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 Sixth Circuit Affirms Dismissal of FMLA Claims But Finds Possible ERISA Claims Based on Same Evidence

Yesterday, a divided Sixth Circuit affirmed summary judgment on FMLA interference and retaliation claims where the plaintiff employee, like 55 employees before him, had been fired under the common company policy for failing to call off for three consecutive days, but on the same facts the Court reversed dismissal of his ERISA interference and retaliation claims on the grounds that the employer’s failure to call him to check on him (like some other employees who had similarly failed to show or call off) prior to terminating his employment could constitute evidence of pretext.   Stein v. Atlas Industries, Inc., No. 17-3737 (6^th Cir. 4-9-18).  The Court found that the employee could not show unlawful interference with his right to take FMLA leave because the FMLA regulations permit employers to enforce call-off policies, which the plaintiff admittedly had failed to observe due to his own confusion about when he had been released to return to work.  His confusion about what his physician had written did not excuse his failure.  The Court also concluded that he could not show unlawful retaliation based only on the passage of 10 weeks between the start of his FMLA leave and his termination because temporal proximity alone is insufficient evidence when the span of time is more than 8 weeks.  Unlike his FMLA claim, however, the employee was able to produce evidence that his self-insured employer was very concerned about the medical bills incurred by his son.   Therefore, the passage of 7 months did not destroy his evidence of causation because he was not relying on temporal proximity alone and it was known that his son would likely require another hospitalization.   This “extra” evidence of employer motivation also apparently made relevant evidence of  pretext that the Court had previously rejected as evidence of pretext in his FMLA claims.

According to the Court’s opinion, the plaintiff had worked for the defendant company for 20 years and even had a year of perfect attendance when his son required hospitalization for a severe, chronic and rare neurological condition that apparently caused the employer’s insurance rates to rise and had been blamed by some employees for the employer’s inability to raise wages.  The employee then required surgery for a work-related injury and was off work on FMLA leave for 10 weeks.   Near the end of July, his doctor told him that he could return to unrestricted duty on  August 10.  However, the employee did not understand or realize that his physician had immediately released him to return to work on light duty on July 20 and had so informed the employer.   Although employees are entitled under the FMLA to reject light duty work, they are still required to adhere to the employer’s attendance policy, which in this case required employees to call off every day that they did not intend to return to work after they have been released to light duty.  When the employer received the physician’s release for light duty, it called the physician to confirm the release because the employee had not called off work.  When the employee did not report to work for three consecutive days or call off, it terminated his employment like it had 55 employees before him.   The employee produce some evidence that the employer had called some other employees before terminating them under the same policy, thereby showing selective enforcement.

First, the Court rejected the FMLA interference claim.  The Court found that the employee’s confusion about his medical release and its ramifications did not constitute “unusual circumstances” to excuse his failure to call off work under the employer’s policy.  The type of “unusual circumstances” that would have justified him not complying with the policy would be a malfunctioning voicemail or telephone system.   While the Court was sympathetic that the doctor told the employee one thing, but wrote something else, the Court also found that the employee should have read the form which his physician gave him.  The Court also rejected the FMLA interference claim because FMLA regulations require employees to comply with their employer’s call off procedures even if they are entitled to be on FMLA leave. 

Here, [the employer’s] policy required employees on medical leave to either return to work or call in once their doctor released them with light-duty restrictions.  And the company’s employee handbook provided that “any associate who is absent three (3) consecutive days without permission or without calling in [would] be automatically discharged.”  . . . So, when [the plaintiff] failed to report for work or call in for three consecutive days after his release, [the employer] was within its rights to terminate him.   

It was irrelevant that the employee was legally entitled to reject light duty work under the FMLA. 

Had [the employee] contacted [the employer] to say that he was using his remaining two weeks of FMLA leave and the company subsequently fired him under the attendance policy, [he] would have a claim.  But that is not what happened.  [Its] policy required [him] either to return to work or call in and report his intentions, and [he] did neither.  So the light-duty regulations do not protect him.

Second, the Court rejected the FMLA retaliation claim.   The employee apparently admitted that his only evidence of retaliation was the temporal proximity of the termination – 10 weeks after he began FMLA leave.   There were apparently no stray or other remarks which would show that the employer was motivated to retaliate for his taking FMLA leave.  However, temporal proximity alone cannot constitute sufficient evidence of causation when the lapse of time is greater than 8 weeks.   Accordingly, the Court affirmed dismissal of the FMLA claims. 

