Wage and Hour

USDOL's Proposed Revisions to the Exemption Regulations Significantly Increase Salary Requirements, But Leave Duties Requirements Untouched

June 29, 2015

By Subhash Viswanathan

The U.S. Department of Labor released its highly anticipated proposed rule on the Fair Labor Standards Act white-collar overtime exemptions today, along with a fact sheet summarizing the proposed rule.  The proposed rule more than doubles the salary requirement to qualify for the executive, administrative, professional, and computer employee exemptions from the current level of $455 per week to an amount that is expected to be $970 per week by the first quarter of 2016, and significantly increases the salary threshold to qualify for the "highly compensated employee" exemption.  The proposed rule also includes a procedure to automatically raise the minimum salary levels to qualify for the white-collar exemptions from year to year without further rulemaking.  The USDOL estimates that nearly five million employees who are currently classified as exempt will immediately become eligible for overtime pay if the proposed rule is adopted as the final rule. The USDOL is proposing to set the salary requirement to qualify for the executive, administrative, professional, and computer employee exemptions at the salary level equal to the 40th percentile of earnings for full-time salaried workers, and the salary requirement to qualify for the highly compensated employee exemption at the salary level equal to the 90th percentile of earnings for full-time salaried workers.  The USDOL used data compiled by the Bureau of Labor Statistics from 2013 in drafting the proposed rule, which provides for a minimum salary level of $921 per week to qualify for the executive, administrative, professional, and computer employee exemptions, and a minimum salary level of $122,148 per year to qualify for the highly compensated employee exemption.  However, the USDOL stated in its Notice of Proposed Rulemaking that it will likely rely on data from the first quarter of 2016 if the proposed rule is adopted, which will result in a projected minimum salary level of $970 per week to qualify for the executive, administrative, professional, and computer employee exemptions. The proposed rule does not include any proposed revisions to the outside sales exemption.  In addition, although there was some speculation that the duties requirements would also be revised to make the exemptions more restrictive, the USDOL's proposed rule does not include any revisions to the duties requirements to qualify for any of the white-collar exemptions.  However, the USDOL stated in its Notice of Proposed Rulemaking that it is nevertheless seeking comments on whether the duties tests are working as intended to screen out employees who are not bona fide executive, administrative, or professional employees.  So, there is still a possibility that the duties requirements could be revised based on comments received by the USDOL about the proposed rule. Employers should immediately begin to assess which employees who are currently classified as exempt will become non-exempt if the proposed rule is adopted as the final rule.

New York State DOL Issues Draft Regulations on Payroll Debit Cards

June 23, 2015

By Andrew D. Bobrek
The New York State Department of Labor (“NYSDOL”) recently proposed new regulations governing the payment of employee wages via payroll debit cards – a growing practice among employers.  These draft regulations, which are not yet final or effective, also set forth new requirements governing the payment of wages by direct deposit. Regarding an employer’s use of these so-called “payroll cards,” NYSDOL has previously cautioned that paying employees in this manner raises a number of potential legal issues under the New York Labor Law.  Even so, NYSDOL concurrently opined that employees may be paid lawfully through such payroll cards, so long as certain requirements are met.  For example, according to NYSDOL, employers are required to first obtain written authorization from employees, and employees cannot be subjected to undue fees or encumbrances when accessing their wages through the payroll cards. The proposed regulations track this prior guidance and, if enacted, will codify the specific requirements that must be met in order for employers to lawfully use such payroll cards.  Among other things, employers will be required:  (1) to provide specific, advanced disclosures to employees about the payroll card program in question; (2) to obtain the prior “informed consent” of employees; and (3) to ensure the payroll card program includes a long list of other mandatory terms and conditions (e.g., employees must be provided with access to at least one ATM network offering withdrawals at no cost). With respect to direct deposit, the proposed regulations would require employers to maintain an employee's written consent to be paid through direct deposit during the entire duration of the employee's employment and for six years after the last deposit is made.  In addition, employers would be required to provide a copy of the written consent to the employee and to make the direct deposits at a financial institution selected by the employee. Notably, the proposed regulations would not apply to individuals working in executive, professional, or administrative positions who earn in excess of $900.00 per week. The proposed regulations are currently open for public comment.  We will continue to monitor this issue and report on any further developments. Editor's Note:  Our thanks to Stephanie Hoppe, one of Bond’s Summer Law Clerks, who helped prepare this article.

