U.S. Department of Labor WHD Issues Administrator’s Interpretation on Independent Contractors and Asserts that “Most Workers are Employees”
As promised earlier this summer, on July 15, 2015, the U.S. Department of Labor’s Wage and Hour Division (WHD) issued an “Administrator’s Interpretation” (AI) regarding when individuals are misclassified as independent contractors under the Fair Labor Standards Act (FLSA). The AI sends a signal to employers that the WHD has set a demanding standard for establishing when an individual is properly classified as an independent contractor and indicates that the agency views the issue as an enforcement priority. The AI states that, in the view of the WHD, “most workers are employees under the FLSA’s broad definitions.”
As background, unlike regulations, AIs are not subject to the rulemaking process such as that which is now underway for the proposed amendments to the white collar overtime rules. Rather, the AI provides the WHD’s view of the law, and that view is very unfriendly to those attempting to classify workers as independent contractors. In media interviews this week, the WHD’s Administrator David Weil stated that the AI was designed to give employer’s “fair notice” that they will run into the agency’s crosshairs if they misclassify individuals.
According to the AI, in order to determine whether an individual is an employee or independent contractor, the “economic realities” need to be examined to determine the true relationship. This test is to determine “whether an individual is economically dependent on the [putative] employer (and thus an employee) or is really in business for him or herself (and thus is an independent contractor).”
The AI uses a six-factor test commonly used by courts in determining status under the FLSA. The factors are (1) whether the work performed is integral to the employer’s business; (2) whether the worker has an opportunity for profit and loss based on his/her skills; (3) the relative investments of the employer and the worker; (4) whether the work requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer. The AI emphasizes that no one factor is determinative.
While the factors discussed above are not new, the WHD’s application of them is more expansive than ever articulated by the federal government. In weighing the factors in the AI, the WHD clearly puts its thumb on the scale in favor of employee status. For example, in discussing the “control” factor — which many have viewed as the most indicative factor in determining status — the AI emphasizes that “it should not play an oversized role in the analysis” and states that an employer’s “lack of control over workers is not particularly telling if the workers work from home or offsite.” It also states that “workers’ control over the hours when they work is not indicative of independent contractor status.”
Importantly, the AI states it will give no weight to the parties’ understanding or agreement concerning the relationship. The AI states that “an agreement between an employer and a worker designating or labeling the worker as an independent contractor … is not relevant to the analysis of the worker’s status.”
Notably, the FLSA is only one of many laws governing worker classification. Many states, including Massachusetts, have set a high bar for establishing that an individual is an independent contractor. Given these trends, we expect to see litigation and enforcement action to increase.
Jonathan Keselenko
Foley Hoag
Boston, MA
Los Angeles City Council Votes to Establish $15 minimum wage
On Tuesday the Los Angeles City Council voted to raise the city’s minimum wage to $15 an hour by 2020. Los Angeles will join San Francisco, San Jose and Oakland as California cities with minimum wages higher than both the federal and state minimum wages.
The federal minimum wage is $7.25 per hour. California’s state minimum wage is currently $9 per hour, and is scheduled to rise to $10 per hour on January 1, 2016. Employees must be paid the highest minimum wage in effect, which in California is the state minimum wage except in cities that have established their own higher minimum wages.
The City of Los Angeles does not currently have its own minimum wage, but on Tuesday the City Council voted to establish a city minimum wage of $10.50 per hour effective July 1, 2016. Thereafter the city’s minimum wage will increase to $12.00 on July 1, 2017; $13.25 on July 1, 2018; $14.25 on July 1, 2019; and $15.00 on July 1, 2020. Beginning in 2022 the city’s minimum wage will be adjusted for inflation on July 1 of each year.
California cities that already have minimum wages higher than the state minimum wage include San Francisco (currently $12.25 per hour and scheduled to rise to $13 on July 1, 2016; $14 on July 1, 2017; and $15 on July 1, 2018; followed thereafter by annual adjustments for inflation each July 1); San Jose (currently $10.30 per hour and adjusted each January 1 for inflation); and Oakland (currently $12.25 per hour and adjusted each January 1 for inflation).
Meanwhile, San Diego’s minimum wage is on hold. In October 2014 the San Diego City Council voted to establish a city minimum wage that would rise to $11.50 per hour by January of 2017, and would also require employers to provide their employees with up to 40 hours of paid sick leave each year. But opponents of the ordinance gathered enough petition signatures to put the measure to a public vote. It will go into effect only if it survives a June 2016 referendum.