Finally, the Court found that there was sufficient evidence for a jury to consider whether the employee was fired in retaliation for, and to prevent him from, using his ERISA benefits to obtain employer-covered medical treatment for his son.  The employer was self-insured for medical coverage and had stop-loss coverage for extraordinary claims.   The company had apparently spent $500K on his son’s care in the prior year (part of which was covered by the stop-loss coverage) and had been publicly lamenting “skyrocketing” health care costs in employee bulletins.  The HR Director was alleged to have complained about this to another employee and attributed the rising employee premiums to his son’s $1M in medical bills.  While the employee’s supervisor made the decision to terminate his employment, he did not act alone because the HR Director and the VP of Operations also participated in the decision, decided to not reconsider or excuse his confusion about his medical release, and were well aware of the cost of his son’s medical expenses.   Further, the passage of seven months between his son’s hospitalization and the termination decision did not destroy the temporal proximity inference because, as just discussed, the employee was not relying on temporal proximity alone (as he did in his FMLA claim).   This was particularly true when it was known and likely that his son would have to return to the hospital again in the future.

The employer again explained that it had fired the employee under its policy of automatically firing employees who fail to show up or call off for three consecutive days and pointed out that it had similarly fired 55 other employees under this policy.  

Thus it is [the employee’s] turn once more.  [The employee] “need not show that the employer’s sole purpose was to interfere with [his] entitlement to benefits” or to retaliate, but instead that a reasonable jury could find that unlawful considerations were a “motivating factor” in its actions.  

The Court then remarkably concluded that while the employer’s rationale was justified under the FMLA, it could constitute pretext under ERISA.   Although the Court rejected the employee’s argument that the employer’s failure to call him to schedule a return-to-work drug test after he had been released to return to light duty was evidence of pretext for his FMLA retaliation claim, it found that evidence relevant for his ERISA retaliation claim.  Finally, it found that the employee’s “suggestion” that the employer had called some workers to find out why they had not returned to work or called off (instead of automatically terminating them) constituted evidence of selective enforcement and ERISA retaliation, but was apparently irrelevant to his FMLA retaliation claim. 

[The plaintiff] had worked at [the defendant company] for nearly twenty years, had won at least one perfect attendance award, and had worked overtime when asked.  He seems to have been a satisfactory employee.  But as the three days after his release to light duty rolled by, [the defendant company] reached out only to [his] doctor and [its]third-party administrator for workers’ compensation claims—just to double-check that [he] had really been released.  And even though [its] employee handbook indicates that [he] had to “complete a return to work fitness exam and drug screen prior to returning to work” that “[would] be scheduled by the Human Resource department,”  . . . the company did not schedule [his] drug screen before it fired him.   . . .   Although [the defendant employer] was not required to reach out to [him, for reasons set out in the FMLA-interference discussion above, the fact that it did not do so could still raise a juror’s suspicions about [its] motives.  And while [the employer] claims that this was all just standard practice—pointing to a list of fifty-five employees that the company terminated under its no-call, no-show policy in the past twenty or so years—[its] list only includes names and dates.  It does not indicate whether these fifty-five terminations are otherwise similar to [the plaintiff’s] in the relevant respects.  And [the plaintiff], for his part, has pointed to evidence suggesting that his superiors selectively enforced the absenteeism policy by calling some employees to “ask what’s up” when they failed to show up for work, but not others.  

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.

Recent Ohio Unemployment Decisions

Here’s a survey of a few recent unemployment compensation decisions.   Last week, the Ohio Court of Appeals reversed the denial of unemployment compensation to a claimant who claimed that he resigned after complaining repeatedly about not being paid promised production bonuses and discomfort with what he found to be unethical and discriminatory sales practices.  Barno v. Dir., Ohio Dept. of Job & Family Servs., 2018-Ohio-1196.  In January, the Court reversed the denial of unemployment compensation to a long-time employee who was fired for admittedly shoving a member because she had been provoked and the employer mostly ignored her concerns about that member.  Smoot v. Dir., Ohio Dept. of Job & Family Servs., 2018-Ohio-270.    The claimants in both of these cases were represented by the Cleveland Marshall Law School clinic.  In the final case, the Court last month upheld denial of unemployment compensation when the court staff attorney resigned because he speculated that he was about to be fired and had never raised his concerns. Kelly v. Stark Cty. Commrs., 2018-Ohio-950.