Federal Court Rules That HR Consultant's Report is Not Privileged

April 14, 2015

On March 27, 2015, the U.S. District Court for the Southern District of New York granted the plaintiffs’ motion to compel disclosure of a report prepared by a Human Resources (“HR”) consultant in class action litigation under the Fair Labor Standards Act (“FLSA”) and state wage and hour laws. In Scott v. Chipotle Mexican Grill, Inc., Chipotle claimed that a number of documents sought by the plaintiffs during discovery were privileged communications that were protected from disclosure.  One such document was a report from an HR consultant examining the activities of four employees holding Chipotle’s apprentice position.  Chipotle claimed that the report was subject to the attorney-client privilege because one of its attorneys retained the HR consultant to help him assess whether the apprentice position should be classified as an exempt or non-exempt position.  The Court disagreed with Chipotle and ordered that the report be turned over to the plaintiffs. In general, the attorney-client privilege -- upon which Chipotle was relying -- applies to communications between an attorney and his/her client that were intended to be, and were in fact, kept confidential, and were made for the purpose of obtaining or providing legal advice.  In certain limited situations, however, communications can fall within this privilege even if not made between an attorney and a client.  The so-called “agent of attorney” doctrine acts to extend the attorney-client privilege to shield communications that are not between an attorney and client when the purpose of the communication is to assist the attorney in rendering legal advice to the client.  Such communication must be “necessary” or “highly useful” for effective consultation between the client and attorney.  This exception has been applied sparingly, in very limited circumstances. Here, the Court held that Chipotle failed to establish that the HR consultant did anything more than factual research to assist Chipotle in making a business decision, rather than to assist an attorney in rendering legal advice to Chipotle.  The Court explained that the report did not provide any specialized knowledge that the attorneys could not have acquired or understood on their own or directly through Chipotle (their client).  There was also no indication that the consultant was taking information that was incomprehensible to Chipotle’s attorneys and putting it into a “usable form,” rather than merely consolidating employee interviews and delivering a factual analysis.  The Court rejected Chipotle’s argument that the report should be considered privileged because the consultant was hired by a law firm and the report was specifically drafted for an attorney, because the agent-of-attorney doctrine does not consider form over substance.  The final nail in Chipotle’s coffin was the fact that no legal advice was actually provided by its attorneys following receipt of the HR consultant’s report, which indicated that the report was not created for the purpose of assisting the attorneys in providing legal advice. The Chipotle decision emphasizes the need for employers to exercise the utmost care when deciding whether to utilize the services of an HR consultant.  Although the Court ruled upon a situation where an attorney was involved, at least tangentially, with the HR consultant, employers must recognize that when an HR consultant is simply providing advice to an employer and there is no attorney involvement at all, such communications or resulting reports would undoubtedly not be privileged.  Even if an attorney is involved, however, the privilege still will not apply if the consultant’s investigation is merely factual, does not assist the employer’s attorney in rendering legal advice, and does not provide information outside of the attorney’s general expertise that is essential to effective consultation between the attorney and client.  In such situations, there is a risk that the employer will be required to disclose any communications and reports from the consultant during future litigation, which potentially could be devastating depending upon the content of those communications and reports.

U.S. Supreme Court Holds That DOL May Change Interpretations of Regulations Without Public Notice and Comment