It is becoming increasingly clear that employers can no longer assume that compliance with federal and state laws is enough. The trend of cities establishing their own minimum wages appears to be picking up steam. Employers should take steps to stay abreast of, and comply with, all local minimum wages and other local mandates.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Court: It’s Okay for Employees to Remain On-Call During Rest Breaks
On January 29, 2015, a California appellate court modified and published its earlier opinion holding that ten minute rest breaks are not invalidated by the mere possibility the employee(s) may be asked to perform work. While actual work is prohibited during rest breaks, simply remaining available to work is not. The case is Augustus v. ABM Security Services, Inc.
ABM Security Services employs thousands of security guards throughout California. The company’s rest break policy requires security guards to keep their radios and pagers on during rest breaks and to respond to emergency and non-emergency situations should the need arise.
Three security guards filed putative class actions against ABM in which they argued the requirement to stay in contact and to respond to requests for assistance rendered the rest breaks indistinguishable from normal security work, and therefore invalid as a matter of law. The trial court certified the class. The plaintiffs then moved for summary adjudication, offering no evidence that any rest periods had ever been interrupted, but arguing the requirement to remain on call during rest breaks rendered them invalid. The trial court granted the motion, finding the requirement to remain on call during rest breaks meant the security guards were not truly on break, regardless of whether they were actually interrupted and required to perform work. The court awarded $90 million in damages, penalties and interest to the security guards, plus over $31 million in attorneys’ fees.
The appellate court examined Wage Order No. 4 and Labor Code section 226.7 in an effort to determine “the nature of a rest period.” The court found no useful guidance in the wage order, but noted that section 226.7 merely prohibits requiring an employee “to work” during a rest break. The court framed the issue as “whether simply being on-call constitutes performing ‘work.’ We conclude it does not.”
The court rejected the guards’ argument that on-call time necessarily constitutes work because it is indistinguishable from the rest of a guard’s work day, given that guards are always on call. The court explained: “[S]ection 226.7 does not require that a rest period be distinguishable from the remainder of the workday, it requires only that an employee not be required ‘to work’ during breaks. Even if an employee did nothing but remain on call all day, being equally idle on a rest break does not constitute working.”
The court also rejected the guards’ reliance on case law holding that employees must be relieved of all duty during meal breaks, noting the wage order includes language specifically requiring an employer to relieve an employee of all duty during a meal break, but contains no such requirement with respect to rest breaks. The court concluded: “In sum, although on-call hours constitute ‘hours worked,’ remaining available to work is not the same as performing work. . . . Section 226.7 proscribes only work on a rest break.”
This decision clarifies important distinctions between meal break and rest break requirements, and in the process provides guidance to employers on what they must do to comply.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Supreme Court: On-Call Employees Required to Sleep on Employer’s Premises Must Be Paid
On January 8 the California Supreme Court held that security guards who spend eight hours of their 24-hour shifts sleeping on their employer’s premises must be paid for that sleep time, disapproving a 2011 appellate court decision holding that eight hours of on-call sleep time during 24-hour shifts need not be compensated. The new case is Mendiola v. CPS Security Solutions, Inc.
CPS Security Solutions employed guards to provide security at construction sites. CPS required the guards to live on-site in residential trailers equipped with beds, bathrooms, kitchens, heating and air conditioning. On weekdays, guards worked 16-hour shifts consisting of eight hours on patrol and eight hours on-call. On weekends, they worked 24-hour shifts consisting of 16 hours on patrol and eight hours of on-call “sleep time.”
During on-call shifts, guards were required to remain on site. They were not allowed to have children, pets, or alcohol on site, and had to obtain prior approval to receive adult visitors. CPS did not pay the guards for any on-call time unless they were asked to perform work.
In 2008 guards filed class action lawsuits, arguing that Industrial Welfare Commission Wage Order 4, which governed their work, required CPS to pay them for all the on-call time, including sleep time. The trial court agreed, finding all the guards’ on-call time was compensable “hours worked.”
CPS appealed, citing previous appellate decisions, including Seymore v. Metson Marine, Inc., a 2011 case approving the exclusion of “sleep time” based in part on a federal regulation (29 CFR 785.22) that authorizes employers to enter into agreements with employees working 24-hour shifts to designate up to eight hours as on-call “sleep time” and exclude it from compensable “hours worked.” The state appellate court agreed with CPS as to the sleep time issue, holding that CPS could exclude the sleep time from compensable hours worked.
