California Supreme Court Clarifies Required Method for Calculating Overtime On Flat-Rate Bonuses (and it isn’t the FLSA method)

Earlier this week, the California Supreme Court issued an opinion in Alvarado v. Dart Container Corporation of California, holding that when an employee has earned a flat sum bonus during a single pay period, the employer must calculate the employee’s overtime pay rate using only the regular non-overtime hours worked by the employee during the pay period, not the total hours worked.

In California, the Division of Labor Standards Enforcement’s Enforcement Policies and Interpretations Manual (the “DLSE Manual”) sets forth a formula for calculating overtime due on non-discretionary bonus payments.  (Whether a bonus is “non-discretionary” is the subject of detailed FLSA regulations, which California generally follows.)  The DLSE overtime formula requires dividing the bonus by only the regular non-overtime hours worked in the pay period (i.e., not both the non-overtime and overtime hours), and using a multiplier of 1.5 to calculate the overtime premium due on the bonus.  In Tidewater Marine Western, Inc. v. Bradshaw, however, the California Supreme Court held that certain portions of the DLSE Manual were void as “underground regulations.”  Tidewater (1996) 14 Cal.4th 557, 571.

Dart Container paid a $15 “attendance bonus” to employees who worked on a Saturday or Sunday.  For employees who worked overtime during a pay period in which they received an attendance bonus, the company calculated overtime on the bonus by dividing the bonus by the total number of hours worked in the pay period (both non-overtime and overtime hours).  The company then used a multiplier of 0.5 to determine the amount the bonus added to the employee’s hourly overtime pay.

Employee-plaintiff Hector Alvarado contended Dart Container’s method of calculating overtime pay was illegal because it did not comply with the DLSE Manual.  Alvarado argued the company should have divided the bonus only by the number of non-overtime hours worked during the pay period, and should have applied a multiplier of 1.5.

Dart Container argued that because the DLSE’s method was void as an underground regulation, its method of calculating the overtime rate was proper because it complied with the FLSA, which permits an employer to divide a bonus by total hours worked and apply a 0.5 multiplier.  The Court of Appeal agreed with Dart Container, and held its method of calculating overtime was permitted under California law.

The California Supreme Court reversed, holding that even though the DLSE’s method is void as an underground regulation, it nevertheless is the proper method for calculating overtime on flat-rate bonuses.  The court reasoned that because California’s state policy is to discourage overtime, the method used by an employer must not encourage the use of overtime.  The FLSA formula does just that, because every hour of overtime worked incrementally decreases the regular rate, thereby incentivizing employers to require their employees to work more overtime.

Based on this reasoning, the court further held that only the non-overtime hours the employee actually works in a pay period should be the divisor, rather than all the potential full-time non-overtime hours in a pay period, and that the proper multiplier for the bonus premium is 1.5, not 0.5:  “We conclude that the flat sum bonus at issue here should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee’s overtime pay rate.”

This decision firmly establishes the method employers must use to calculate a California employee’s overtime pay rate when the employee has earned a non-discretionary flat sum bonus during a single pay period.  Additionally, because the same policy consideration of discouraging overtime applies to other types of bonuses, the California Supreme Court’s reasoning very likely applies to bonuses that cover multiple pay periods, such as annual non-discretionary bonuses.  Employers should immediately review their payroll policies and practices to ensure their California employees receive overtime pay calculated in a manner consistent with this opinion.  In particular, multi-state employers that use centralized payroll systems must now ensure overtime pay for California employees is calculated using a different method than overtime pay for employees who work outside California.

One final note: Dart Container argued that if the California Supreme Court adopted the DLSE calculation method, its decision should be applied only prospectively because, up to now, no California statute, regulation or wage order clearly required that method.  The court declined the request, which effectively means the court’s decision applies retroactively.  Look for overtime litigation in California to spike in the near future.

Aaron Buckley
Paul, Plevin, Sullivan & Connaughton LLP
San Diego, CA

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DOL Bends Slightly More Toward Employers – Self-Audits (Via Pilot Program) Are Back!

