Author Archive: Robert A. Boonin

Michigan Legislature Amends State Minimum Wage and Paid Sick Leave Acts

By Robert A. Boonin, James Hermon and Andrea Frailey of Dykema Gossett, PLLC

On December 4, 2018, the Michigan Legislature pared back the minimum wage and paid sick leave laws it passed last September in an effort to preclude those issues from being on the November ballot. Had the Legislature not adopted the language of the ballot initiatives legislation, the measures would have been on the November ballot and it would have needed a vote of three-fourths of each house to amend the law if adopted by the voters. By enacting the proposals directly, it only needed a simple majority to amend those laws. The strategy of using a lame-duck legislative session to amend the laws by a simple majority it passed just two months earlier has been viewed as controversial, but the outcome is welcomed by many in the business community.

These bills have just been signed by the Governor Snyder, who said in his signing message: “I look at legislation presented to me through a policy lens – is it the right policy for the state of Michigan and Michiganders as a whole? . . . That’s what I did with these bills and have now signed them into law. I looked at what the potential impacts and benefits of the changes would be and decided that signing these bills was the appropriate action.”

These revised minimum wage and paid sick leave laws will go into effect around March 21, 2019 (depending on the exact date the current legislative session ends). All Michigan employers must familiarize themselves with these new laws.

THE IMPROVED WORKFORCE OPPORTUNITY WAGE ACT

The changes to the Improved Workforce Opportunity Act—the Act controlling Michigan’s minimum wage and overtime rules—relate to increases to the minimum wages paid to all workers, including those who receive tips.

For non-tipped employees, the minimum wage will gradually increase from the current rate of $9.25 per hour to $12.05 in 2030, as opposed to $12.00 in 2022 as previously enacted. In addition, the amendments also eliminate the automatic increases to the minimum wage after 2022 based on increases to the CPI that was part of the previously adopted ballot initiative language.

Under the current law, tipped employees need to be paid a wage of at least $3.52 per hour, provided the employees make up the difference between that rate and the regular minimum wage in tips. This offset is commonly known as the “tip credit.” Under the original law passed last September, the tip credit would have been phased out in its entirety by 2024 and tipped employees would have been entitled to the same minimum wage that all other employees receive from that date onwards. That change was eliminated by the new law. Instead, the tipped minimum wage will be 38 percent of the minimum wage. (Click here for a table comparing the September version to the December version of the Act.)

THE PAID MEDICAL LEAVE ACT

The Legislature also passed the “Earned Sick Time Act” in September 2018, by adopting voter initiative petition language. This Act, for the first time, mandated the accrual of paid sick time for employers with more than 10 employees, and paid and unpaid sick time for smaller employers. The recent amendments significantly changed the amount of time eligible employees may accrue, which employees and employers are to be subject to the Act, how the time may be used and carried over, and how the Act may be enforced. The Legislature also changed the Act’s name to the “Paid Medical Leave Act.” A summary of the changes and obligations are provided below. (Click here for a table comparing the original version of the Act to the version as amended in December.)

Who is Covered?

The recent amendments changed both which employers are covered by the Act, and which employers are eligible for leave.

  • Instead of having virtually all Michigan employers subject to the Act as in the September legislation, the amended Act only applies to employers with 50 or more employees. Smaller employers will no longer be covered by the Act.
  • Instead of making leave under the Act available to virtually all employees in the state, the amended Act applies to employees from whom the employer is required to withhold for federal income tax purposes. In addition, the amendments add several exemptions to the Act that were not in the September version. Most significant in this regard are:
    • White-collar employees who are exempt under the Fair Labor Standards Act;
    • Private sector employees covered by collective bargaining agreements; and
    • Employees working fewer than 25 weeks in a calendar year, or fewer than an average of 25 hours per week in the preceding calendar year.

How much leave must be provided and what are the other major requirements?

Under the Act as passed in September, employees of large employers (10+ employees) were to earn 1 hour of time off for every 30 hours worked, and employees of small employers would earn 1 hour of time off for every 40 hours worked. The new law significantly reduces the rate at which leave accrues. Now, employees of covered employers (i.e., those employing 50 or more employees), only, may earn paid time off under the Act and at the rate of at least 1 hour for every 35 hours worked. An employer may, however, limit the accrual to 1 hour for every calendar week worked, and further may limit total accrual to 40 hours for any benefit year. Employers also may limit the carryover of any accrued but unused hours to 40 hours, and employers may limit the total hours to be used in any benefit year to 40.

Further, the amendments more clearly provide for the right for employers to grant at least 40 hours of paid medical leave at the beginning of the year instead of using the accrual method. If the employer does so, there is no obligation to allow any of the hours to carryover from one year to the next.

Employers with paid leave plans, such as PTO, sick leave or vacation which provide for at least 40 hours of paid time off per benefit year, may count those days towards the hours required by the Act. Also, the amount to be paid to employees using paid hours under the Act need not include overtime, tips, commissions, bonuses, supplemental pay, or the like; only base pay is to be paid.

Leave accrued under the Act has no cash value upon termination unless otherwise provided by the employer.

Records regarding the administration of the Act will have to be retained for one year under the amended Act, versus the three years required by the September version. Posters will be required as well, but with less detail than those required under the September version. The requirement for providing a written notice of the employees’ rights under the Act per the September version was removed in the December version.

For What Reasons and How Can an Employee Take Paid Medical Leave?

While the Michigan Legislature did not make substantial changes to the reasons an employee can cite for taking leave, it is worth reiterating what those reasons are. An eligible employee can take paid leave under the amended Act for: (1) their own mental or physical illness; (2) the mental or physical illness of their family member; (3) medical care, counseling, relocation, or court appearances relating to domestic violence or sexual assault against the employee or a family member; and (4) the closure of the employee’s place of work or the employee’s child’s school due to a public health emergency. Notably, the only change the Michigan Legislature made here was to delete the provision that allowed an employee to take leave for a meeting at the employee’s child’s school regarding the child’s health, disability, or effects of domestic violence or sexual assault on the child.