The California Supreme Court held that all the guards’ on-call time—including the sleep time—constituted compensable hours worked under California law. The Court noted the absence of any language in Wage Order 4 justifying a sleep time exclusion (unlike Wage Order 9, which provides a sleep time exclusion for ambulance drivers and attendants). The court expressly “disapproved” Seymore v. Metson Marine as wrongly decided, finding no justification for incorporating the federal regulation into California law given California’s broader definition of “hours worked,” which includes not only working time but also time an employee is “subject to the control” of an employer.
This case is yet another reminder that California wage and hour laws differ from federal law in many important respects, and compliance with federal law does not necessarily protect an employer from wage claims brought under California law. Any company employing workers in California, especially companies based outside the state that may be less familiar with California wage laws, should review their wage practices on a regular basis.
Employers that schedule employees for unpaid on-call time should review whether the employees are sufficiently restricted such that they need to be paid, or the employees’ restrictions reduced, to meet the requirements of this new ruling.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
Northern California Voters Approve Minimum Wage and Paid Sick Leave Measures; San Diego Ordinance on Hold
In September we posted a discussion of the new California paid sick leave law, which takes effect on July 1, 2015. In last week’s general election, Oakland voters signaled they think the state’s paid sick leave mandate does not go far enough. They overwhelmingly approved a paid sick leave initiative modeled on one passed by San Francisco voters in 2006, and that goes well beyond the new state law’s requirements. And voters in both cities approved minimum wage increases that will raise their local minimum wages far higher than either the current federal minimum of $7.25 per hour, or the California state minimum of $9 per hour (scheduled to rise to $10 in 2016).
The Oakland initiative, Measure FF, requires employers to provide their Oakland employees with one hour of paid sick leave for every 30 hours worked beginning in March 2015. Employers with fewer than 10 workers can cap the amount of paid sick leave at 40 hours per year, but employers with 10 or more workers must provide up to 72 hours per year. This is three times the state paid sick leave minimum of three days or 24 hours per year.
That same initiative will increase the minimum wage for employees working in Oakland to $12.25 per hour beginning in March 2015, followed thereafter by annual cost of living increases. The Oakland measure prohibits employers from funding required wage increases by reducing any non-management employee’s benefits. The initiative also requires hospitality employers that collect service charges from customers, including room service delivery chargers or baggage carrying charges, to pass those fees on to their hospitality workers.
San Francisco has long had a minimum wage higher than the state minimum. But in November that city’s voters approved Proposition J, which will raise the current city minimum wage still higher, from its current level of $10.74 per hour to $12.25 per hour on May 1, 2015; $13 per hour on July 1, 2016; $14 per hour on July 1, 2017; and $15 per hour on July 1, 2018, followed thereafter by annual cost of living increases.
Voters in nearby Berkeley approved Measure Q, which calls on the City Council to adopt an ordinance similar to the Family Friendly Workplace Ordinance that San Francisco adopted in October 2013, which allows employees to seek changes to their working arrangements to care for family members with serious health conditions. Measure Q also authorizes the Berkeley City Council to send letters to federal and state officials asking for government employees to have the right to shorter work hours if doing so would not cause operational problems.
Meanwhile, in southern California the San Diego City Council’s minimum wage and paid sick leave ordinance, which we discussed in a July post, has hit a roadblock. In July the council voted to establish a city minimum wage of $9.75 per hour in January 2015, $10.50 per hour in January 2016, and $11.50 per hour in January 2017. The ordinance would also have required employers to provide up to five days or 40 hours of paid sick leave per year beginning in July 2015. The measure met with stiff opposition in the business community, which launched a petition drive to require the council to either rescind the ordinance or to allow the city’s voters to decide its fate. In October the measure’s opponents submitted more than enough signatures, and shortly thereafter the council voted to submit the issue to the voters. The measure is now on hold, and will take effect only if approved by the voters in the June 2016 primary election.
Municipal governments enacting their own minimum wage, paid sick leave and other measures is a relatively new trend that creates headaches for employers by requiring them to apply different rules to different groups of employees based on where they work. But the trend is likely to continue for the foreseeable future, so employers should take all necessary steps to stay abreast of, and comply with, these new local mandates.
