly includes overtime pay but does not vary with actual hours worked cannot include “overtime” as the Act defines it. See 29 C.F.R. § 778.310.

The employer also failed to maintain payroll records for each employee for at least three years which complied with FLSA.  In light of this, the DOL was permitted to estimate the amount of overtime owed to each employee and was not required to be precise when the employer did not comply with the FLSA recordkeeping requirements:

The Act requires employers to record overtime-eligible employees’ daily and weekly hours, hourly rate of pay, daily or weekly straight-time earnings and overtime pay, and total wages per pay period. Id. § 516.2(a), (c). The Act also requires employers to record each employee’s position, full name, home address, and gender. Id. § 516.2(a).

Hur and Kim have time and payroll records for the years 2013 to 2014 and 2016 to 2017. They have no records for the two-year gap in between. That is not the only omission. Some of the records for 2013 to 2014 contain just employees’ first names and their biweekly pay, nothing more. Although other records contain more details, particularly those following the advent of the restaurant’s time clock, none of Hur and Kim’s documentation contains all of the required information for all employees. Most glaringly, Hur and Kim did not track employees’ hours at all until August 2016. That omission violates the Act by any account.

Hur and Kim try to counter this conclusion on two grounds. They first invoke an exception to the recordkeeping requirements. The Act’s implementing regulations allow employers to record employees’ normal daily and weekly hours, rather than actual hours, if the employees work a fixed schedule. Id. § 516.2(c). But the fixed-schedule exception requires employers to record employees’ “exact number of hours worked each day and each week” for every week in which they work more or less than the fixed schedule. Id. § 516.2(c)(2). Until mid-2016, however, Hur and Kim never recorded actual hours worked.

Finally, the Court rejected the employer’s argument that the employees were satisfied with their pay:

Hur and Kim note that they pay employees generously relative to the minimum wage and that not one employee complained. But each argument is beside the point. Generosity is in the eye of the beholder, in this instance the eye of the employee, which is why compliance with the Act turns on dollars-and-cents calculations, not employee-satisfaction surveys. The absence of complaints is especially unhelpful. Employees are not apt to complain when they receive the sum they bargained for, particularly when it exceeds minimum wage, and the employer’s records offer no basis for figuring out the correct pay. Recall that Hur and Kim did not know what their recordkeeping responsibilities were, as their ignorance-of-the-law defense makes plain. Still waters tell us nothing in this setting.

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.

Employer’s Evaluation of Inconsistent Witness Accounts Does Not Show Dishonest Belief

Yesterday, the Sixth Circuit Court of Appeals affirmed an employer’s summary judgment on an age and reverse race discrimination claim based on the employer’s honest belief – despite contradictory information produced during its investigation – that the plaintiff had violated company policy.  Hardesty v. Kroger Co., No. 18-3378 (6^th Cir. 1-23-19).   Choosing between inconsistent accounts given during an investigation does not create an issue of fact about the employer’s bad faith.  The investigation was sufficiently diligent to be worthy of credence and the Court refused to second-guess the harshness of the punishment.

According to the Court’s opinion, the plaintiff had been hired six months earlier to conduct telephone interviews with job applicants for a new store.  He was observed by a co-worker hanging up on calls directed to his desk so that he could continue a discussion with another co-worker and this was reported to management as to time, place and witnesses.  There seemed to be a discrepancy whether she saw this happen two or three times.  The company’s “customer first” policy requires applicants to be given excellent customer service.  An investigation was conducted which showed that his average call time was under 2 minutes per call, compared to an average of 5 minutes per call.  The call logs did not track individual calls.  When confronted, the plaintiff explained that he just spoke quicker than his co-workers.  The other co-worker denied noticing the plaintiff hanging up on callers, but this was not mentioned in the investigation report.  Although the plaintiff was given the option of resigning, he chose termination.

The Court rejected the plaintiff’s argument that the failure to mention in the report that another witnesses could not corroborate the allegation showed consciousness of guilt and doubt in the truth of the allegations against him.  It found this argument to require a strained and unreasonable inference to be drawn:

Even assuming that [his co-worker’s] inability to corroborate the accusation can be fairly read to refute it, investigations often produce conflicting evidence, requiring an employer to evaluate credibility and weigh various pieces of information.  Just because an employer must choose between inconsistent accounts “does not mean that there inevitably is a genuine issue of fact concerning the employer’s good faith.