The Legislature also changed the definition of “family member” which will narrow the scope of what an employee can use leave for. “Family member” no longer includes an employee’s domestic partner or an employee’s domestic partner’s children or parents.

Under the amended version, leaves must be taken in hourly increments, unless other increments are required or allowed in a handbook or other written benefit document, instead of increments of an hour or less, if allowed per the employer’s payroll system. Special documentation requirements apply to leaves related to domestic violence and sexual assaults.

And finally, under the September Act, employers could require no more than seven days’ notice of an employee’s desire to use paid sick time, if feasible. Under the amended law, employers may apply its usual notice, procedural and documentation requirements support paid leave requests.

Remedies

The new version of the Act removed the anti-retaliation and discrimination provisions of the September version. It also removed the right to a civil action to enforce the Act. Under the new Act, enforcement is accomplished vis-à-vis an employee filing a complaint with the Department of Licensing and Regulatory Affairs within six months of the alleged violation. That is substantially different from the Act that was passed in September which allowed for civil actions and had a statute of limitations of three years. Further, if the Department determines that the Act has been violated, it can award the employee payment of their paid medical leave that was improperly withheld as well as assess a $1,000 administrative fine against the employer. No other damages are available.

THE LEGAL LANDSCAPE

The fact that these Acts are being amended during the same legislative session in which they were first enacted, questions have been raised (at least in some political camps) about the Legislature’s authority to make these amendments in light of the Constitutional process underlying their initial adoption, i.e., keeping the initiatives off last November’s ballot. The Michigan Legislature has never taken a similar action under these circumstances, and the Michigan Constitution does not explicitly address the issue of the Legislature’s authority to do so. Until December 4, 2018, the only legal authority suggesting that the Legislature may have lacked the authority to act as it did is a 1964 opinion of the Michigan Attorney General (Frank Kelley, D) that states “the legislature enacting an initiative petition proposal cannot amend the law so enacted at the same legislative session without violation of the spirit and letter” of the Michigan Constitution. That statement arguably was beyond the scope of the questions presented to the Attorney General at that time, and the opinion never has been tested in court. On December 4, the current Attorney General (Bill Schuette, R) issued his own opinion discrediting the 1964 opinion and concluding that there is no constitutional basis proscribing the Legislature from amending a law enacted earlier during the same legislative session per the ballot initiative process or otherwise. It is too early to tell whether legal action testing these opinions will occur in an effort to void the December bills.

TAKEAWAYS

For now, employers should begin preparing for the Acts to take effect in March. Employers who pay the minimum wage (including the modified minimum for tipped employees) should familiarize themselves with the new minimum wages and what the scheduled increases are, and consider if their pay structures need adjusting in light of any wage compression at stake. In addition, all employers with 50 or more employees should evaluate whether or not their current paid leave polices comply with the paid sick/medical leave act, and modify their policies to conform to the Act’s requirements. In this regard, it is anticipated that most employers will have to go to the policy drafting table and, in the process, they are advised to consult with counsel to address the nuances of the law.

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On December 4, 2018, the Michigan Legislature pared back the minimum wage and paid sick leave laws it passed last September in an effort to preclude those issues from being on the November ballot. Had the Legislature not adopted the language of the ballot initiatives legislation, the measures would have been on the November ballot and it would have needed a vote of three-fourths of each house to amend the law if adopted by the voters. By enacting the proposals directly, it only needed a simple majority to amend those laws. The strategy of using a lame-duck legislative session to amend the laws by a simple majority it passed just two months earlier has been viewed as controversial, but the outcome is welcomed by many in the business community.

These bills have just been signed by the Governor Snyder, who said in his signing message: “I look at legislation presented to me through a policy lens – is it the right policy for the state of Michigan and Michiganders as a whole? . . . That’s what I did with these bills and have now signed them into law. I looked at what the potential impacts and benefits of the changes would be and decided that signing these bills was the appropriate action.”

These revised minimum wage and paid sick leave laws will go into effect around March 21, 2019 (depending on the exact date the current legislative session ends). All Michigan employers must familiarize themselves with these new laws.

THE IMPROVED WORKFORCE OPPORTUNITY WAGE ACT

The changes to the Improved Workforce Opportunity Act—the Act controlling Michigan’s minimum wage and overtime rules—relate to increases to the minimum wages paid to all workers, including those who receive tips.

For non-tipped employees, the minimum wage will gradually increase from the current rate of $9.25 per hour to $12.05 in 2030, as opposed to $12.00 in 2022 as previously enacted. In addition, the amendments also eliminate the automatic increases to the minimum wage after 2022 based on increases to the CPI that was part of the previously adopted ballot initiative language.

Under the current law, tipped employees need to be paid a wage of at least $3.52 per hour, provided the employees make up the difference between that rate and the regular minimum wage in tips. This offset is commonly known as the “tip credit.” Under the original law passed last September, the tip credit would have been phased out in its entirety by 2024 and tipped employees would have been entitled to the same minimum wage that all other employees receive from that date onwards. That change was eliminated by the new law. Instead, the tipped minimum wage will be 38 percent of the minimum wage. (Click here for a table comparing the September version to the December version of the Act.)

THE PAID MEDICAL LEAVE ACT

The Legislature also passed the “Earned Sick Time Act” in September 2018, by adopting voter initiative petition language. This Act, for the first time, mandated the accrual of paid sick time for employers with more than 10 employees, and paid and unpaid sick time for smaller employers. The recent amendments significantly changed the amount of time eligible employees may accrue, which employees and employers are to be subject to the Act, how the time may be used and carried over, and how the Act may be enforced. The Legislature also changed the Act’s name to the “Paid Medical Leave Act.” A summary of the changes and obligations are provided below. (Click here for a table comparing the original version of the Act to the version as amended in December.)

