Colorado has issued a new wage order titled, Colorado Overtime and Minimum Pay Standards Order #36. (“COMPS Order”). This Order replaces Colorado Minimum Wage Order #35 and is set to institute significant changes affecting minimum wage, wage deductions and credits, overtime compensation, and other important wage and hour issues. Unlike previous wage orders that only covered specific industries, the COMPS Order presumptively covers all employers (unless expressly exempted) and significantly expands employer obligations and liability. Click here to read our advisory.
Certain exemptions from employee rights to overtime premium pay require the employee to be paid on a salary basis or on a fee basis. On January 7, 2020, the U.S. Department of Labor (“DOL”) issued opinion letter FLSA2020-2 discussing a specific pay arrangement – where the total compensation is set by the scope of an assigned project, but the amount paid each week is a set amount. According to the DOL, these payments indicate a salaried employee (and exempt from overtime), so long as the payments do not change too often. The letter responds to the specific inquiry posed to the DOL, but the opinion informs payments generally for project-basis workers.
The DOL inquiry addresses an educational consultant hired to perform a specific project. The consultant was to receive a predetermined amount in 20 equal biweekly installments paid throughout the district’s academic year. The DOL found this qualifies as a salaried employee, assuming the educational consultant meets the duties tests of the administrative or professional exemptions and the weekly pay exceeds the salary threshold for those exemptions. The DOL’s opinion focuses on the pre-determined nature of the consultant’s weekly compensation. The weekly pay is the same regardless of actual hours spent and the quality of work performed during the week—the definition of a salary basis pay.
The DOL then considered whether additional compensation changes an employee’s pay status. For example, what if the same employee works, not only the agreed 40 weeks to develop the literacy curriculum, but also on a side project conducting teacher workshops over an eight week period? Because compensation in addition to the salary can be paid on any basis, such as a flat sum, bonus, or hourly amount, without undermining the salary basis test, the employee is still salaried if the employee receives an additional pre-determined amount for the side project in addition to their pay for the 40 week project.
The opinion letter specifically notes that an employee’s exempt status may be undermined, however, “if there are such frequent revisions to the contract that the amount of the employee’s biweekly compensation for a certain project is rarely the same from pay period to pay period and the circumstances suggest the amount of the payment is, in fact, actually based on the quantity or quality of work performed.”
On January 7, 2020, the U.S. Department of Labor (“DOL”) issued a new Opinion Letter on “nondiscretionary” bonuses. When a bonus is offered to employees “to induce them to remain” with the company, the DOL considers the bonus to be “nondiscretionary.” Nondiscretionary bonuses “must be included in the regular rate of pay” for non-exempt employees. Determining how to allocate such bonuses can get a bit more complicated… When employers require that the employee stick around for some set amount of time to get the bonus and the bonus program does not clearly articulate how much of the bonus was earned in which week, the employer may “assume” each week within that period of time “counts equally in fulfilling the criteria for receiving the lump sum bonus.” In short, the employer allocates the bonus equally to each week in the time period covered by the bonus. Then, the employer must calculate overtime – taking into account this added compensation – separately for each workweek in which the employee worked more than 40 hours.
At the end of the day, this new Opinion Letter is not “new” news – it’s just a reminder that employers must carefully analyze what period of time a bonus is intended to cover and fairly and equally allocate the bonus across that period. DO NOT attempt to game the system and allocate a bonus in a manner inconsistent with this directive or you could find yourself in trouble. Another reminder – not covered in the Opinion Letter but still worth noting – don’t forget that state laws, including Colorado’s, often establish overtime requirements in addition to those set by the federal law. Make sure you are doing all of your overtime calculations in accordance with all applicable laws.
In November 2019, the Pennsylvania Supreme Court looked at the conflict between federal and state law concerning the calculation of overtime compensation for non-exempt salaried workers. The Court ruled that although federal law explicitly adopted the fluctuating workweek (FWW) method for employees paid a set amount each week, despite the hours worked fluctuating, Pennsylvania law necessitated a different, more employee-friendly overtime calculation method.
