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DOL Issues Final Rule Raising Salary Threshold for Exempt “White Collar” Employees
After a lengthy comment period, the U.S. Department of Labor (DOL) issued its final rule on April 23, 2024, and raised the salary threshold for “white collar” employees to be exempt from federal overtime requirements under the Fair Labor Standards Act (FLSA). The new rule significantly increases the minimum salary requirement for executive, professional, and administrative employees, effective July 1, 2024. In other words, once the new rule goes into effect, an employer will have to pay such employees a significantly higher minimum weekly salary in order to legally classify them as exempt from overtime under the FLSA.
Currently, to be exempt from federal overtime requirements under the FLSA, a white-collar worker must receive a guaranteed base salary of at least $684 per week ($35,568 per year), in addition to satisfying the applicable “duties” test. The newly propagated rule increases this minimum salary threshold, initially to $844 per week ($43,888 per year) as of July 1, 2024, and then to $1,128 per week ($58,656 per year) as of January 1, 2025. Thereafter, the rule provides for an automatic update to the threshold every three years levered to statistical wage data.
The rule also raises the annualized salary threshold for white-collar workers to qualify under the “highly compensated employee” overtime exemption. As of July 1, 2024, this threshold would increase from $107,432 to $132,964, then on January 1, 2025, it would increase to $151,164, and thereafter the threshold would be updated every three years based on wage data.
The new rule does not modify the duties test for either the white-collar or highly compensated employee exemption, which also must be satisfied for an employee to properly be classified as exempt from federal overtime pay requirements. Likewise, the new rule does not impact employees subject to other overtime exemptions, for which the salary-basis test is not an element of the exemption (e.g. truck drivers or seasonal employees).
Click FINAL RULE to read the rule in its entirety. Click summary chart to see a chart of the applicable dates and thresholds.
11th Cir.: Nanny Who Worked Overnight Shifts Not Domestic Live-In Employee and Thus Overtime Eligible
In a reported decision issued on Wednesday, the 11th Circuit reversed the trial court seemingly applying clear law that a nanny who did not reside on her premises with the family whose children she took care of, and held that such an arrangement was not live-in domestic employment. As such, the court reversed the decision of the trial court, which had held that the nanny was exempt from the FLSA’s overtime provisions as a live-in domestic employee. In so doing, the court adopted much of the argument raised by the DOL in its amicus brief in the case. However, the 11th Circuit remanded for further findings regarding whether the parents of the nanny’s charges were here employer, finding that issues of fact precluded a finding on that issue.
Addressing the principal issue of whether the plaintiff was a “domestic” or not, the court found the issue to be clear-cut: “No doubt Blanco worked at the house and spent significant time there. But that alone does not mean she ‘resided’ there any more than firefighters who sleep in fire-station dormitories while on duty reside at a fire station,” the panel said.
The court further noted that the plaintiff’s job was “hardly a typical arrangement” of a live-in nanny.
The panel noted that while the plaintiff did sleep, at times, when she was on duty to take care of the children, the place she slept was not her own, as she shared the bed she slept in with other nannies, and the room in which she slept with 2 of the couple’s smallest children. Further, the court noted that if/when a child woke up in and/or cried in the middle of the night, she would “immediately respond”. Thus, “though Blanco may have slept sometimes while the children slept, her time was not hers,” the panel said.
The panel also noted as significant that the plaintiff lacked her own key to the house, adding that the mere fact that she had left personal belongings at the residence and some religious decorations, and occasionally had guests over didn’t make the house her own. Likewise, the court noted that the plaintiff maintained her own separate residence and paid rent to live in her aunt’s nearby apartment, where she typically returned at the end of her shifts, so that she could sleep in her own bed.
The court also rejected the defendant-parents’ argument that Blanco would be overtime-exempt under a 2013 U.S. Department of Labor rule that aimed at expanding FLSA protections. While the language of the preamble to the rule seemed to signal that five consecutive nights is the appropriate measuring stick to determine whether a nanny lived at someone’s residence, the court noted that such language was contained in the preamble to the rule and not the text of the actual rule’s text, and thus not a proper source of interpretive guidance.