March 13, 2015

On March 9, 2015, the United States Supreme Court ruled unanimously in two consolidated cases that a federal agency does not have to go through the formal rulemaking process, which includes providing public notice and an opportunity for comment, “when it wishes to issue a new interpretation of a regulation that deviates significantly from one the agency has previously adopted.” The underlying issue in the two cases -- Perez v. Mortgage Bankers Association and Nickols et al. v. Mortgage Bankers Association -- began when the United States Department of Labor (“DOL”) changed its opinion regarding whether mortgage-loan officers are covered by the so-called “administrative exemption” of the Fair Labor Standards Act.  Prior to 2004, DOL's Wage and Hour Division issued written advisory opinions that mortgage-loan officers are not eligible for the administrative exemption, and are entitled to payment of overtime for hours worked over 40 in a work week.  In 2004, DOL revised its white collar exemption regulations, but there was some ambiguity regarding whether mortgage-loan officers fell within the revised administrative exemption.  In 2006, DOL's Wage and Hour Division issued a written advisory opinion that mortgage-loan officers qualify for the administrative exemption as revised in 2004.  However, in 2010, DOL's Wage and Hour Division changed its mind and issued a written advisory opinion that mortgage-loan officers do not qualify for the administrative exemption. The Mortgage Bankers Association challenged this 2010 administrative interpretation in federal court, alleging, among other things, that DOL’s interpretation was procedurally invalid in light of a previous decision by the U.S. Court of Appeals for the D.C. Circuit (Paralyzed Veterans v. D.C. Arena L.P.).  Under the so-called “Paralyzed Veterans doctrine,” an agency may not significantly revise its interpretation of a regulation without providing public notice and an opportunity for comment pursuant to the Administrative Procedure Act ("APA").  The D.C. Circuit re-affirmed the doctrine in the Mortgage Bankers Association cases, holding that the 2010 administrative interpretation had to be vacated because DOL did not hold a notice-and-comment period. The Supreme Court reversed the D.C. Circuit's decision.  In an opinion penned by Justice Sonia Sotomayor, the Court held that the “Paralyzed Veterans doctrine" is contrary to the clear text of the APA’s rulemaking provisions, and it improperly imposes on agencies an obligation beyond the ‘maximum procedural requirements’ specified in the APA.”  Justice Sotomayor stated that although the D.C. Circuit was correct that the APA requires agencies to follow the notice-and-comment requirements when amending or repealing a substantive rule -- in the same manner as issuing a substantive rule in the first instance -- the D.C. Circuit “went wrong” when it applied the same reasoning to interpretations of rules.  In sum, “[b]ecause an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or repeals that interpretive rule,” unless “notice or hearing is required by statute.” The implications of the Supreme Court's decision reach far beyond the FLSA status of mortgage-loan officers.  The Supreme Court’s ruling paves the way for federal agencies to make significant changes to its interpretations of rules without notice to the public and an opportunity for public comment.  Although employers can still look to administrative interpretations (such as opinion letters issued by DOL's Wage and Hour Division) for some guidance in complying with employment laws and regulations, employers should be diligent about keeping up with any changes to those administrative interpretations.

An Update on the U.S. Department of Labor\'s Agenda

February 27, 2015

Jennifer Brand, Associate Solicitor of Labor, spoke at the American Bar Association Federal Labor Standards Legislation Committee’s Mid-Winter Meeting on February 26.  Ms. Brand provided an update on important USDOL initiatives and activities.  Ms. Brand discussed recent litigation involving interns and confirmed that the USDOL still believes the six factors outlined in its Fact Sheet #71 is the proper test to determine whether an unpaid internship is lawful.  Ms. Brand did acknowledge that as the workplace evolves, it may, in unusual situations, be appropriate to consider other factors. Ms. Brand also discussed the USDOL's appeal of the U.S. District Court for the District of Columbia’s order vacating two major provisions in the USDOL’s Home Care Rule originally intended to be effective January 1, 2015.  The new rule would have excluded third-party employers from relying on the companionship and live-in domestic worker exemptions and would have significantly narrowed the definition of companionship services.  It is anticipated the case will be heard in the May term. Finally, Ms. Brand acknowledged that the highly anticipated proposed changes to the white-collar exemptions would not be published this month as the USDOL had previously suggested.  She further stated that they are “not imminent.”  Although she would not comment on specifics, she stated that the USDOL is examining the appropriate salary level test and whether the duties test needs to be revised.  Practitioners believe that the proposals will include, among other things, raising the salary level test and narrowing the duties test of the exemptions to make it more difficult to classify employees as exempt.  Some of the expected changes may include implementing a strict percentage of exempt and non-exempt duties and the possible elimination of the “concurrent” duties test whereby an employee may perform exempt and non-exempt duties at the same time.