Who is Covered?

The recent amendments changed both which employers are covered by the Act, and which employers are eligible for leave.

  • Instead of having virtually all Michigan employers subject to the Act as in the September legislation, the amended Act only applies to employers with 50 or more employees. Smaller employers will no longer be covered by the Act.
  • Instead of making leave under the Act available to virtually all employees in the state, the amended Act applies to employees from whom the employer is required to withhold for federal income tax purposes. In addition, the amendments add several exemptions to the Act that were not in the September version. Most significant in this regard are:
    • White-collar employees who are exempt under the Fair Labor Standards Act;
    • Private sector employees covered by collective bargaining agreements; and
    • Employees working fewer than 25 weeks in a calendar year, or fewer than an average of 25 hours per week in the preceding calendar year.

How much leave must be provided and what are the other major requirements?

Under the Act as passed in September, employees of large employers (10+ employees) were to earn 1 hour of time off for every 30 hours worked, and employees of small employers would earn 1 hour of time off for every 40 hours worked. The new law significantly reduces the rate at which leave accrues. Now, employees of covered employers (i.e., those employing 50 or more employees), only, may earn paid time off under the Act and at the rate of at least 1 hour for every 35 hours worked. An employer may, however, limit the accrual to 1 hour for every calendar week worked, and further may limit total accrual to 40 hours for any benefit year. Employers also may limit the carryover of any accrued but unused hours to 40 hours, and employers may limit the total hours to be used in any benefit year to 40.

Further, the amendments more clearly provide for the right for employers to grant at least 40 hours of paid medical leave at the beginning of the year instead of using the accrual method. If the employer does so, there is no obligation to allow any of the hours to carryover from one year to the next.

Employers with paid leave plans, such as PTO, sick leave or vacation which provide for at least 40 hours of paid time off per benefit year, may count those days towards the hours required by the Act. Also, the amount to be paid to employees using paid hours under the Act need not include overtime, tips, commissions, bonuses, supplemental pay, or the like; only base pay is to be paid.

Leave accrued under the Act has no cash value upon termination unless otherwise provided by the employer.

Records regarding the administration of the Act will have to be retained for one year under the amended Act, versus the three years required by the September version. Posters will be required as well, but with less detail than those required under the September version. The requirement for providing a written notice of the employees’ rights under the Act per the September version was removed in the December version.

For What Reasons and How Can an Employee Take Paid Medical Leave?

While the Michigan Legislature did not make substantial changes to the reasons an employee can cite for taking leave, it is worth reiterating what those reasons are. An eligible employee can take paid leave under the amended Act for: (1) their own mental or physical illness; (2) the mental or physical illness of their family member; (3) medical care, counseling, relocation, or court appearances relating to domestic violence or sexual assault against the employee or a family member; and (4) the closure of the employee’s place of work or the employee’s child’s school due to a public health emergency. Notably, the only change the Michigan Legislature made here was to delete the provision that allowed an employee to take leave for a meeting at the employee’s child’s school regarding the child’s health, disability, or effects of domestic violence or sexual assault on the child.

The Legislature also changed the definition of “family member” which will narrow the scope of what an employee can use leave for. “Family member” no longer includes an employee’s domestic partner or an employee’s domestic partner’s children or parents.

Under the amended version, leaves must be taken in hourly increments, unless other increments are required or allowed in a handbook or other written benefit document, instead of increments of an hour or less, if allowed per the employer’s payroll system. Special documentation requirements apply to leaves related to domestic violence and sexual assaults.

And finally, under the September Act, employers could require no more than seven days’ notice of an employee’s desire to use paid sick time, if feasible. Under the amended law, employers may apply its usual notice, procedural and documentation requirements support paid leave requests.

Remedies

The new version of the Act removed the anti-retaliation and discrimination provisions of the September version. It also removed the right to a civil action to enforce the Act. Under the new Act, enforcement is accomplished vis-à-vis an employee filing a complaint with the Department of Licensing and Regulatory Affairs within six months of the alleged violation. That is substantially different from the Act that was passed in September which allowed for civil actions and had a statute of limitations of three years. Further, if the Department determines that the Act has been violated, it can award the employee payment of their paid medical leave that was improperly withheld as well as assess a $1,000 administrative fine against the employer. No other damages are available.

THE LEGAL LANDSCAPE

The fact that these Acts are being amended during the same legislative session in which they were first enacted, questions have been raised (at least in some political camps) about the Legislature’s authority to make these amendments in light of the Constitutional process underlying their initial adoption, i.e., keeping the initiatives off last November’s ballot. The Michigan Legislature has never taken a similar action under these circumstances, and the Michigan Constitution does not explicitly address the issue of the Legislature’s authority to do so. Until December 4, 2018, the only legal authority suggesting that the Legislature may have lacked the authority to act as it did is a 1964 opinion of the Michigan Attorney General (Frank Kelley, D) that states “the legislature enacting an initiative petition proposal cannot amend the law so enacted at the same legislative session without violation of the spirit and letter” of the Michigan Constitution. That statement arguably was beyond the scope of the questions presented to the Attorney General at that time, and the opinion never has been tested in court. On December 4, the current Attorney General (Bill Schuette, R) issued his own opinion discrediting the 1964 opinion and concluding that there is no constitutional basis proscribing the Legislature from amending a law enacted earlier during the same legislative session per the ballot initiative process or otherwise. It is too early to tell whether legal action testing these opinions will occur in an effort to void the December bills.

TAKEAWAYS

For now, employers should begin preparing for the Acts to take effect in March. Employers who pay the minimum wage (including the modified minimum for tipped employees) should familiarize themselves with the new minimum wages and what the scheduled increases are, and consider if their pay structures need adjusting in light of any wage compression at stake. In addition, all employers with 50 or more employees should evaluate whether or not their current paid leave polices comply with the paid sick/medical leave act, and modify their policies to conform to the Act’s requirements. In this regard, it is anticipated that most employers will have to go to the policy drafting table and, in the process, they are advised to consult with counsel to address the nuances of the law.