The court also noted that the defendant-parents’ arguments regarding application of the rule/preamble ignored the context in which the five consecutive nights phrase is included, reasoning that such argument failed to consider the plaintiff’s four off-duty days that preceded the five days on-duty.
As such, the court concluded that the plaintiff was not an exempt domestic service employee as a matter of law. However, the court held that issues of fact regarding application of the “economic realities” test to plaintiff’s employment, required further findings by the trial court as to whether the defendant-parents were plaintiff’s employers under the FLSA.
Among the factual issues the court cited were the fact that: (1) one defendant testified she didn’t give any directions to the nannies on how to care for her children or control or supervise the plaintiff; (2) the defendants’ testimony that they didn’t know how much the nannies received in wages, as the mother testified that she paid about $2,400 per week to Amazing Gracie LLC, one of the two companies the parents used to hire the nannies that was managed by one of the nannies who worked for the family; and (3) the defendant-mother’s testimony that she didn’t know how plaintiff had started working for the family. In light of these factual issues, the court held that the defendants presented enough evidence to show that “they had minimal oversight over the nannies’ care for their children” and thus there remained a question of fact as to whether they were the plaintiff’s employer, upon application of the “economic realities” test.
Click Blanco v. Anand Samuel to read the entire opinion.
Click DOL Amicus to read the DOL’s amicus brief.
DOL Seeks to Raise Salary Threshold for White Collar Exemption to Overtime
On August 30, 2023, the U.S. Department of Labor (DOL) released a Notice of Proposed Rulemaking (NPRM) that would significantly raise the minimum weekly salary to qualify for one of the Fair Labor Standards Act’s (FLSA) three white-collar exemptions. If the changes go into effect, they would have a significant impact on how employers pay their employees and who is or is not entitled to overtime pay.
Specifically, the DOL proposes raising the weekly salary by over 50 percent from $684 per week to $1,059 per week (which is the equivalent to an annual salary of $55,068). The DOL also seeks to increase the annualized salary threshold for the exemption for “highly compensated employees” (HCE) from $107,432 per year to $143,988 per year. Finally, the DOL proposes automatically updating these earnings thresholds every three years.
The Proposed Rule
According to the DOL’s press release, the proposed rule seeks to accomplish four (4) primary goals:
- Restore and extend overtime protections to low-paid salaried workers. Many low-paid salaried employees work side-by-side with hourly employees, doing the same tasks and often working over 40 hours a week. Because of outdated and out-of-sync rules, however, the DOL believes these low-paid salaried workers are not getting paid time-and-one-half for hours worked over 40 in a week. The DOL’s proposed salary increase would help ensure that more of these low-paid salaried workers receive overtime protections traditionally provided by the DOL’s rules.
- Give valuable time back to workers who are not exempt under the executive, administrative or professional exempt classifications. By better identifying which employees are executive, administrative or professional employees who should be overtime exempt, the proposed rule will better ensure that those who are not exempt will gain more time with their families or receive additional compensation when working more than 40 hours a week.
- Prevent a future erosion of overtime protections and ensure greater predictability. The rule proposes automatically updating the salary threshold every three years to reflect current earnings data.
- Restore overtime protections for US territories. From 2004 until 2019, the DOL’s regulations ensured that for US territories where the federal minimum wage was applicable, so too was the overtime salary threshold. The DOL’s proposed rule would return to that practice and ensure that workers in the US territories subject to the federal minimum wage have the same overtime protections as other US workers.
The DOL further stated in the FAQs that “[a]utomatically updating the salary level and HCE total annual compensation requirement using the most recent data will ensure that these tests continue to accurately reflect current economic conditions.” The FAQs further noted that the proposed rule includes a provision that would allow “the Department to temporarily delay a scheduled automatic update where unforeseen economic or other conditions warrant.”
As with the most recent 2019 rule, which increased the salary and total annual compensation requirements for the EAP and HCE exemptions, the DOL has not proposed any changes to the duties tests, which outline the types of primary duties an employee must perform in order to be classified as exempt (in addition to receipt of a salary at or above the threshold).
Read more about the NPRM in the DOL’s official press release.