NYS Acting Commissioner of Labor Accepts the Wage Board's Recommendation to Increase the Minimum Wage for Tipped Employees in the Hospitality Industry

February 23, 2015

By Subhash Viswanathan

New York State's Acting Commissioner of Labor, Mario Musolino, issued an Order today, accepting most of the recommendations made by the Hospitality Industry Wage Board, including the recommendation to increase the minimum wage for all tipped employees in the Hospitality Industry to $7.50 per hour effective December 31, 2015.  The one recommendation that the Acting Commissioner rejected was the one that would have provided certain employers with some relief from this significant increase in labor costs -- namely, the recommendation to allow employers to take $1.00 off the hourly minimum wage for tipped employees if the weekly average earnings of their employees (wages paid plus tips received) equals or exceeds 150% of the regular minimum wage in New York City or 120% of the regular minimum wage in the rest of the state. So, to summarize, the Acting Commissioner's Order will:  (1) increase the minimum wage for all tipped employees in the Hospitality Industry (regardless of whether they are classified as food service workers, service employees, or resort hotel service employees) to $7.50 per hour effective December 31, 2015; and (2) implement a $1.00 increase in the minimum wage for tipped employees in the Hospitality Industry who work in New York City, which would take effect if and when the legislature enacts a higher minimum wage rate for New York City.  The Acting Commissioner also accepted the Wage Board's recommendation to review whether the current system of cash wages and tip credits should be eliminated. The Acting Commissioner's Order will be effective 30 days after notice of its filing is published in at least 10 newspapers of general circulation in the state.  Employers in the hospitality industry should begin to consider how this significant increase in labor costs attributable to the employment of food service workers and service employees will impact their businesses in 2016 and beyond.

New York Hospitality Industry Wage Board Recommends Increase in Tipped Employee Minimum Wage

February 4, 2015

By Subhash Viswanathan
On September 15, 2014, the New York State Commissioner of Labor assigned the three-member Hospitality Industry Wage Board ("Wage Board") with the task of reviewing and making recommendations regarding what changes, if any, should be made to the minimum wage rates and tip credits for food service workers and service employees in the hospitality industry.  After conducting several meetings, the Wage Board voted on January 30, 2015, to recommend that the minimum wage rate for all tipped employees in the hospitality industry (regardless of whether they are classified as food service workers or service employees) be increased to $7.50 per hour effective December 31, 2015.  The webcast of the Wage Board's January 30 meeting can be found here. Governor Cuomo has expressed his support for the Wage Board's recommendation, which will now be reviewed by the Commissioner of Labor.  If the Commissioner of Labor accepts the Wage Board's recommendation, the Hospitality Industry Wage Order will be revised to reflect the increase. Under the current Hospitality Industry Wage Order, employers are required to pay food service workers a minimum wage of at least $5.00 per hour, and may take a tip credit of no more than $3.75 per hour, provided that the total amount of tips received plus the wages paid equals or exceeds the current regular minimum wage of $8.75 per hour.  The term "food service worker" is defined as any employee who is primarily engaged in serving food or beverages and who regularly receives tips.  This includes "front of the house" employees such as wait staff, bartenders, captains, and bussing personnel, but excludes delivery workers.  Employers are currently required to pay service employees (other employees in the hospitality industry who customarily receive tips but are not involved in serving food or beverages) a minimum wage of at least $5.65 per hour, and may take a tip credit of no more than $3.10 per hour, provided that the total amount of tips received plus the wages paid equals or exceeds $8.75 per hour.  Service employees at resort hotels are subject to a special rule that allows them to be paid a minimum wage of at least $4.90 per hour.  Non-service employees ("back of the house" employees such as cooks and dishwashers) must be paid the regular minimum wage of $8.75 per hour, and no tip credit may be taken for those employees. So, the Wage Board's recommendation (if it is accepted by the Commissioner of Labor) would drastically increase the tipped employee minimum wage as of December 31, 2015, by $2.50 for food service workers, by $1.85 for most service employees, and by $2.60 for service employees at resort hotels.  The Wage Board also voted to make two other recommendations to the Commissioner of Labor:  (1) if the legislature enacts a higher regular minimum wage for New York City, then the minimum wage for tipped employees in the hospitality industry who work in New York City would increase by $1.00 effective on the date that the higher regular minimum wage goes into effect; and (2) if a hospitality industry employer can demonstrate that the weekly average earnings of an employee (wages paid plus tips received) equals or exceeds 120% of the regular minimum wage (or 150% of the regular minimum wage if the employee works in New York City), then the employer would be eligible to pay $1.00 less than the applicable tipped employee minimum wage. Employers in the hospitality industry should begin to consider how this potentially significant increase in labor costs attributable to the employment of food service workers and service employees will impact their businesses, and should evaluate what adjustments may need to be made in the event that the Commissioner of Labor accepts and implements the Wage Board's recommendation.  We will report on any further developments as they occur.