 In Barno, the claimant made notes during his job interview about the bonus structure and followed up several times about his employer’s failure to pay him pursuant to that structure.  He promoted water purification systems inside Home Depot stores for his employer.  He was supposed to be paid for every lead he generated which resulted in an in-home demonstration and which resulted in a sale.  However, the Company never informed him when his customers followed up with it.  Instead, he only found out when they returned to him to complain about service.  When he asked about the non-payment of his bonus, he was told that they were looking into it.  When he attempted to contact the Company president, his call was not returned.  When he wrote his manager about it, he received no response.  He also claimed to have been told to not service customers with foreign accents, in certain zip codes and the elderly.  He also claimed that customers complained to him that they never received promised discount cards and were ignored when they tried to cancel the service.  While the company admitted during the hearing that they did not want to sell to the elderly (because their children were likely to later complain), they denied in broad terms having any other restrictions.  The employer did not specifically deny the allegations of racial and national origin discrimination.   The employer also claimed during the hearing the bonus structure was much different than alleged by the claimant and claimed that he never seemed to understand it.  The hearing officer and Commission ruled in favor of the employer, but the Court reversed.

The Court found that the only real “evidence” of the bonus structure was the letter and notes provided by the claimant because the employer’s “evidence” had been created only for the hearing.   In other words, the only documentation of the bonus structure that existed prior to the hearing was the claimant’s documents.  If the employer had ever documented its bonus structure prior to the hearing (as every employer should do), it might have won the hearing.  Instead, the Court found that the employee was justified in resigning his employment when he was not being paid as promised when he was initially hired.  Further, the employer’s general denial that it had any other restrictions on sales (other than not selling to the elderly) was found by the Court to be insufficient evidence to rebut the employee’s allegations that he was specifically told to not sell to Russians, Asians, Indians, and others with foreign accents, etc.  The Court also found the employee’s testimony credible that his repeated complaints were ignored and that customers had complained to him about being ignored, etc.   Thus, the employee was justified in resigning his employment and  entitled to receive unemployment compensation.

In Smoot, the employee had worked as a housekeeper for 11 years for the YMCA.  After a spotless disciplinary record, she complained to her supervisor when a female member pushed her into a Christmas tree.  No action was taken to her knowledge.   A month later, the member screamed at her when she asked her to move her car from a no-parking zone so that a disabled member could park there.  Again, no action was taken to her knowledge after she reported the incident to her manager.  A month after that, the member screamed again at the claimant because a maintenance man was parked there while unloading supplies.  Later that same day, that same member elbowed her in the hallway and told her to get out of the way.   Again, the employee complained and this time put her concerns about the member in writing because no action had been taken on her prior complaints.   Her employer warned the member that her membership would be terminated if there were any further incidents.   Nonetheless, the member again shoved the claimant five months later and no action was taken after the employee complained.   Five months after that, the member again provoked the employee and shoved her.  This time, the employee shoved back and was terminated the following day.   The Commission denied unemployment compensation because the employee  engaged in willful misconduct by not removing herself from the situation  instead of following the employee and arguing with her prior to the physical altercation.   The Court reversed and upheld compensation for an employee who admittedly engaged in workplace violence:

[The claimant] gave the YMCA the opportunity to correct the problem with the member, and the YMCA neglected to do so.  The YMCA’s failure to act placed [the employee] in a position where she was subjected to abusive conduct while waiting for her employer to respond.  This isolated incident of [her] physical conduct with the member, when viewed with [her] good record of job performance, the circumstances prior to the altercation, and the lack of the employee handbook in the record, is insufficient evidence to support the Review Commission’s determination that [she] was terminated for just cause. 

In Kelly, the claimant staff attorney told his judge that he would need to be off work due to back surgery and claimed that the judge became very hostile.   Upon his return to work following his surgery, he was called into the judge’s chambers with the bailiff.  Convinced that he was about to be fired, he submitted his two-week notice of resignation before the judge said anything so that he would not have a termination on his work record.  Instead, he was told to go home because he had never produced a medical release to return to work.   Another staff attorney also testified that he similarly resigned because of the judge’s open hostility.  The Commission denied his claim for unemployment compensation because the employee did not give the judge the opportunity before his resignation to correct his concern with his working conditions.  The Court affirmed.  While it sympathized that employee are not always required to give prior notice of their concerns before resigning, in this case he was not subjected to physical abuse and had never received any disciplinary action.  Accordingly, his failure to complain about the judge’s conduct before submitting his resignation was unreasonable.

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.