City of San Diego Raises Minimum Wage and Mandates Paid Sick Leave
Earlier this week the San Diego City Council voted to join San Francisco, San Jose and several other cities across the nation as municipalities with higher minimum wages than those established by federal or state law. The council also voted to require employers to provide paid sick leave. The council is scheduled to vote again on July 28 to officially adopt the ordinance. The 6-3 vote in favor of the measure is sufficient to override an expected veto by Mayor Kevin Faulconer.
Currently the federal minimum wage is $7.25 per hour. California’s minimum wage increased from $8 to $9 per hour on July 1 of this year, and is scheduled to rise again to $10 per hour on January 1, 2016. Employees must be paid the highest minimum wage in effect, which means workers in San Diego are currently subject to the state minimum wage.
The vote by the City Council will, for the first time, establish a minimum wage within the City of San Diego that will be higher than both the federal and state minimums. San Diego’s minimum wage will apply to all private sector employees who work at least two or more hours per calendar week within the city limits. These employees must be compensated for each hour worked within the city limits at the following minimum hourly rates:
Beginning January 1, 2015: $9.75
Beginning January 1, 2016: $10.50
Beginning January 1, 2017: $11.50
Beginning January 1, 2019, the city’s minimum wage will increase in January of each year based on the prior year’s increase in the Consumer Price Index.
San Diego’s new paid sick leave mandate takes effect April 1, 2015, and requires employers to provide employees with one hour of paid sick leave for every 30 hours worked within the city limits, with a maximum accrual of 40 hours per year. Employees may begin using paid sick leave on July 1, 2015. Paid sick leave may be used for the employee’s own illness or medical appointment, to care for an ill family member, or to take time off for reasons related to domestic violence.
Employers may require paid sick leave to be used in increments of at least two hours, and may limit an employee’s use of paid sick leave to 40 hours per year. Employees will be allowed to carry over unused sick leave to the following year, but employers are not required to pay out unused sick leave upon the employee’s separation from employment. Employers already providing paid sick leave that meets the requirements of the ordinance are not required to provide any additional sick leave.
The measure also requires employers to post notices of the new ordinance within the workplace by April 1, 2015, and to provide each new employee with written notice of the minimum wage and paid sick leave requirements after that date. The city will make notice materials available to employers by April 1, 2015.
The ordinance also creates a city Enforcement Office to enforce the minimum wage and paid sick leave requirements, and establishes a civil penalty for most violations of up to $1,000. Violations of the notice requirement may be assessed at $100 per employee, up to a maximum of $2,000.
San Diego business leaders are considering a referendum to overturn the ordinance. In the meantime, employers who have employees working within the San Diego city limits (even if the employer is based outside the city) should plan to comply with the new minimum wage, sick leave, and notice requirements.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Minimum Wage to Rise to $10 per Hour
Yesterday, Governor Jerry Brown signed legislation that will raise California’s minimum wage in two steps, from its current level of $8 per hour to $9 per hour on July 1, 2014, with a further increase from $9 per hour to $10 per hour on January 1, 2016.
The current California minimum wage of $8 per hour has been in effect since 2008. The current federal minimum wage of $7.25 per hour is not scheduled to change, but since employers in California are subject to both the federal and state minimum wages, employees who work in California must be paid the higher of the state or federal minimum. California’s minimum wage is therefore likely to control for the foreseeable future.
The minimum wage increase will affect not only low wage earners, but also salaried employees who are classified as exempt from overtime under any of California’s “white-collar” exemptions for administrative, executive and professional employees. These white-collar workers must be paid at least twice the minimum wage per month, calculated based on full-time work (40 hours per week). As a result, any increase in the minimum wage automatically increases the minimum salary for these white-collar exempt employees.
Since 2008, the minimum salary for white-collar exempt employees in California has been $33,280 per year, or $2,773.33 per month. When the minimum wage goes up to $9 per hour on July 1, 2014, the minimum salary for administrative, executive and professional white-collar employees will increase to $37,440 per year, or $3,120 per month. Any failure to pay the minimum required salary to these employees will render them nonexempt, and therefore subject to all overtime, meal period and rest period requirements.
California law does not allow the minimum salary to be reduced or pro-rated for those white-collar employees who work part-time. As a result, part-time white-collar employees must be paid the minimum salary or more on a monthly basis, regardless of how many (or how few) hours they work.