D.C. Court Strikes Down Two USDOL Regulations and Restores Full "Companionship Exemption" Under the FLSA

January 21, 2015

By David E. Prager

In a victory for Home Care employers, the U.S. District Court for the District of Columbia issued consecutive decisions which struck down two regulations issued by the U.S. Department of Labor (“USDOL”) that would have eviscerated the “companionship exemption” contained in the Fair Labor Standards Act (“FLSA”). The two USDOL regulations enacted in late 2013 were prevented from taking effect, as scheduled, on January 1, 2015, by two related decisions on December 22, 2014 and January 14, 2015, which vacated both regulations on the ground that they “conflicted with the [FLSA] statute itself.”  Each of the two challenged regulations would have imposed greater overtime obligations on Home Care employers, by sharply reducing the reach of the FLSA “companionship exemption,” which, for 40 years, had excluded most Home Care work from federal overtime laws. Specifically, the exemption excludes from federal minimum wage and overtime obligations companionship and live-in “services which provide fellowship, care and protection to a person who, because of advanced age or physical or mental infirmity, cannot care for his or her own needs,” unless the work is performed by a Registered Nurse or similarly trained professional. In the first of the two decisions, the District Court struck down a USDOL regulation that would have eliminated the companionship exemption unless the Home Care worker is employed directly by the patient or household itself, rather than by an Agency.  Since the vast majority of Home Care workers are employed by Home Care Agencies, this new regulation would have had sweeping impact, had it taken effect.  In striking down the regulation, the Court held that “Congress intended the exemption to apply to all employers who provide companionship and live-in domestic services. . . .”  It curtly rejected the new regulation as contrary to the statute, noting that “Congress surely did not delegate to the [USDOL] here the authority to issue a regulation that transforms defining statutory terms . . . based on who cuts a check, rather than what work is being performed.” Shortly thereafter, on January 14, 2015, the Court addressed a second USDOL regulation which redefined – and significantly narrowed – the type of work that would be covered under the companionship exemption, restricting it to only those companions who provide “care” or assist with “activities of daily living” during less than 20% of their total hours.  Since Home Care is routinely intended to provide significant assistance with activities of daily living (such as driving, meal preparation, dressing, feeding and bathing), this regulation virtually eliminated the companionship exemption.  The Court rejected the regulation on the ground that it contradicts the FLSA itself.  The statutory exemption refers to “care” and services for the elderly and disabled “who are unable to care for themselves.”  The Court determined that the USDOL regulation would “write out of the exemption the very ‘care’ the elderly and disabled need . . . .”  In a closing flourish, the Court scolded the USDOL for usurping Congressional authority:

Redefining a 40-year-old exemption out of existence may be satisfyingly efficient to the Department of Labor, but it strikes at the heart of the balance of power our Founding Fathers intended to rest in the hands of those who must face the electorate on a regular basis.

Taken together, the two decisions wholly restore the previously-existing companionship and live-in exemptions from federal minimum wage and overtime laws.  An appeal to a higher federal court may well follow, so the two decisions may not be the final word on the USDOL Regulations.  It remains prudent to continue to follow this issue closely for further development, and to consult counsel if needed. In addition, Home Care Agencies in New York should take note that, even in the absence of the applicability of federal minimum wage and overtime laws, New York law requires that home care employees be paid a minimum wage of $8.75 per hour, and requires that hours over 40 in a work week be paid at 1½ times the State minimum wage (i.e., $13.125 per hour) rather than 1½ times the employee’s regular rate.