Trump DOL Announces Proposed Rule for Tip Credit Provisions To Permit Restaurants to Indirectly Retain Portion of Employees’ Tips Under Certain Circumstances and Pay Reduced Minimum Wage for Virtually All Hours Worked
Although it has long been the law that the owners and managers of restaurants, bars and other businesses employing tipped employees may not keep or share in any portion of tipped employees tips, the Trump DOL has proposed new rules to change that under certain circumstances. Under the new rules, neither the owners or the management of restaurants may share in tips directly. However, if the rules go into effect, the owners of restaurants could share in the tips indirectly by diverting tips from the employees who earned them to employees who do not normally earn tips (i.e. back of house staff like cooks, dishwashers, etc.), as long as the tipped employees are paid a direct wage of at least the regular minimum wage in addition to tips.
The U.S. Department of Labor (DOL) announced a proposed rule for tip provisions of the Fair Labor Standards Act (FLSA) implementing provisions of the Consolidated Appropriations Act of 2018 (CAA).
In its Notice of Proposed Rulemaking, the DOL proposes to:
- Explicitly prohibit employers, managers, and supervisors from keeping tips received by employees;
- Remove regulatory language imposing restrictions on an employer’s use of tips when the employer does not take a tip credit. This would allow employers that do not take an FLSA tip credit to include a broader group of workers, such as cooks or dishwashers, in a mandatory tip pool.
- Incorporate in the regulations, as provided under the CAA, new civil money penalties, currently not to exceed $1,100, that may be imposed when employers unlawfully keep tips.
- Amend the regulations to reflect recent guidance explaining that an employer may take a tip credit for any amount of time that an employee in a tipped occupation performs related non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties.
- Withdraw the Department’s NPRM, published on December 5, 2017, that proposed changes to tip regulations as that NPRM was superseded by the CAA.
While an email from the DOL contends that “[t]he proposal would also codify existing Wage and Hour Division (WHD) guidance into a rule.” In fact, it would change long-standing WHD guidance to legalize certain practices currently deemed wage theft by the DOL.
New Rule Would Allow Restaurants to Require Tipped Employees to Subsidize Pay of Non-Tipped Employees
The CAA prohibits employers from keeping employees’ tips. DOL’s proposed rule would allow employers who do not take a tip credit (i.e. those who pay tipped employees direct wages at least equal to the regular minimum wage) to establish a tip pool to be shared between workers who receive tips and are paid the full minimum wage and employees that do not traditionally receive tips, such as dishwashers and cooks.
The proposed rule would not impact regulations providing that employers who take a tip credit may only have a tip pool among traditionally tipped employees. An employer may take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (currently $2.13 per hour) and the federal minimum wage. Establishments utilizing a tip credit may only have a tip pool among traditionally tipped employees.
New Rule Would Allow Restaurants to Pay Reduced Minimum Wage More Hours Performing Non-Tipped Duties Where Employees Are Unable to Earn Tips
Additionally, the proposed rule reflects the Department’s guidance that an employer may take a tip credit for any amount of time an employee in a tipped occupation performs related non-tipped duties with tipped duties. For the employer to use the tip credit, the employee must perform non-tipped duties contemporaneous with, or within a reasonable time immediately before or after, performing the tipped duties. The proposed regulation also addresses which non-tipped duties are related to a tip-producing occupation.
If adopted, this rule would do away with longstanding guidance from the DOL which requires employers to pay the regular minimum wage for hours of work spent performing non-tipped duties, to the extent such duties comprise more than 20% of an employee’s time worked during a workweek.
Proposed Rule Will Be Available for Review and Public Comment
After publication this NPRM will be available for review and public comment for 60 days. The Department encourages interested parties to submit comments on the proposed rule. The NPRM, along with the procedures for submitting comments, can be found at the WHD’s Notice of Proposed Rulemaking (NPRM) website.
The proposed rules along with the recent selection of a notorious anti-worker/pro-business advocate Eugene Scalia to Secretary of Labor signal that the Trump administration’s effort to erode workers’ rights is likely to continue if not accelerate for the remainder of his presidency.