Both the Pennsylvania Minimum Wage Act of 1968 (PMWA) and the federal Fair Labor Standards Act (FLSA) require payment of at least “one and one-half” of the employee’s “regular rate” for each hour worked in excess of 40 hours. This calculation is straightforward for employees who earn a set hourly wage, but it is more complicated for employees who are paid a set weekly amount for fluctuating hours. In these cases, the “regular rate” is calculated under the FLSA by dividing the employee’s weekly compensation by the actual hours worked in the week. With this calculation, the employees receive their “straight” time for hours over forty as part of the set weekly amount, and employers only owe an additional half of the regular rate for overtime hours.
The PMWA, however, does not address how to calculate overtime for these workers. The employer in this suit argued Pennsylvania should use the federal FWW method. The employees argued that the PMWA had not specifically incorporated the FWW method’s 0.5 multiplier, and if Pennsylvania wanted to adopt the federal method for salaried employees, it would have.
The Court ultimately agreed with the employees. Based on a mechanical application of the PMWA’s statutory and regulatory language, the Court concluded that use of the federal calculation method violated the PMWA, and Pennsylvania salaried, non-exempt employees are entitled to a 1.5 overtime multiplier.
The effect is retroactive liability for an employer that used recognized federal pay practices. Employers in many states might find themselves in the same situation. The legality of the FWW method is not fully resolved in Connecticut, Delaware, Hawaii, Idaho, Indiana, Maine, Maryland, Nevada, New Hampshire, New Jersey, New York, North Dakota, Rhode Island, Vermont, Virginia, Washington, West Virginia, Wisconsin, or Wyoming. See Wage & Hour Defense Institute, State-By-State Wage and Hour Law Summary (2017).
By James Korte
The DOL continues to issue proposed rules to “modernize” the FLSA. The latest proposal, if finalized, would clarify and update the requirements for how employers calculate the “regular rate” of pay. The “regular rate” is the hourly rated used to calculate the overtime premium pay for non-exempt employees. The proposal:
- provides more specific examples of exclusions from the “regular rate,” including exclusions for health and wellness programs, tuition benefit programs, and employee discounts on goods and services, among others; and
- clarifies rules regarding “show up,” “call-back” pay, and paid meal breaks during which no work is performed.
Finally, the proposal increases the safe harbor for small nondiscretionary bonuses. Ordinarily, a nondiscretionary bonus has to be factored into the hourly rate for all the weeks during which it was earned. With the proposed rule, employers may skip this calculation if the additional overtime pay for the week would be less than 40% of the federal minimum wage.
The full proposal can be found here. The proposal is a win-win for both employers and employees, updating examples for employers with modern wage plans. The proposed rulemaking is not final and the DOL is taking public comments on the proposed regulation changes. For anyone would like to respond to the DOL’s proposals, comments will be accepted electronically or by mail. The instructions can be found at http://www.regulations.gov/
By Bill Wright
The news is everywhere: the DOL has issued its new proposal for the salary threshold for executive, administrative, and professional exemptions. Don’t panic – the announcement concerns a Notice of Proposed Rulemaking. The DOL still has to take public comments and prepare a final set of regulations.
The proposal (this time) is to increase the salary threshold from the current $455 per week (annualized to $23,660) to $679 per week (annualized to $35,308). If the proposal makes it to the final form, executive, administrative and professional employees who make less than $35,308 annually will no longer be “exempt.” Employers would have to pay these lower-paid employees overtime premium pay for hours worked over 40 each week. The proposed rulemaking also includes an increase for the highly compensated employee exemption from $100,000 to $147,414. Instead of proposing that the thresholds would increase automatically, the DOL is now proposing scheduling period reviews of the thresholds. The full proposal appears at https://www.dol.gov/whd/overtime/overtime2019-nprm.pdf
For anyone who would like to respond to the DOL’s proposals, comments will be accepted electronically or by mail. Check out the instructions at http://www.regulations.gov/
By Chance Hill
On December 6, 2018, a federal district court in Maryland denied Defendants’ motion for summary judgment regarding an overtime claim, among others. Defendants, including a Maryland corporation providing medical care services to the elderly, employed the plaintiff primarily as a driver. The employer uses a Facial Recognition System, which takes a photo of each worker upon arrival and departure, to track the hours of its employees. The employer also mandates that employees record hours on timesheets.