Michigan Legislature Adopts Minimum Wage Increases and Paid Sick Leave: Political Poker Is Alive and Well in Michigan

By Robert Boonin (rboonin@dykema.com), James Hermon (jhermon@dykema.com) and Andrea Frailey (afrailey@dykema.com) of Dykema Gossett, PLLC

After various court battles, two ballot initiatives were set to be on the November ballot for voter consideration. If passed, one would have increased the state minimum wage and the other would have required employers to provide sick leave to employees. Under Michigan law, though, the Legislature is permitted the opportunity to foreclose the issues from appearing on the ballot by adopting those initiatives through legislation.

Even though the Republican majority of both houses appeared philosophically opposed to the initiatives, on September 5 both houses voted to adopt both of them. Ironically, even though the Democratic minority appeared anxious to have the initiatives on the ballot, most Democrats voted against their adoption by the Legislature.

Are you cross-eyed yet? What accounts for what most would consider ironic? It’s all a matter of sophisticated and high-stakes politics. By the Legislature taking ownership of both laws, the Legislature can more easily amend them during the coming lame-duck session, or even after a new Governor takes office. Voter initiatives require a three-fourths legislative majority to be amended, versus the simple majority required laws like these that are passed through the normal legislative process. Thus, though these actions are technically set to become law at this moment, they may be amended before their early 2019 effective dates.

In the meantime, Michigan has officially joined the ranks of states continually raising their minimum wages, and perhaps more significantly, the small minority of states which have enacted some sort of general paid leave requirement.

The Minimum Wage Increases, as Passed

The Improved Workforce Opportunity Wage Act (the “IWOA”) primarily does two things: a) it raises the state’s general minimum wage, and b) it eventually eliminates the lower minimum wage for employees who typically receive tips, a/k/a “tip credits.” The increases will be phased in over three years, as follows:

General Minimum Wage Tipped Employees’ Minimum Wage
Current $ 9.25 $ 3.52
January 1, 2019 $10.00 $ 4.80
January 1, 2020 $10.65 $ 6.39
January 1, 2021 $11.35 $ 7.95
January 1, 2022 $12.00 $ 9.60
January 1, 2023 COLA Increase 90% of Gen’l. Minimum
January 1, 2024 COLA Increase 100% of Gen’l. Minimum

Each year after 2022, the general minimum wage will be subject to an increase based on the percentage increase to the CPI provided the CPI has not increased over the prior year by more than 8.5 percent. This automatic indexing is a new feature to Michigan’s minimum wage law.

The Paid Sick Leave Law, as Passed

The Legislature also passed the Earned Sick Time Act (the “ESTA”). This law allows most Michigan employees to earn paid sick time. The ESTA requires employers with more than 10 employees to grant one hour of paid sick time for every 30 hours worked by each employee. For employers with less than 10 employees, the law requires their Michigan employees to earn one hour of paid sick time for every 40 hours of work. No employer with 10 or more employees, though, is required to permit employees to use more than 72 hours of paid sick leave a year, and smaller employers may cap their use to 32 hours per year.

Paid sick time earned under the law may be used by employees for time off needed: a) due to the employee’s or family member’s health condition or injury, including preventative care or diagnosis; b) due to the employee’s or family member’s treatment, services, relocation, or participation in criminal proceedings, relating to being a victim of domestic violence or sexual assault; or c) due to the temporary closure of a business or school due to a public health concern.

What the Legislation Means for Employers

These acts could have widespread impact on employers, but it is unlikely that they will go into effect as currently written. Since the Legislature adopted the initiatives instead of allowing a popular vote on them, there is more room for amendment; there already is serious talk in the Legislature about possible amendments. Amendments may adjust how the changes are phased in, address the new automatic minimum wage indexing provision, or even repeal either or both of the new laws. Until that happens, these provisions are Michigan law and employers with employees in Michigan should begin the process for complying with them in their current form. Waiting for possible amendments will be too speculative and, without planning now, adjusting pay scales, changing leave policies and union contracts, preparing to accrue paid sick time and budget for higher wages at the last minute may be impracticable.

The Supreme Court Gives Employers the Green Light, Will No Longer Narrowly Construe FLSA Exemptions

By Abad Lopez, Dykema (alopez@dykema.com)

On April 2, 2018, the United States Supreme Court in Encino Motor Cars, LLC v. Navarro, Justice Thomas writing for the majority, held that car dealership “service advisors” are “salesm[e]n… primarily engaged in… servicing automobiles” and therefore are exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(b)(10)(A). Significantly, in addition to issuing a ruling that is favorable to auto dealerships, the Court also provided useful language to all employers based on its view of how FLSA overtime exemptions should be construed.

In its ruling, the Court held that the service advisors’ activity of selling services makes them salesmen in the “ordinary meaning” of the term. Even though they don’t directly service automobiles, the Court pointed to the broad range of tasks they perform and that they “are integral to the servicing process.” Although “service advisors do not spend most of their time physically repairing automobiles,” the Court noted that the same is true of partsmen. The inclusion of partsmen in the statute means that “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.”

Relying on longstanding precedent, the Ninth Circuit Court of Appeals denied the auto dealership’s exemption for its auto service advisors under Section 213(b), stating that exemptions should be “construed narrowly.” The Supreme Court rejected this canon of construction, noting that nothing in the FLSA mandates this narrow construction and thus there is “no reason to give [the exemptions] anything other than a fair interpretation.” The Court also noted that “the FLSA has over two dozen exemptions in § 213(b) alone… Those exemptions are as much a part of the FLSA’s purpose as the overtime pay requirements.” The Court also rejected the notion that the “remedial purpose” of the FLSA was paramount to its other provisions or that it should be pursued at all costs. Rather, the FLSA’s exemptions should be construed plainly, and without favor to grant or deny any such exemption.