DOL Publishes Final Rule Increasing Salary Thresholds for White Collar Exemptions
Following a court decision which struck down the prior regulations promulgated by the Obama administration, which would have rendered for more employees overtime eligible, the Trump has now increased the salary threshold for white collar exemption. This marks the first increase since 2004.
In addition to limiting the number of workers who will now receive overtime (versus the more expansive Obama-era rule), the current DOL rejected a provision automatically increasing the salary threshold over time, to ensure that another 15-20 years does not pass before the thresholds are re-examined and increased again.
The updated and revised the regulations issued under the Fair Labor Standards Act (FLSA) to allow 1.3 million workers to become newly entitled to overtime by updating the earnings thresholds necessary to exempt executive, administrative or professional employees from the FLSA’s minimum wage and overtime pay requirements.
The DOL has updated both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees” or HCEs to reflect growth in wages and salaries. The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004.
Key Provisions of the Final Rule
The final rule updates the salary and compensation levels needed for workers to be exempt in the final rule:
raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
raising the total annual compensation level for “highly compensated employees (HCEs)” from the currently-enforced level of $100,000 to $107,432 per year;
allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
revising the special salary levels for workers in U.S. territories and in the motion picture industry.
Standard Salary Level
The DOL set the standard salary level at $684 per week ($35,568 for a full-year worker).
HCE Total Annual Compensation Requirement
In addition, the DOL set the total annual compensation requirement for HCEs at $107,432 per year. This compensation level equals the earnings of the 80th percentile of full-time salaried workers nationally. To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of nondiscretionary bonuses and incentive payments).
Special Salary Levels for Employees in U.S. Territories and Special Base Rate for the Motion Picture Producing Industry
The DOL is maintaining a special salary level of $380 per week for American Samoa. Additionally, the Department is setting a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.
The DOL also is maintaining a special “base rate” threshold for employees in the motion picture producing industry. Consistent with prior rulemakings, the Department is increasing the required base rate proportionally to the increase in the standard salary level test, resulting in a new base rate of $1,043 per week (or a proportionate amount based on the number of days worked).
Treatment of Nondiscretionary Bonuses and Incentive Payments
The DOL’s new rule also permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.
If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the Department permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.
When Will the Current Thresholds Be Updated?
Although initially proposed, the Trump DOL inexplicably rejected a provision of the rule, overwhelmingly supported by workers and workers advocates which would have automatically raised the thresholds over time without the necessity of further rulemaking. As a result it is possible if not likely that there will be no further increase to the current thresholds for another 15 years if not more. In its final rule the DOL reaffirms its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking, but given the anti-worker sentiment of the current DOL, including the recent confirmation of a steadfast anti-worker advocate as the head of the DOL, this is most-likely best viewed as lip service.
The DOL’s final rule is available at Final Rule to Update the Regulations Defining and Delimiting the Exemptions for Executive, Administrative, and Professional Employees.
Budget Bill Limits Circumstances Under Which Employers Can Use Tip Pools; Clarifies Damages Due If Employers Improperly Retain Employees Tips
After contentious negotiations and threatened government shutdowns, on March 23, the President signed the 2018 Budget Bill into law. Of significance here, the bill resolved several longstanding regulatory issues.
The spending bill, includes an amendment to the Fair Labor Standards Act (FLSA), which now prohibits employers—including managers and supervisors—from participating in tip-pooling arrangements, even where the employer does not seek to take the so-called tip credit and pays the employees the regular minimum wage rather than the tip-credit minimum wage, sometimes referred to as the “server’s wage” in the restaurant industry. In other words, under the new law employers, managers and supervisors can never share in a tip pool and employees can never be required to pay any portion of their tips to employers, managers or supervisors.
The amendment also clarifies two (2) issues which have divided courts regarding the disgorgement of illegally retained tips. While many courts have long-held that an employer who illegally requires employees to share tip with non-tipped employees (managers, supervisors, back-of-house and/or kitchen staff, etc.) must return all such tips to the employees, not all courts uniformly held as such. The amendment clarifies that damages resulting from illegal tip pooling include a return of all tips to the employees. The amendment also clarifies that employees’ damages include liquidated damages on all damages, including the disgorged tips, an issue which had previously divided courts and for which the Department of Labor had not provided guidance previously.