Defendants argued the plaintiff could not provide any evidence of his overtime work, because he was paid in accordance with both the Facial Recognition records and the timesheets, and at some points in his deposition, he agreed that he used the Facial Recognition system. (At other points, he said he left by the back door.) But the plaintiff attested that he regularly worked more than forty hours per week. The Court ruled that the claim to recover unpaid overtime would have to go to trial, despite the employer’s high tech solution to time card fraud. Three former co-workers attested that they saw the plaintiff working beyond his prescribed hours, and any inconsistency among the various statements presents an issue to be resolved at trial.
After implementing Facial Recognition as well as timesheets, the employer still could not get summary judgment on a claim for unpaid overtime. All it took for the plaintiff to get a trial was for him to contradict his own testimony in the deposition and a co-worker or two to agree he worked after hours.
By Mercedes Pineda
Just before the Big Game, a former cheerleader for the San Francisco 49ers “Gold Rush Girls” filed a class action lawsuit against the NFL, claiming the league conspired to keep the female athletes’ pay below market value. Seeking up to $300 million in damages, the suit claims cheerleaders earn a paltry flat wage per game (250% to 650% less than what NFL mascots earn) while going uncompensated for hours of rehearsal time and community outreach events. Adding insult to injury, the cheerleaders are prohibited from working for any other professional cheerleading team, even outside of the NFL, and are forbidden from discussing their wages. The complaint accuses the league, its teams, owners, high-ranking management officials, and heads of the cheerleading squads of plotting in various meetings to underpay the female athletes. It also alleges that the conspiracy was enforced through fear and intimidation, with cheerleaders threatened that they could easily be replaced for failing to perform in any way. While certainly not the first lawsuit filed by NFL cheerleaders, it is the first to claim the NFL is a joint employer and to allege antitrust violations. Food for thought coming off the League’s biggest event of the year.
By Bill Wright
What happens when the NLRB says an arbitration agreement is illegal, but a court enforces the agreement anyway? Four plaintiffs recently found out. In Hobson et al. v. Murphy Oil USA, Inc., No. CV-10-S-1486-S (N. D. Ala. July 8, 2015), the plaintiffs brought a collective action, for themselves and others, seeking unpaid overtime. The employer raised the arbitration agreement, and the court ordered the plaintiffs to bring their individual claims in arbitration, effectively killing the plaintiffs’ attempt to bring the claims on behalf of other employees.
Instead of arbitrating, one of the plaintiffs filed an unfair labor practice charge with the NLRB, and the plaintiffs waited. And waited. Two and a half years they waited without ever starting the arbitration. Eventually, the NLRB ruled that the arbitration agreement illegally prohibited employees from engaging in protected, concerted activities, such as filing collective actions. (See our previous posts concerning DR Horton.) With the Board ruling in hand, the plaintiffs asked the court to reconsider its order on arbitration, but the court found the plaintiffs had failed to comply with its earlier order. The plaintiffs could have asked the court to stay the arbitration pending Board action, or they could have appealed the order, but instead, they just waited for over 2 years. Despite the Board’s ruling, the court called the plaintiffs’ behavior a “clear record of delay and willful misconduct” and dismissed the plaintiffs’ overtime claims as a sanction.
If you’re going to be in court, it is best to follow the court’s orders.
By Bill Wright
The Supreme Court says federal agencies may reverse their legal interpretations, without giving notice to the public of a proposed change and considering comments on the proposal. Perez v. Mortgage Bankers Association, No. 13-1041 (U.S. March 9, 2015) The Department of Labor, over time, has contradicted itself about mortgage-loan officers. For years, the DOL considered them non-exempt from overtime; then it considered them exempt; and then, again, it considered them non-exempt. A dizzy industry group sued, trying to make the DOL go through notice-and-comment rulemaking before changing interpretations, but the Court rejected the attempt. An agency cannot contradict a rule or the law with a mere interpretation, but, within the limits of the actual rules, there’s room for contradictory interpretations.
Bottom line, expect any current administration’s agencies to issue interpretations to pursue the administration’s agenda, and expect the next administration’s agencies to reverse those interpretations, and so on. Business owners will continue to spin ’round and ’round.