The Court also rejected the plaintiff’s attack on the Company’s reliance on the significant discrepancy in the average call times: “exceptionally short call times could reflect a pattern of dishonest behavior and reveal a practice of failing to properly screen applicants or disconnecting calls.”

While the employer may have left some stones unturned (like checking surveillance footage to see if the reporting employee actually walked by the plaintiff’s cubicle as described),

when we evaluate the honesty of an employer’s belief, we do not require evidence of an optimal decisional process or a scorched-earth investigation.  Smith, 155 F.3d at 807.  “[T]he key inquiry is whether the employer made a reasonably informed and considered decision before taking an adverse employment action.”   

In any event, the evidence showed that the employer conducted a thorough and sufficiently diligent investigation which was worthy of credence:

She spoke to all potential witnesses, scrutinized Hardesty’s call logs for any suspicious patterns, sought advice from her colleagues in human resources and operations, and met with [the plaintiff] to clarify why his logs reflected such short phone calls as compared to his team’s average.  After reviewing all the data she believed available, she concluded that [the plaintiff] likely released at least one incoming call and determined that this warranted immediate termination.  “That [the plaintiff] or the court might have come to a different conclusion if they had conducted the investigation is immaterial.”  Seeger v. Cincinnati Bell Tel. Co., 681 F.3d 274, 287 (6th Cir. 2012).

The Court also rejected the plaintiff’s argument that his alleged misconduct did not warrant termination under the employer’s prior administration of its policies.  However, he apparently failed to identify a comparator who was sufficiently similarly-situated who was treated differently (i.e., better) because the alleged comparator’s actions may not have violated the policy.  Unfortunately, the Court did not elaborate.

Not a single Kroger employee involved in [this] investigation ever questioned whether hanging up on a customer merited termination.  And “disputes about the interpretation of company policy do not typically create genuine issues of material fact regarding whether a company’s stated reason for an adverse employment action is only a pretext designed to mask unlawful discrimination.”

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.

Promise of Commissions Was Too Vague and Indefinite to Be Enforced

In November, the Franklin County Court of Appeals affirmed an employer’s summary judgment on an employee’s claim for unpaid commissions on the grounds that the employee’s agreement failed to specify when the commissions were earned, thus making them entirely discretionary.  Dolder v. Auto Boutique Collision, Ltd., 2018-Ohio-4508.  While the agreement specified the percentage range of the commission, it did not indicate when the commission would be earned, leaving them to the employer’s unfettered discretion.  Because the parties never had a meeting of the minds as to what would trigger the payment of the promised commission, the promise to pay a commission was illusory and unenforceable.

According to the Court’s decision, the plaintiff worked approximately 14 months for the defendant employer as the shop manager.  In addition to his salary, his employment agreement provided that he would receive “commission payments  . . . based on 10-25% OF SALARY of $57,000. This commission will be paid monthly on the thirtieth day of the following month.”  Although the plaintiff had been paid all of the salary which he had been promised, he had never been paid any commission as provided in his employment agreement.

The Court rejected the plaintiff’s argument that his agreement required that he be paid this “commission” every month on top of his salary.  The employer argued that the term was too ambiguous and indefinite to be enforced.  Because the agreement failed to define “commission,” the court relied on its commonly understood meaning: “compensation earned by an employee based on a percentage of revenue generated from the employee's services.”  This is contrasted with a salary which is a fixed compensation paid on a regular basis and which is not dependent on the revenue generated.

In view of these definitions, a salary payment is fixed and not tied to any numerical performance variable, whereas a commission payment is based on a defined calculus relating to the employee's performance in generating revenue.  Thus, the parties' use of the term commission here indicates a general intent to somehow link the payment to Dolder's revenue generating performance.  The commission payment provision sets forth how a commission is calculated, at least within a certain range, and when an earned commission is paid.  However, this provision does not define how a commission is earned, such as by meeting a certain revenue benchmark.  Because the contract contains no language addressing how the commission is earned, the commission payments were entirely at the employer's discretion, making the provision illusory. . . .

In sum, the contract's commission payments provision contains no indication the parties reached any agreement in defining the circumstances under which a commission would be due to Dolder.  Therefore, in the absence of a meeting of the minds as to what triggers the earning of a commission, this provision is indefinite and uncertain, rendering the promise illusory.

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.