In light of the fervent anti-employee stance that the Department of Labor has taken under the current administration, this certainly must be celebrated as a victory for workers. Indeed, the law replaces a proposed regulation which garnered much opposition for its pro-wage theft stance and which was recently discovered to have been pushed through the regulatory process based on intentionally incomplete information provided by Secretary of Labor.
Click amendment to the Fair Labor Standards Act to read the full text of the new law.
3d Cir.: Employer Must Pay for All Breaks Shorter Than 20 Minutes Notwithstanding “Flex Time” Policy
Secretary United States Department of Labor v. American Future Systems, Inc.
This case was before the Third Circuit on appeal by the employer. The district court granted the DOL’s motion for summary judgment, holding that the employer’s policy of excluding time for breaks less than 20 minutes long violated the FLSA. The Third Circuit agreed and affirmed, holding that the Fair Labor Standards Act requires employers to compensate employees for breaks of 20 minutes or less during which they are free of any work related duties.
The court summarized the relevant facts as follows:
American Future Systems, d/b/a Progressive Business Publications, publishes and distributes business publications and sells them through its sales representatives. Edward Satell is the President, CEO, and owner of the company. Sales representatives are paid an hourly wage and receive bonuses based on the number of sales per hour while they are logged onto the computer at their workstation. They also receive extra compensation if they maintain a certain sales-per-hour level over a given two-week period.
Progressive previously had a policy that gave employees two fifteen-minute paid breaks per day. In 2009, Progressive changed its policy by eliminating paid breaks but allowing employees to log off of their computers at any time. However, employees are only paid for time they are logged on. Progressive refers to this as “flexible time” or “flex time” and explains that it “arises out of an employer’s policy that maximizes its employees’ ability to take breaks from work at any time, for any reason, and for any duration.”
Furthermore, under this policy, every two weeks, sales representatives estimate the total number of hours that they expect to work during the upcoming two-week pay period. They are subject to discipline, including termination, for failing to work the number of hours they commit to. Progressive also sends representatives home for the day if their sales are not high enough and sets fixed work schedules or daily requirements for representatives when that is deemed necessary.
Apart from those requirements, representatives can decide when they will work between the hours of 8:30 AM and 5:00 PM from Monday to Friday, so long as they do not work more than forty hours each week. As noted above, during the work day, they can log off of their computers at any time, for any reason, and for any length of time and may leave the office when they are logged off. Employees choose their start and end time and can take as many breaks as they please. However, Progressive only pays sales representatives for time they are logged off of their computers if they are logged off for less than ninety seconds. This includes time they are logged off to use the bathroom or get coffee. The policy also applies to any break an employee may decide to take after a particularly difficult sales call to get ready for the next call. On average, representatives are each paid for just over five hours per day at the federal minimum wage of $7.25 per hour.
On appeal, the defendant-employer raised three arguments: (1) that time spent logged off under its flexible break policy categorically does not constitute work; (2) that the District Court erred in finding that WHD’s interpretive regulation on breaks less than twenty minutes long, 29 C.F.R § 785.18, is entitled to substantial deference; and (3) that the District Court erred in adopting the bright-line rule embodied in 29 C.F.R. § 785.18 rather than using a fact-specific analysis. The Third Circuit rejected each of these arguments.
The court rejected the defendant’s that their defendant’s “flex time” policy was not a break policy within the meaning of the FLSA, reasoning that labeling its policy as “flex time” was simply a means to attempt to illegally circumvent the requirements of the FLSA.
The court next held that the DOL’s break time regulation, codified in 29 C.F.R. § 785.18 is entitled to Skidmore deference, the highest level of deference given to an administrative regulation. The court reasoned that the regulation was due Skidmore deference because: (1) the former FLSA specifically empowered the DOL to promulgate such regulations; (2) the DOL’s interpretation of the break time regulations has been consistent throughout the various opinion letters the DOL has issued to address this issue; and (3) the DOL’s interpretation is reasonable given the language and purpose of the FLSA.