The Supreme Court’s pronouncement lies in stark contrast to judicial opinions from lower courts premised on the “narrow construction” of the FLSA’s exemptions while expanding the statute’s remedial purposes to its outer limits. This narrow interpretation often resulted in an unpredictable and unfair bent against employers. In Encino Motor Cars, LLC, the Supreme Court puts to rest once and for all the argument that the FLSA’s exemptions should be construed narrowly. Even further, the Court’s decision may be used to reign in the canons of construing statutes liberally or using legislative history to achieve a preordained result, versus simply relying on a fair reading of the statutory text.

The best reading of the FLSA is a fair reading, not a liberal construction in favor of employees, particularly where the sole justification for such liberal construction is based on amorphous canons or legislative history. With this case, the Supreme Court has dispensed with an oft-cited but critically flawed canon for construing the FLSA’s exemptions under § 213(b) narrowly to favor employees. In doing so, employers have been provided with a strong rebuttal to litigants seeking to apply the FLSA broadly, where the statutory text would not otherwise allow.

The DOL’s Wage & Hour Division “Dusts-Off” Shelved Opinion Letters

By Robert A. Boonin, Dykema Gossett PLLC, rboonin@dykema.com

In 2009, shortly after the prior administration first took office, it pulled-back 17 Wage & Hour Opinion Letters that were finalized near the end of the Bush Administration. On January 5, 2018, the DOL republished all of those Opinion Letters, and by doing so, the DOL has firmly gotten back into the Opinion Letter business.

THE USE AND HISTORY OF WAGE AND HOUR OPINION LETTERS

The FLSA provides that opinions issued by the Wage and Hour Administrator, if relied upon by employers and if directly applicable to the employers’ circumstances, are absolute defenses to claims for back pay and liquidated damages for overtime violations.   In other words, if the Opinion Letter applies AND was relied upon, the employer can get a “free pass” even if the DOL is later found by a court to have reached the wrong opinion. Thus, for decades, the availability and use of Opinion Letters had been widely used and served to not only limit liability, but perhaps more importantly, allowed employers to be assured that – at least in the DOL’s opinion – a pay plan being used or considered was consistent with the FLSA’s often-times nuanced provisions.

In 2009, as the Bush Administration was winding down, the Wage and Hour Administrator announced that it was publishing a number of Opinions, Opinions that had been pent-up in the process for being finalized. Almost immediately after taking office, though, the Obama administration put a hold on or withdrew many of those Opinions, and its “hold” was never released. The DOL did not issue any FLSA Opinion Letters thereafter, and in March 2010, the new Wage and Hour Administrator announced that Opinion Letters would no longer be provided. Instead, the DOL announced, it would only periodically issue Administrator Interpretations (AIs) on the FLSA, and these AIs would be more generic in form than the fact-specific Opinions previously issued.

THE OPINION LETTER CONCEPT IS RESTORED BY SECRETARY ACOSTA

Soon after taking office last year, Labor Secretary Acosta announced that he would be restoring the use of Opinion Letters. This announcement was welcomed by many in the employer, and even some in the employee, community since these letters do provide a level of certainty needed as play plans are developed, particularly pay plans that are creative or being adjusted to reflect the realities of the modern economy. On January 5, 2018, the DOL delivered on the Secretary’s promise and activated all 17 Opinions put on hold in 2009.

Among the new Opinions are:

  • A clarification that deductions are permissible to salaries of a salaried/exempt employee, in that if the employee is absent for a full-day but only has a partial day of paid leave available to cover the absence, the employee can be docked for the balance of the day (FLSA2018-14);
  • If job bonuses are provided for a day’s work, that bonus must be rolled into the employees’ regular rates of pay for overtime pay calculation purposes (FLSA2018-11);
  • When calculating a year-end bonus as a percentage of all straight time and overtime earned over the year, the employer can exclude previous payments made that are otherwise excludable from the regular rate of pay (FLSA2018-9);
  • School athletic coaches who are volunteers or are not otherwise employed by the school in an non-teaching capacity, may be treated as exempt from the Act’s pay requirements since they are effectively still exempt “teachers” under the Act (FLSA2018-6);
  • On call time spent by ambulance personnel who work 30 hours per week, but who may be on call for another 40 hours, is not compensable in light of the frequency of calls and the time needed to take the calls, and that conclusion is not changed by the fact that the personnel have to appear when called within 5 minutes and in uniform, in light of the totality of the facts presented (FLSA2018-1); and
  • Based on the facts present, the follow employees were viewed as being exempt from overtime pay: construction project superintendents (FLSA 2018-4), client service managers for an insurance company (FLSA2018-8), and consultants, clinical coordinators, coordinators and business development managers employed by a medical staffing company (FLSA2018-12), but helicopter pilots were found to be nonexempt (FLSA2018-3).

It is anticipated that new Opinion Letters will be published in the near future, particularly once a new Wage and Hour Administrator is confirmed by Congress.

U.S. Department of Labor Revision of Intern Test Provides Clarity for Employers

On Friday, January 5, 2018, the U.S. Department of Labor (“DOL”) adopted a revised view of what constitutes an “intern” for private sector employers. In short, this revised guidance makes it much easier for employers to take on unpaid interns without incurring substantial risk that the DOL will later find those supposed interns actually were employees who are entitled to back pay. Going forward, the DOL will use the “primary beneficiary” test, which was adopted by several appellate courts to determine whether interns are employees under the FLSA.

Prior to the January 2018 revision, the DOL took the position that internships in the “for profit” private sector most often constitute employment for which compensation is due under the Fair Labor Standards Act. A narrow exception existed if an employer could show that:

  1. The internship, even though it included actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer providing the training derives no immediate advantage from the activities of the intern; on occasion the employer’s operations actually may be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Under this prior set of criteria, it was the employer’s burden to prove all six criteria existed for any supposed interns. And, if the employer was unable to do so, it subjected itself to potential significant back pay liabilities. The net result of the rule was that internships became nearly impossible to find in the for-profit private sector; as such, employers simply were not willing to subject themselves to potential liability in order to have internships available.