Governor Cuomo Signs the Bill Eliminating the Annual Wage Notice Requirement

December 30, 2014

By Subhash Viswanathan
Happy New Year!  On December 29, Governor Cuomo signed the bill eliminating the requirement under the Wage Theft Prevention Act that employers in New York provide annual wage notices to their employees.  Although the bill currently provides that it will go into effect 60 days after it is signed (which would mean that it would take effect after the February 1 deadline to provide the wage notices for 2015), the Governor's approval memo accompanying the bill specifically notes that an agreed-upon chapter amendment will "accelerate the effective date of the notification rule changes in section 1 of the bill to remove the notice requirement on employers for the 2015 calendar year." We will provide an update once the expected chapter amendment is enacted in January.

Reminder: New York Minimum Wage Will Increase on December 31, 2014

December 19, 2014

By Subhash Viswanathan
The minimum wage for employees in New York will increase from $8.00 per hour to $8.75 per hour effective December 31, 2014.  The minimum wage for New York employees will increase again to $9.00 per hour effective December 31, 2015. Employers in New York should also keep in mind that the minimum salary under state law for employees to qualify for the executive and administrative exemptions will increase from $600.00 per week to $656.25 per week effective December 31, 2014.  The minimum salary under state law to qualify for the executive and administrative exemptions will increase again to $675.00 effective December 31, 2015.

An Early Holiday Present For New York Employers: The Annual Wage Notice Requirement Will Be Eliminated

December 18, 2014

By Subhash Viswanathan
New York employers who have already begun preparing to send out annual wage notices to their employees under the Wage Theft Prevention Act can safely stop their preparations.  The bill eliminating the annual wage notice requirement was delivered to the Governor yesterday and it is expected that the Governor will sign it.  The bill, as currently drafted, provides that the legislation will go into effect 60 days after it is signed into law, which would mean that it would take effect after the February 1 deadline to provide the wage notices for 2015.  However, Bond's Government Relations lawyers brought this concern to the attention of the Governor's office in early December, while the Governor's office and the Legislature were discussing potential chapter amendments to the bill, and it is our understanding that one of the agreed-upon chapter amendments that will be enacted early in the next legislative session will eliminate the annual wage notice requirement immediately.  So, we expect that employers will not have to issue the notices in 2015. We will provide an update as soon as the Governor signs the bill, and another update once the expected chapter amendments are enacted in January.  This is certainly great news for employers in New York, who will no longer have to engage in the costly and time-consuming process of issuing wage notices to all employees between January 1 and February 1 of each year.

The Bill Eliminating the Annual Wage Notice Requirement Still Has Not Been Signed by the Governor

December 5, 2014

By Subhash Viswanathan
Nearly six months ago, we reported that the New York Legislature passed a bill eliminating the requirement under the Wage Theft Prevention Act that employers provide an annual wage notice to their employees between January 1 and February 1.  We monitored the bill regularly, hoping that we would be able to report that the Governor had signed the bill and that employers would be relieved of this onerous requirement in 2015.  Unfortunately, the bill has not yet been delivered to the Governor, so at least as of now, the annual wage notice requirement remains in effect. Based on the information we have been able to obtain, it appears that the Governor's office and the Legislature are currently discussing potential revisions to the bill that are unrelated to the elimination of the annual wage notice requirement.  Aside from the elimination of the annual wage notice requirement, the bill that was passed on June 19 also increased the penalties for an employer’s failure to provide a wage notice upon hiring a new employee and for an employer’s failure to provide appropriate wage statements to employees, imposed significant consequences on employers who are found to be repeat offenders, and added provisions to the Limited Liability Company Law and the Construction Industry Fair Play Act.  It is our understanding that amendments to some of those other provisions are being contemplated. It is still possible that the bill will be signed by the Governor before the end of the legislative term.  However, if the legislation goes into effect 60 days after it is signed into law (which is how the bill is currently drafted), it is already too late for the law to go into effect in time to relieve employers of the obligation to distribute the annual notice by February 1, 2015.  Our firm has brought this issue to the attention of the Governor's office. At this point, employers in New York should prepare to send the annual wage notice to their employees between January 1 and February 1, 2015.  If the Legislature and the Governor give a nice holiday gift to New York employers by finding a way to eliminate this requirement for 2015, we will certainly let you know.