Having determined that the regulation is entitled to deference, the court held that the regulation must be read to create a bright line rule and concluded that it does. The court explained that “the restrictions endemic in the limited duration of twenty minutes or less illustrate the wisdom of concluding that the Secretary intended a bright line rule under the applicable regulations.” As such, the court affirmed the decision below and held that defendant’s break policy which excluded time for breaks less than 20 minutes long violated the FLSA.
Click Secretary United States Department of Labor v. American Future Systems, Inc. to read the entire Opinion of the Court.
USDOL Announces the Reinstatement of Issuance of Opinion Letters
The U.S. Department of Labor announced today that it will reinstate the issuance of opinion letters, a practice that was widespread under some prior administrations, but which it elected to forego during the Obama administration. In an email announcement sent out today, the Department of Labor announced:
The U.S. Department of Labor will reinstate the issuance of opinion letters, U.S. Secretary of Labor Alexander Acosta announced today. The action allows the department’s Wage and Hour Division to use opinion letters as one of its methods for providing guidance to covered employers and employees.
An opinion letter is an official, written opinion by the Wage and Hour Division of how a particular law applies in specific circumstances presented by an employer, employee or other entity requesting the opinion. The letters were a division practice for more than 70 years until being stopped and replaced by general guidance in 2010.
“Reinstating opinion letters will benefit employees and employers as they provide a means by which both can develop a clearer understanding of the Fair Labor Standards Act and other statutes,” said Secretary Acosta. “The U.S. Department of Labor is committed to helping employers and employees clearly understand their labor responsibilities so employers can concentrate on doing what they do best: growing their businesses and creating jobs.”
The division has established a webpage where the public can see if existing agency guidance already addresses their questions or submit a request for an opinion letter. The webpage explains what to include in the request, where to submit the request, and where to review existing guidance. The division will exercise discretion in determining which requests for opinion letters will be responded to, and the appropriate form of guidance to be issued.
In the past, Republican administrations have often used the issuance of opinion letters to skirt the normal approval process for administrative regulation, which requires public comment. It remains to be seen, but this will likely be a boon for employers and another setback for employees under the Trump administration.
DOL Issues Final Overtime Rule, Expanding Overtime Pay for Over 4 Million Workers; New Rule to Go Into Effect Dec. 1, 2016
The United States Department of Labor (DOL) Announced its long-awaited final rule regarding the update to the existing overtime rules. The new rule is set to take effect on December 1, 2016.
Most significantly, whereas the previous rule employees who met certain duties tests under the so-called “white collar” exemptions had to make at least $455 per week on a “salary basis,” the new rule brings that threshold to $913 per week (or $47,476 annually). This is approximately $3,000 less on an annual basis that an estimated $50,440 per year that a proposed version of the rule promulgated by the DOL had set last year, but over two times the current threshold amount.
The new salary basis threshold equates with the 40th percentile of weekly earnings for a full-time, salaried work in the United States’ lowest income region.
The final rule also raises the overtime eligibility threshold for highly compensated employees from $100,000 to $134,000.
While the rule raises the applicable thresholds for various exemptions, it also allows employers to count earnings paid to employees as bonuses and commissions toward meeting the salary threshold. Specifically, the rule permits employers to meet up to ten (10%) of the salary threshold with amounts paid to employees as bonus and commission payments.
Although the DOL had also asked for input on a proposed rule which would have tracked the California white collar exemptions and created a more bright-line test requiring that a worker spend at least 50 percent of his or her time on exempt duties each week to qualify for an exemption, the final rule abandoned any such change to the duties’ portions of the executive, administrative, professional, outside sales, and computer employee exemptions.
In a lesser publicized 2nd final rule, the DOL carved out certain employers from the new rule. Specifically, the 2nd rule announced a non-enforcement policy with regard to the 1st rule, for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities (i.e. group homes) with 15 or fewer beds. Under the 2nd final rule announced, from December 1, 2016 to March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week for this subset of employers covered by the non-enforcement policy.
For further information on all things pertaining to the new rules, visit the DOL’s website.