This has changed under the new rule. Under revised Fact Sheet #71 (which governs the rules that will be applied by the DOL in examining internship programs), the “primary beneficiary test” applied by many federal courts has been expressly adopted. Under the primary beneficiary test, the question is what the “economic reality” of the internship is so that a determination can be made about who enjoys the primary benefit of an internship. In making that determination, seven factors are considered:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee, and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

This is a more flexible test, in which no one factor is determinative. Rather, the DOL and the courts will consider the facts and circumstances of each internship independently to determine whether it is a disguised employment relationship.

Importantly, the new test should not be interpreted to give employers carte blanche to classify all students working over a summer as interns. That is clearly not the intent, and doing so will likely result in significant liabilities to the overreaching employer. However, the new test clarifies substantially the factors that an employer must consider in making the decision about how to classify an intern and makes intern status much easier for employers to achieve.

In any event, we strongly recommend that any unpaid internship program be reviewed by counsel; they are not without risk. Of course, the risk can be avoided if the “interns” are paid at least the minimum wage, and IF they work overtime, they’re paid the required overtime premium.

Prepared by Jim Hermon of Dykema, jhermon@dykema.com

FLSA Regulations Dealt a Knock-Out Blow

This past November, a federal court issued a preliminary injunction halting the implementation of the proposed changes to the FLSA’s overtime exemptions just before they were to take effect on December 1. On August 31, 2017, the same court issued another decision definitively holding that the Department of Labor exceeded its authority in issuing those regulations and thereby permanently enjoining them. In doing so, the court clarified its prior holding and gave the new Administration a clear license to go back to the drawing board and draft new regulations consistent with the underlying law.

The November preliminary injunction was in response to a case brought by 21 states. At that time, a companion case also challenging the legality of the new regulations was pending before the same court. That case was brought by a variety of business groups and chambers of commerce from across the nation, spearheaded by the U.S. Chamber of Commerce. The business groups had filed a motion for summary judgment in its case last year, but the court did not rule on that motion until last week. The states joined in that motion, and therefore the ruling applies to both cases before that court.

While granting the business groups’ motion for summary judgment, the court concluded that the Department of Labor had exceeded its authority. The primary basis for its holding is that the new salary level (i.e., $47,476)—which was more than double the salary level in the existing regulations (i.e., $23,660)—served to make the salary level the primary determiner of exempt status. This outcome violated the FLSA, the court held, because it supplanted the duties tests for executive, administrative and professional status, and Congress intended that those performing the duties of those classifications were to be exempt. The salary level in the new regulations would have converted more than 4.2 million employees from exempt to nonexempt, despite the Department’s admission that, but for the new salary level, they would otherwise be exempt. The court also held that a salary level could be legally used by the Department in defining who may be considered exempt, but not if it is so high that it essentially becomes the sole test for the exemption. Thus, the court concluded that, while a salary level could be incorporated in regulations defining the exemption, the salary level in the new regulations was excessively high.

The earlier preliminary injunction was appealed by the former Administration to the Fifth Circuit Court of Appeals. In that appeal, the new Administration asked the court to recognize that a salary level is a permissible component of the exemption tests, but still strike down the regulations because of the amount. Concurrently, the new Administration has announced its intent to revisit the use and magnitude of the salary level test, and has asked for comments with respect to how it can be better tailored going forward.

With this decision, the case before the Court of Appeals is likely moot and the future of the regulations will hinge on whether or not the new Administration will appeal that decision. In fact, the Department of Labor today asked the Court of Appeals for permission to withdraw its appeal. Further, given that the district’s court new decision aligns with the Administration’s position before the Court of Appeals, the conventional wisdom is that an appeal is unlikely. Instead, the Department will likely simply proceed with the process for revisiting the salary level question and eventually promulgate new regulations. Secretary Acosta has indicated a view that the new rate would be more reasonable and appropriate if it hovered near $33,000, but that given the request for comments recently issued by the Department, other factors may come into play for small business, non-profits, rural business, and other employers who would be hard hit by a greatly increased salary level. Another issue “on the table” is whether any new salary level should somehow be indexed to automatically increase without having to exhaust the regulatory process.

Much is still up in the air, but the decision should bring a sigh of relief to employers. It appears that the enjoined regulations are officially dead, but there are still a few procedural and regulatory issues technically in play.

Importantly, though, this case does not affect wage and hour laws at the state level. Employers in states with higher minimum wages or exemption thresholds, such as California (currently $10.50 per hour with an exempt salary threshold of $3,640 per month or $43,680 per year for employers with 26 or more employees, but scheduled to increase to $11.00 per hour with exempt thresholds of $3,813.33 per month or $45,760 per year effective January 1, 2018), must continue to follow the higher applicable rates, as well as observe the stricter “duties tests” imposed in their particular states.

For more information, contact Robert Boonin at Dykema Gossett, rboonin@dykema.com or (313) 568-6707

DOL RESCINDS OBAMA GUIDANCE ON “INDEPENDENT CONTRACTORS” AND “JOINT EMPLOYERS”

On June 7, 2017, the U.S. Department of Labor withdrew the controversial Administrator Interpretations (“AIs”) issued in 2015 and 2016 regarding its guidance on “independent contractors” and “joint employers.” The announcement reads:

The Department of Labor’s 2015 and 2016 informal guidance on joint employment and independent contractors were withdrawn effective June 7, 2017.  Removal of the two administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act or Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the Department’s long-standing regulations and case law. The Department will continue to fully and fairly enforce all laws within its jurisdiction including the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.