By: Jason E. Reisman, Blank Rome LLP

No one questions the incredibly complex and nuanced web of wage and hour regulations that the U.S. Department of Labor (DOL) has laid down over the last 80 or so years as guidance under the Fair Labor Standards Act (FLSA). Of course, in one sense, the regulations represent a grand effort to try to address just about every possible scenario implicating minimum wage and overtime pay concerns. On the other hand, the sheer volume of the regulations and embedded intricacies often leave employers scratching their heads. Well, compliance help may be on the way! In another (expected) move under Republican administration stewardship, which typically focuses on compliance assistance rather than “gotcha” enforcement, there will soon be an option for any employer that realizes it has been mistakenly out of compliance to self-report and obtain a final resolution.

The DOL’s Wage and Hour Division (WHD) has just announced that it will implement a new nationwide pilot program, the Payroll Audit Independent Determination (PAID) program, which it says is designed to “facilitate[] resolution of potential overtime and minimum wage violations under the [FLSA].” See the WHD’s information page here (https://www.dol.gov/whd/paid/) for more details. The DOL has created the program to assist in expeditiously resolving claims and avoiding unnecessary litigation, while also providing a vehicle to (1) improve employer compliance with minimum wage and overtime obligations, and (2) ensure that more employees receive the back wages they are owed without the delay associated with pursuing claims through lawsuits or DOL investigations.

The WHD plans to implement this pilot program nationwide for approximately six months. Upon completing the pilot, the WHD will evaluate how effective it is, whether potential modifications to the program would enhance it, and whether to make the program permanent. Voluntarily participating employers can correct compliance errors without risk of paying liquidated damages, civil money penalties, or attorneys’ fees.

The benefits of this program (to the extent it ultimately becomes permanent) will be for those employers who are vigilant and monitor their wage and hour compliance … and want to properly correct any mistakes found, which includes voluntarily paying any back wages employees are owed. Currently, when an employer identifies a compliance issue where back pay is owed, it cannot simply calculate and pay the back wages and have certainty that the matter is resolved. The potential for litigation remains (possibly seeking more money, liquidated damages, a longer back pay period, and attorneys’ fees) as well as a time-consuming and costly DOL investigation.

With the PAID pilot program, a self-reporting employer coming forward in good faith can pay 100% of the back wages owed under the WHD’s supervision and achieve peace of mind knowing the matter is conclusively resolved. Of course, not surprisingly, employers currently in litigation or under investigation by the WHD cannot participate in this program for the issues involved in the litigation/investigation. Although employees being offered back wages do not have to accept the payment (and can retain any right to pursue an action), if the employee accepts the payment, she/he will be required to grant a release “tailored to only the identified violations and time period for which the employer is paying the back wages.”

Stay tuned for the DOL announcing exactly when the pilot program will begin and providing more detailed information about participation. Please don’t hesitate to reach out to any member of the Wage and Hour Defense Institute with questions.

Massachusetts SJC Limits Wage Act Liability for Board Members and Investors

In late December 2017, the Massachusetts Supreme Judicial Court (SJC) issued an important decision limiting the scope of personal liability under the Massachusetts Wage Act. In Andrew Segal vs. Genitrix, LLC, the SJC held that personal liability under Wage Act violations extends only to a company’s president, treasurer and “officers or agents having the management” of the company. As such, the Wage Act does not impose personal liability on board members acting only in their capacity as board members and investors engaged in ordinary investment activities.

The Segal case arose out of an arrangement between an inventor and investors. The plaintiff assigned all of his intellectual property to a new limited liability company (LLC) and in exchange became president and CEO of the LLC. Eventually, the LLC began to have serious difficulties, leading the plaintiff to decide to stop taking a paycheck from the LLC. Ultimately, proceedings for judicial dissolution of the LLC were instituted, and the plaintiff continued to work for the company through this period without pay. Near the end of the dissolution process, the plaintiff demanded payment for his work from the company’s board and investors. When they declined, the plaintiff brought a lawsuit against the LLC (now dissolved) and against several board members and investors under the Wage Act.

Looking at the language of the Wage Act, the SJC held that the defendants could only be personally liable if they fell within one of the express categories of corporate actors identified in the statute: the president, treasurer, or “officers or agents having the management” of the company. Because neither of the defendants had served as president or treasurer of the company and, and were not officers of the company, they could be held personally liable under the Wage Act only if they were “agents having the management of the corporation.”