9th Cir.: Employers May NOT Retain Employee Tips Even Where They Do Not Take a Tip Credit; 2011 DOL Regulations Which Post-Dated Woody Woo Due Chevron Deference Because Existing Law Was Silent and Interpretation is Reasonable
Oregon Rest. & Lodging Ass’n v. Perez
In a case that will likely have very wide-reaching effects, this week the Ninth Circuit reversed 2 lower court decisions which has invalidated the Department of Labor’s 2011 tip credit regulations. Specifically, the lower courts had held, in accordance with the Ninth Circuit’s Woody Woo decision which pre-dated the regulations at issue, that the DOL lacked the authority to regulate employers who did not take a tip credit with respect to how they treated their employees’ tips. Holding that the 2011 regulations were due so-called Chevron deference, the Ninth Circuit held that the lower court had incorrectly relied on its own Woody Woo case because the statutory/regulatory silence that had existed when Woody Woo was decided had been properly filled by the 2011 regulations. As such, the Ninth Circuit held that the lower court was required to give the DOL regulation deference and as such, an employer may never retain any portion of its employees tips, regardless of whether it avails itself of the tip credit or not.
Framing the issue, the Ninth Circuit explained “[t]he precise question before this court is whether the DOL may regulate the tip pooling practices of employers who do not take a tip credit.” It further noted that while “[t]he restaurants and casinos [appellees] argue that we answered this question in Cumbie. We did not.”
The court then applied Chevron analysis to the DOL’s 2011 regulation at issue.
Holding that the regulation filled a statutory silence that existed at the time of the regulation, and thus met Step 1 of Chevron, the court reasoned:
as Christensen strongly suggests, there is a distinction between court decisions that interpret statutory commands and court decisions that interpret statutory silence. Moreover, Chevron itself distinguishes between statutes that directly address the precise question at issue and those for which the statute is “silent.” Chevron, 467 U.S. at 843. As such, if a court holds that a statute unambiguously protects or prohibits certain conduct, the court “leaves no room for agency discretion” under Brand X, 545 U.S. at 982. However, if a court holds that a statute does not prohibit conduct because it is silent, the court’s ruling leaves room for agency discretion under Christensen.
Cumbie falls precisely into the latter category of cases—cases grounded in statutory silence. When we decided Cumbie, the DOL had not yet promulgated the 2011 rule. Thus, there was no occasion to conduct a Chevron analysis in Cumbie because there was no agency interpretation to analyze. The Cumbie analysis was limited to the text of section 203(m). After a careful reading of section 203(m) in Cumbie, we found that “nothing in the text of the FLSA purports to restrict employee tip-pooling arrangements when no tip credit is taken” and therefore there was “no statutory impediment” to the practice. 596 F.3d at 583. Applying the reasoning in Christensen, we conclude that section 203(m)‘s clear silence as to employers who do not take a tip credit has left room for the DOL to promulgate the 2011 rule. Whereas the restaurants, casinos, and the district courts equate this silence concerning employers who do not take a tip credit to “repudiation” of future regulation of such employers, we decline to make that great leap without more persuasive evidence. See United States v. Home Concrete & Supply, LLC, 132 S. Ct 1836, 1843, 182 L. Ed. 2d 746 (2012) (“[A] statute’s silence or ambiguity as to a particular issue means that Congress has . . . likely delegat[ed] gap-filling power to the agency[.]”); Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 222, 129 S. Ct. 1498, 173 L. Ed. 2d 369 (2009) (“[S]ilence is meant to convey nothing more than a refusal to tie the agency’s hands . . . .”); S.J. Amoroso Constr. Co. v. United States, 981 F.2d 1073, 1075 (9th Cir. 1992) (“Without language in the statute so precluding [the agency’s challenged interpretation], it must be said that Congress has not spoken to the issue.”).
In sum, we conclude that step one of the Chevron analysis is satisfied because the FLSA is silent regarding the tip pooling practices of employers who do not take a tip credit. Our decision in Cumbie did not hold otherwise.