While the post-election conventional wisdom has been that the new leaders of the DOL would review these Administrator Interpretations, no one was sure if the anticipated relief to the employer community would be via a rescission or modification, and it was also not expected for any change to occur until after a new Solicitor of Labor and Wage and Hour Administrator took office. (The President has yet to nominate anyone of either of these offices.) Thus, the timing of this announcement – while greatly welcomed by the business community – is also somewhat of a surprise. The two AIs limited the misclassification of workers through a stricter independent contractor test and also expanded the definition joint employer.

THE RESCINDED INTERPRETATIONS

Independent Contractors: The July 2015 AI regarded the issue of misclassifying employees as independent contractors. While claiming to merely summarize existing standards, many viewed the newly proclaimed standards as being based on case law that deviated from the legal mainstream and established an “economic reality” or “dependency” test which minimized the element of control held by the contracting party. The case law up until that point, while weighing economic realities, placed a premium on the extent to which a business controlled the contractor. In contrast, the AI gave the lowest weight to the control factor. The bottom line under this definition emphasizing “dependency”, according to the Wage and Hour Administrator at that time, was that few workers could be properly treated as contractors.

Joint Employers: Under the January 2016 AI, joint employment relationships under the Fair Labor Standards Act could arise under two scenarios: 1) horizontal joint employer relationships; and 2) vertical joint employer relationships. The concept regarding horizontal joint employment (i.e., essentially when related businesses share employees) did not significantly deviate from prior doctrine.   Regarding vertical joint employers, however, the DOL again selectively picked among judicial precedent to cobble a newly articulated standard, dramatically altering the doctrine from most courts’ application, , this time favoring emphasis on the “control” factor, e.g., the control a prime contractor may assert over subcontractors, a franchisor may assert over franchisees, and a business may assert over employees supplied by staffing companies. In essence, the AI made it easier for DOL to deem employers doing business together to be joint employers, and thereby make it easier to hold one of the “joint employers” liable for the alleged wrongs solely made by the other “joint employer.”

THE SIGNIFICANCE OF THE RESCISSIONS

After these AIs were published, only a handful of courts had adopted them as being the proper construction of the law. That has not stopped the plaintiffs’ bar from trying to leverage the AIs as support for their cases, nor has it stopped the DOL from applying them in the course of its audits and investigations.

With the rescission of these AIs, the common law as existed prior to 2015 on these issues is again clearly the law of the land. These AIs will no longer serve as a basis for finding liability, and critically, they will not drive the DOL in its investigations going forward. Thus, their rescission signifies is a return to the fairly stable and well established doctrines of the past, which should be welcomed by the business community, although it is likely that the plaintiffs’ bar will still use the arguments contained in the AIs. .

The remaining question is whether this also serves as “writing on the wall” with respect to how the EEOC and the NLRB will address these issues, because under their current composition, they have been heading in the direction now rejected by the DOL. This may also be a sign that other initiatives of the former administration may be rolled-back by the new DOL leadership, but some of those actions will likely await until the other leadership positions within the DOL are filled. For instance, it is anticipated that the new administration will reverse course by no longer issuing formal “Wage and Hour Administrator Opinion Letters,” as well as cease from engaging in the relatively new practice of routinely assessing liquidated damages when resolving pre-suit investigations..

In sum, this withdrawal is a good sign that some of the initiatives of the prior administration which appear hostile to employers may be rolled-back, in part or in whole.  However, many of those initiatives, depending on the agency, are still – at least according to those agencies – alive and well.  Even if the administration softens the government’s views on these issues, the arguments underlying the AIs and related positions of other agencies will continue to be made by plaintiffs’ counsel in the courts, and these issues will – in the end – be resolved in the courts.  Consequently, there is nothing in today’s development which should dramatically alter any employer’s operations in the immediate future.

Is “Comp-Time” in the Private Sector Just Over the Horizon?

Earlier this week, the U.S. House of Representatives passed, by a 229-197 margin, passed the Working Families Flexibility Act (HR 1180). The Act, if passed by the Senate and signed by the President, will introduce the concept of “compensatory time” (a/k/a “comp-time”) to the private sector workplace. Under the Fair Labor Standards Act, comp-time has existed in the public sector for many decades, but absent the passage of this Act, it is not permissible in the private sector.

The Comp-Time Concept

The concept of “comp-time” is essentially a way for employees to earn time off with pay in lieu of being paid time and one-half their regular hourly rates for hours worked over 40 during a workweek. This time off is earned at the rate of one and one-half hours for each hour of overtime worked. In the public sector, the FLSA allows employees to accrue 240 hours of comp-time (or 480 hours for public safety employees), to be used or paid per specific federal regulations. The system envisioned by this Act for the private sector is similar to its public sector counterpart, but different in some significant ways. These differences if they survive the passage of the bill may lessen the attractiveness of comp-time programs for private sector employers.

The Comp-Time Structure under the Working Families Flexibility Act

Under the Act as passed by the House, private sector employees could accrue up to 160 hours of comp-time.

  • Only employees who have worked at least 1,000 hours during the 12-months preceding the beginning of the comp-time arrangement will be eligible to participate in a comp-time arrangement.
  • Participation in a comp-time arrangement must be voluntary (i.e., the employer may not directly or indirectly intimidate, threaten or coerce employees to work under the comp-time arrangement) and initiated only pursuant a collective bargaining agreement, written agreement with the employee or other verifiable record maintained by the employer.
  • Any accrued comp-time not used within a designated year must be cashed-out to the employee within 31 days after the year-end at the rate the employee is earning at the time of the payment or when the hours were earned, whichever is higher.
  • During the year, the employee also may cash-out any accrued time, at the employee’s discretion.
  • During the year, the employee must be allowed to use the comp-time accrued as requested, unless the time-off would unduly disrupt the employer’s operations.
  • The employee may also opt-out of the comp-time arrangement at any time by giving the employer written notice. The employer may terminate the comp-time arrangement only by giving the employee 30 days’ prior written notice.