Employers affected by the increased minimum wage should make sure any required changes—both to hourly pay rates and salaries (for full-time and part-time exempt employees)—are fully implemented by July 1, 2014 for the first increase to $9 per hour, and by January 1, 2016 for the second increase to $10 per hour.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
DOL’s “Bridge to Justice Program” – Solicitor Smith Provides Crucial New Information at PLI Conference
This posting arises from comments on the “Bridge to Justice Program” by Department of Labor (DOL) Solicitor Patricia Smith, during the panel discussion “The Obama Administration’s Enforcement of the Wage and Hour Laws” at the Practicing Law Institute’s “Managing Wage & Hour Risks 2011” conference held on February 7, 2011, in New York City. David Fortney was co-chair of the conference and led the panel discussion with Ms. Smith. Leslie Stout-Tabackman was a conference speaker and led a panel discussion on wage hour compliance reviews.
Background
The “Bridge to Justice” Program was launched by the DOL’s Wage and Hour Division on December 13, 2010 (See “DOL’s Wage and Hour Division Connects Workers to New Attorney Referral System” posted November 29, 2010; See also November 29, 2010 Entry by Robert Boonin). Under this program, the Wage and Hour Division provides attorney referral information to complainants whose Fair Labor Standards Act or Family Medical Leave Act claims the DOL declines to pursue. In addition, when the Wage and Hour Division has conducted an investigation, the complainant is provided information about the Wage and Hour Division’s determination regarding violations at issue and back wages owed. This information is given to the complainants in the same letter informing them that the Wage and Hour Division will not be pursuing further action, and will be very useful for attorneys who may take the case. In announcing the program, the Wage and Hour Division stated that it had developed a “special process” for complainants and representing attorneys to quickly obtain “certain relevant case information and documents when available.” However, until just recently, the DOL had declined to provide any details as to what information it would release, the process by which the information would be released, and whether and by what means the employer would have access to information released to employees.
New information provided by Ms. Smith
Ms. Smith told the PLI conference attendees that employers will not be notified when the attorney referral letter is sent to employees, but that employers will know that such a letter has been sent if it receives a communication from the DOL that the case has been closed and remains unresolved at the time of case closure. Of course, it is unknown how many of the recipients of the letter will elect to follow up with the ABA attorney referral process and retain counsel.
Regarding the information that the DOL will provide to employees and their attorneys, Ms. Smith provided the following information:
First, in keeping with its longstanding practices, the DOL will release case information only when a case has been closed.
Second, in general, the DOL will follow the normal Freedom of Information Act (FOIA) process, which requires a written request and processing under FOIA procedures, for requests for case information. However, there are two areas of information and documents that the DOL will release to the employee and/or the employee’s attorney –BUT NOT TO THE EMPLOYER –in response to an informal request: (1) any documents or information that the claimant provided to the DOL (claimant interview, documents related to the claim) and (2) the DOL’s computations of damages/back pay deemed owed. Documents and information released to the employee or employee’s attorney based on an informal request will be provided on an expedited basis.
Third, the DOL will not provide notice to the employer of the release of information to the employee or the employee’s attorney.
Fourth, the employer will need to file a written FOIA request to determine whether information has been provided to an employee or the employee’s counsel, and to obtain the same information that was provided to the employee or employee’s counsel without a FOIA request.
Fifth, for information or documents other than the type described above, both the employee (and the employee’s counsel) and the employer will need to make a FOIA request.
Practice Points
We anticipate that the Bridge to Justice Program will result in more private litigation under the FLSA and FMLA. In addition, with the expedited provision of certain documents and information by the DOL to employees and their attorneys, employers should focus on taking steps to protect information provided to the DOL in an investigation and to be prepared to move quickly if they receive case closure letters for unresolved claims. Specifically:
- Employers should continue to carefully review and mark as Confidential and Proprietary Commercial Information all financial and other business proprietary information provided to the DOL in the course of an audit/investigation.
- Employers that receive a case closed letter in a complaint that has not been resolved, should consider quickly filing a FOIA request for the case file documents, including a request for any documents provided to the employee or the employee’s counsel.
- If the employee or other third party files a FOIA request for the employer’s documents or other information marked as Confidential and Proprietary Commercial Information, the DOL must provide the employer with notice and the opportunity to object to the disclosure. Employers should have a process in place for the prompt review and response to the notice by a designated employer representative.
- The DOL must notify the employer if it intends to release objected to documents and information and the date of release. Employers should have a process in place to review the notice and make a determination about filing a complaint in federal court seeking an injunction to prevent disclosure of the documents.
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