Proceeding to step 2 of Chevron analysis, the court held that the 2011 regulation was reasonable in light of the existing statutory framework of the FLSA and its legislative history. The court reasoned:
The DOL promulgated the 2011 rule after taking into consideration numerous comments and our holding in Cumbie. The AFL-CIO, National Employment Lawyers Association, and the Chamber of Commerce all commented that section 203(m) was either “confusing” or “misleading” with respect to the ownership of tips. 76 Fed. Reg. at 18840-41. The DOL also considered our reading of section 203(m) in Cumbie and concluded that, as written, 203(m) contained a “loophole” that allowed employers to exploit the FLSA tipping provisions. Id. at 18841. It was certainly reasonable to conclude that clarification by the DOL was needed. The DOL’s clarification—the 2011 rule—was a reasonable response to these comments and relevant case law.
The legislative history of the FLSA supports the DOL’s interpretation of section 203(m) of the FLSA. An “authoritative source for finding the Legislature’s intent lies in the Committee Reports on the bill, which represent the considered and collective understanding of those Congressmen [and women] involved in drafting and studying proposed legislation.” Garcia v. United States, 469 U.S. 70, 76, 105 S. Ct. 479, 83 L. Ed. 2d 472 (1984) (citation and internal quotation marks omitted). On February 21, 1974, the Senate Committee published its views on the 1974 amendments to section 203(m). S. Rep. No. 93-690 (1974).
Rejecting the employer-appellees argument that the regulation was unreasonable, the court explained:
Employer-Appellees argue that the report reveals an intent contrary to the DOL’s interpretation because the report states that an “employer will lose the benefit of [the tip credit] exception if tipped employees are required to share their tips with employees who do not customarily and regularly receive tips[.]” In other words, Appellees contend that Congress viewed the ability to take a tip credit as a benefit that came with conditions and should an employer fail to meet these conditions, such employer would be ineligible to reap the benefits of taking a tip credit. While this is a fair interpretation of the statute, it is a leap too far to conclude that Congress clearly intended to deprive the DOL the ability to later apply similar conditions on employers who do not take a tip credit.
The court also examined the Senate Committee’s report with regard to the enactment of 203(m), the statutory section to which the 2011 regulation was enacted to interpret and stated:
Moreover, the surrounding text in the Senate Committee report supports the DOL’s reading of section 203(m). The Committee reported that the 1974 amendment “modifies section [20]3(m) of the Fair Labor Standards Act by requiring . . . that all tips received be paid out to tipped employees.” S. Rep. No. 93-690, at 42. This language supports the DOL’s statutory construction that “[t]ips are the property of the employee whether or not the employer has taken a tip credit.” 29 C.F.R. § 531.52. In the same report, the Committee wrote that “tipped employee[s] should have stronger protection,” and reiterated that a “tip is . . . distinguished from payment of a charge . . . [and the customer] has the right to determine who shall be the recipient of the gratuity.” S. Rep. No. 93-690, at 42.
In 1977, the Committee again reported that “[t]ips are not wages, and under the 1974 amendments tips must be retained by the employees . . . and cannot be paid to the employer or otherwise used by the employer to offset his wage obligation, except to the extent permitted by section [20]3(m).” S. Rep. No. 95-440 at 368 (1977) (emphasis added). The use of the word “or” supports the DOL’s interpretation of the FLSA because it implies that the only acceptable use by an employer of employee tips is a tip credit.
Additionally, we find that the purpose of the FLSA does not support the view that Congress clearly intended to permanently allow employers that do not take a tip credit to do whatever they wish with their employees’ tips. The district courts’ reading that the FLSA provides “specific statutory protections” related only to “substandard wages and oppressive working hours” is too narrow. As previously noted, the FLSA is a broad and remedial act that Congress has frequently expanded and extended.
Considering the statements in the relevant legislative history and the purpose and structure of the FLSA, we find that the DOL’s interpretation is more closely aligned with Congressional intent, and at the very least, that the DOL’s interpretation is reasonable.
Finally, the court explained that it was not overruling Woody Woo, because Woody Woo had been decided prior to the enactment of the regulation at issue when there was regulatory silence on the issue, whereas this case was decided after the 2011 DOL regulations filled that silence.
This case is likely to have wide-ranging impacts throughout the country because previously district court’s have largely simply ignored the 2011 regulations like the lower court’s here, incorrectly relying on the Woody Woo case which pre-dated the regulation.
Click Oregon Rest. & Lodging Ass’n v. Perez to read the entire decision.
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