Good News or Bad News?

So is the good for business? It depends. Over the years – beginning in the Clinton era – similar bills have been introduced by both parties in Congress.   The premise of the bills has been that allowing employees to earn and use comp-time may be more desirable than earning overtime pay, since the quid pro quo for losing some time with one’s family would be earning the ability to take off even more time at a later date, with pay, to be with one’s family.

To those against the bill, there’s a fear that employees will be coerced to accept comp-time as a condition for working overtime, or that the payment of earned overtime pay will be unfairly deferred. These fears do not appear to be very realistic given the structure of the Act.

Due to the employee’s right to cash-out accrued time at any time and rescind the comp-time arrangement, the advantages of employees working overtime for comp-time in lieu of being paid overtime pay are less clear for employers. Employers like comp-time because they can avoid the out-of-pocket cost of overtime while allowing employees to take off more time during slower times of the year. Under the Act, while these advantages still exist, they can readily lost based on the employee’s whim to cash-out their time and terminated the relationship.   Also, by forcing employers to cash-out accrued time not used by the year-end, much of financial savings will be lost to employers while the employees will also lose their ability to bank time for use at later time.

These disadvantages do not exist in the public sector, and it’s unclear as to why the model for the private sector needs to differ than that used in the public sector. Nonetheless, this is the course currently being taken by Congress.

Prospects for Passage?

While the President has endorsed the bill as passed by the House, its future in the Senate is unclear. If the bill moves through committee and to the floor, it is likely that some changes will be made to gather the 60 vote margin needed to avoid a filibuster. If this happens, then what will be shaped in Conference Committee is even more unclear.   Time will tell.

Impact on Other Comp-Time Plans

Employers should realize, though, that the concept only applies to overtime worked by non-exempt employees. Under the FLSA, the Act would not apply to permissible comp-time arrangements which may be in place with respect to hours worked beyond a normal workweek of 35 or 37.5 hours, but less than 40, for example, nor does it impact comp-time arrangements in place with respect to exempt employees. Further, as currently drafted, the Act would not apply to public sector employers in any respect.

NEW FLSA REGULATIONS ENJOINED!

Late Tuesday afternoon, the United States District Court for the Eastern District of Texas granted a motion brought on behalf of 21 states and supported by business groups led by the United States Chamber of Commerce to preliminarily enjoin the new overtime exemption regulations set to go into effect on December 1, 2016. Those new regulations were announced in May by the United States Department of Labor (“DOL”) and, if they had gone into effect, would have increased the minimum salary threshold for most executive, administrative and professional employees from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year). The new rules would have jeopardized the exempt status of 4.6 million employees.

The Elements for Preliminary Relief Were Satisfied by the States

At the outset, the court had to determine if the states will “likely succeed on the merits” as the case is further litigated, and if a permanent injunction is on the horizon. The states’ case was premised on both constitutional and statutory grounds. The court concluded that while the states’ constitutional claims were unlikely to succeed, their statutory arguments appeared strong and likely to succeed.

The court noted that the Fair Labor Standards Act (“FLSA”) provides that “‘any employee employed in a bona fide executive, administrative, or professional capacity… as such terms are defined and delimited from time to time by regulations of the Secretary, shall be exempt from minimum wage and overtime requirements.” According to the court, the issue boiled down to what Congress meant by “executive, administrative and professional.” The court concluded that Congress’ focus when the FLSA was enacted was on what these employees actually do, i.e., what are their duties, which, the court concluded, “does not include a minimum salary level.” That is, while the law generally grants administrative agencies great deference as they interpret statutes, “nothing… indicates that Congress intended the Department to define and delimit a salary level.”

Consequently, the court held that the DOL exceeded its authority by imposing a salary level requirement in the tests for these white collar exemptions. Further, the court stated: “Congress did not intend salary to categorically exclude an employee with [exempt] duties from the exemption,” but such an outcome, the court stressed, would happen under the new regulations. Indeed, this outcome was expressly admitted to by the DOL in the preamble to the new regulations, i.e., that the significant salary level increase would, in and of itself, make otherwise exempt employees non-exempt.

The court also held that absent an injunction, the states would be irreparably harmed. That harm would not only include the cost of paying higher salaries, but it would also entail the cost spent on compliance and the redirection of resources from other critical services of the state governments.

Finally, the court found that the public interest would be best served by it issuing an injunction. On this point, the court noted that more time would be needed for it to make a final ruling on the case, and that by issuing an injunction, the only harm to the DOL would be a delay in the implementation of the new regulation. Thus, the court concluded that preserving the status quo while the case continues on the merits is appropriate.

The Injunction’s Scope Is National

In light of the above, the court determined that an injunction was appropriate. The remaining issue regarded its scope. The DOL argued that it should only apply to those states that participated in the case, and established the potential of irreparable harm. The states argued that the injunction should apply nationwide. After noting that injunctions are dictated by the nature of the violation at issue and not its geographical scope, the court agreed with the states and applied its injunction nationwide.

Consequently, the court granted the motion of the preliminary injunction and enjoined the DOL from implementing and enforcing the new salary level regulations on December 1, 2016.

What’s Next?

At this time, the new regulations are essentially on hold, subject to further litigation. The current regulations are not enjoined in the meantime. Those may later become an issue as the litigation proceeds, but for now, employers must continue to comply with the regulations currently in effect. Employers operating in states with their own laws and regulations must continue to comply with their states’ laws; nothing in Tuesday’s injunction affects state laws.

To be sure, many employers have already made or announced changes to conform to the regulations set to go into effect in just over one week. Those employers may consider cancelling those changes or retaining some of them. How to proceed will depend on the circumstances and each employer’s assessment of the likelihood that the injunction will become permanent. Another unknown factor is the stance the Trump Administration will take on this matter. The incoming administration could continue to fight for the new DOL regulations, or could simply let the injunction stand so that it can chart its own path in 2017. Time will tell.