Interpreting this statutory language for the first time, the SJC applied the common law of agency and concluded that, although they exercise some control of the business, investors and board members exercising their ordinary duties do not act as “agents” of the company. The SJC did not foreclose the possibility that a board member or investor could face personal liability as an agent of the company. However, for investors or board members to be “agents,” they must be appointed as agents separately and distinctly from their ordinary duties as a board member or investor. In Segal, the LLC agreement expressly stated that investors did not have agency authority, and while one investor had the right to enforce the President and CEO’s employment agreement by insisting on his termination after two years, the SJC held that this power alone did not make him an agent for Wage Act purposes.

The SJC further found that board members and investors did not have “management” of the company. Ultimately, the plaintiff made the decision whether to pay employees, including himself. The board and investors played no role in that process. The court emphasized that investors’ and board members’ ordinary oversight of finances and high-level corporate matters did not constitute control over management of the company. Because the plaintiff could not demonstrate any unusual involvement in corporate finance and payroll decisions, he could not hold the investors and board members liable under the Wage Act.

The Segal decision provides board members and investors in Massachusetts the comfort of knowing that they will not face personal liability for unpaid wages – and the automatic trebling of damages that comes with Wage Act violations – so long as they are acting in their ordinary capacities as board members and investors. Still, employers should review their corporate organizational documents and agreements to ensure that these individuals have not been delegated management or agency powers that could qualify them as “employers” under the Wage Act. In addition, board members and investors should carefully consider taking on roles within an organization apart from their capacities as board members or investors, as such roles could expose them to potential Wage Act liability.

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

California Agency Issues New Guidance Stating Employers May Not Require Employees to Remain On-Site During Rest Breaks

California’s Division of Labor Standards Enforcement (DLSE) recently updated its guidance on paid 10-minute rest breaks.  In its new guidance the DLSE maintains, for the first time, that an employer may not require its employees to remain on the employer’s premises during rest breaks.

In November 2017 the DLSE posted on its website new Frequently Asked Questions (FAQs) addressing requirements for rest breaks and lactation accommodation.  That new guidance includes the following:

5. Q. Can my employer require that I stay on the work premises during my rest period?

A: No, your employer cannot impose any restraints not inherent in the rest period requirement itself.  In Augustus v. ABM Security Services, Inc., (2016) 5 [sic] Cal.5th 257, 269, the California Supreme Court held that the rest period requirement “obligates employers to permit—and authorizes employees to take—off-duty rest periods.  That is, during rest periods employers must relieve employees of all duties and relinquish control over how employees spend their time.” (citation omitted)  As a practical matter, however, if an employee is provided a ten minute rest period, the employee can only travel five minutes from a work post before heading back to return in time.

The new DLSE FAQs in their entirety can be found here.  In the Augustus v. ABM Security Services case cited by the DLSE, the California Supreme Court held that employees cannot be required to remain on-call during rest breaks, but did not expressly say employers must allow their employees to leave the employer’s premises during rest breaks.  For more information on the Augustus case see our December 27, 2016 blog post.

Prior to the DLSE’s new FAQs, it was widely understood that employers may require their employees to remain on-site during rest breaks.  While the DLSE has no authority to make law, it is empowered to enforce California wage orders and labor statutes, and courts often find the DLSE’s opinions on enforcement issues persuasive.  For this reason California employers should take the DLSE’s new guidance seriously.

As the DLSE pointed out in its new FAQs, the realities of time and distance are likely to discourage many employees from leaving their employer’s premises during 10-minute rest breaks, even when allowed to do so.  However, an employer’s policy that purports to prohibit employees from leaving the employer’s premises during rest breaks could, under the DLSE’s new interpretation, potentially support a conclusion that the employer failed to relieve its employees of all duty during rest breaks, and subject the employer to liability.  California employers should therefore review their policies and practices to ensure they are not requiring employees to remain on the employer’s premises during rest breaks.

New California Law Makes Contractors Liable for Subcontractors’ Unpaid Wages

On October 14, 2017, California Governor Jerry Brown signed into law Assembly Bill 1701, which will make general contractors on private construction projects liable for their subcontractors’ failure to pay wages due to the subcontractors’ employees.  The new law applies to contracts entered into on or after January 1, 2018.

Assembly Bill 1701 adds Section 218.7 to the California Labor Code.  Subdivision (a)(1) provides:

For contracts entered into on or after January 1, 2018, a direct contractor making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other private work, shall assume, and is liable for, any debt owed to a wage claimant or third party on the wage claimant’s behalf, incurred by a subcontractor at any tier acting under, by, or for the direct contractor for the wage claimant’s performance of labor included in the subject of the contract between the direct contractor and the owner.

The direct contractor’s liability under Section 218.7 will extend only to any unpaid wages, fringe or other benefit payments or contributions, including interest, but will not extend to penalties or liquidated damages.

Employees will not have standing to enforce the new law.  Only the California Labor Commissioner, a third party owed fringe or other benefit payments or contributions on a wage claimant’s behalf (such as a union trust fund), or a joint labor-management cooperation committee may bring a civil action against a direct contractor for the unpaid wages.   A joint labor-management committee must provide the direct contractor with at least 30 days’ notice by first-class mail before filing the action.

A prevailing plaintiff in any such action is entitled to recover its reasonable attorneys’ fees and costs, including expert witness fees.  The property of a direct contractor that has a judgment entered against it may be attached to satisfy the judgment.

The new law authorizes a direct contractor to request from its subcontractors their employees’ wage statements and payroll records required to be maintained under Labor Code section 1174.  The payroll records must contain information “sufficient to apprise the requesting party of the subcontractor’s payment status in making fringe or other benefit payments or contributions to a third party on the employee’s behalf.”   Direct contractors and subcontractors also have the right to request from any lower tier subcontractors “award information that includes the project name, name and address of the subcontractor, contractor with whom the subcontractor is under contract, anticipated start date, duration, and estimated journeymen and apprentice hours, and contact information for its subcontractors on the project.”   A direct contractor may withhold as “disputed” all sums owed if a subcontractor does not timely provide the requested information, until such time as that information is provided.

Given this new law, general contractors operating in California should be even more careful than before about the subcontractors they hire, and pay particular attention to the subcontractors’ ability and willingness to comply with all applicable wage and hour laws.  This includes requirements to provide timely meal and rest periods, because meal and rest period premiums qualify as wages.  General contractors should also ensure their subcontractor agreements require the subcontractors to indemnify the general contractor for any liability arising from the new law.  Once a project is underway, general contractors should closely monitor their subcontractors’ compliance with wage and hour laws and fringe benefit payments, and where necessary exercise their right to request payroll records from subcontractors to ensure they are timely paying all required wages and fringe benefits.

Aaron Buckley
Paul, Plevin, Sullivan & Connaughton LLP
San Diego, CA

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

California Supreme Court Rules PAGA Plaintiffs Are Presumptively Entitled to Contact Information of Defendant’s Employees Statewide

Last week in a unanimous decision, the California Supreme Court ruled that representative plaintiffs in Private Attorneys General Act (PAGA) cases are presumptively entitled to discover the names and contact information of other allegedly “aggrieved employees” statewide at the outset of litigation, without the need to show good cause.

Enacted in 2004, PAGA allows allegedly “aggrieved employees” to sue employers on behalf of the state of California to recover civil penalties on behalf of the state for violations of the state Labor Code, and to keep for themselves and other aggrieved employees 25 percent of any civil penalties recovered, with the remaining 75 percent going to the state.  PAGA also provides for the recovery of attorneys’ fees.

Michael Williams was employed by Marshalls of CA, LLC, at the company’s store in Costa Mesa, California.  He sued Marshalls under PAGA, asserting various wage and hour violations.  Early in the case, Williams sought to discover the names and contact information of fellow Marshalls employees throughout California, and offered to use a so-called “Belaire-West notice,” a discovery mechanism whereby non-party employees are notified of a plaintiff’s request to discover their names and contact information, and are given an opportunity to opt out of having their information produced.  Marshalls objected on several grounds, including burdensomeness and the privacy rights of its employees.  The trial court granted Williams’ motion to compel Marshalls to produce employee contact information, but only as to employees who worked at the Costa Mesa store where Williams worked.

The Court of Appeal affirmed, holding discovery of contact information for employees statewide was premature, and that Williams had failed to show good cause for the production of contact information statewide, given that he had not shown knowledge of unlawful practices at any store other than the Costa Mesa location, or facts putting any uniform statewide practice at issue.

The California Supreme Court reversed, finding the trial court abused its discretion in denying Williams’ motion to discover statewide contact information because the California Code of Civil Procedure does not include a “good cause” standard for discovery, and discovery rules for PAGA actions are no different from the rules governing discovery in putative class actions.  Although defendants may object to discovery requests on various grounds (as did Marshalls) and trial courts retain broad discretion to manage discovery, when it opposed the motion the company presented no evidence showing the production of statewide contact information would be unduly burdensome, and the well-established Belaire-West notice procedure provided sufficient privacy protections.

This decision confirms that in a class, collective or PAGA action litigated in a   California state court, the names and contact information of non-party employees are presumptively discoverable simply upon the filing of a complaint.  Instead of placing the burden on plaintiffs to show good cause for the discovery, the burden is on defendants to show why discovery should be limited.  The court found Marshalls failed to do so, but the opinion leaves open the possibility that other employers may be able to limit discovery under the right circumstances.

Aaron Buckley
Paul, Plevin, Sullivan & Connaughton LLP
San Diego, CA

U.S. Department of Labor Reinstates Opinion Letters and Signals Coming Changes to Obama-Era Overtime Rule

On June 27, 2017, the U.S. Department of Labor (DOL) made two announcements that signal a change of direction for the new Administration.  First, the DOL announced in a press release that it would return to its decades-long practice of issuing “opinion letters,” which provide employers formal, written guidance on specific labor law issues.  Second, the DOL began the process for seeking public notice and comment on the Obama DOL’s rule increasing the salary threshold for overtime exemptions, indicating that the DOL is considering eliminating or changing the controversial rule.

Opinion Letters

For over 70 years, the DOL issued opinion letters, which were official administrative guidance that explained how the DOL would apply the FLSA, FMLA and a select few other laws in specific factual scenarios.  Employers could rely on the opinions and use them to defend actions taken in line with those opinions.  In 2010, however, the DOL stopped issuing opinion letters, opting instead for broader “Administrator Interpretations.”  These Interpretations were far fewer in number and offered more general guidance, and they were criticized by employers for their perceived pro-employee slant.  (The DOL under President Trump has since revoked two of these Interpretations.)

On June 27, the DOL announced that it would resume issuing opinion letters.  Labor Secretary Acosta explained that the policy shift was intended to benefit employees and employers by providing “a means by which both can develop a clearer understanding of the Fair Labor Standards Act and other statutes” and allowing employers to focus on “growing their businesses and creating jobs.”

The DOL has set up a webpage where the public can view existing guidance or request an opinion letter.  The website contains specific instructions about how to request an opinion letter, what to include in a request, and where to submit the request.

Overtime Rule

On the same day, the DOL also announced that it sent a Request for Information (RFI) to the Office of Management and Budget (OMB) related to the Obama DOL’s overtime rule, which, among other things, increased the minimum salary for the executive, administrative and professional worker exemptions.  Once the RFI is published, the public has an opportunity to comment.

The new overtime rule had been scheduled to take effect on December 1, 2016, but a federal court in Texas granted a preliminary injunction delaying implementation of rule while a legal challenge to it was pending.  The Department of Justice appealed the decision on December 1, and the case remains on appeal in the Fifth Circuit Court of Appeals.

While the RFI could be the first step towards the rule’s official demise, the DOL may be considering modifying the rule in some way.  In statements to a Senate subcommittee on June 27, Secretary Acosta noted that the request “would ask the public to comment on a number of questions that would inform our thinking,” and, while the rule’s salary threshold would be “just too high for many parts of the country,” he urged the public to show the DOL “how to write a good overtime regulation.”

Together, these changes show that the new DOL is moving in a more employer-friendly direction than the agency had during the prior Administration.

Jonathan Keselenko, Foley Hoag LLP, Boston, MA