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Supreme Court Confirms That a Day Rate is Not a Salary
Helix Energy Solutions Group Inc. v. Hewitt
In a widely anticipated opinion, on February 22, 2023, the Supreme Court of the United States ruled that an employee who was paid a daily rate more than $684 per day, who received a total of more than $200,000 per year, was not paid on a “salary basis” as required for application of the highly-compensated employee (HCE) exemption. As such, the court held that he was entitled to overtime pay under the Fair Labor Standards Act (FLSA) notwithstanding his high total annual earnings.
The ruling will have wide-ranging implications the oil and gas industry, the nursing field, and other industries which often rely on “day rate only” pay schemes and pay schemes which pay high hourly rates (but no overtime) to attract workers to remote locations, often on short notice.
Relevant Facts
The case concerned an employee who alleged he had been misclassified as exempt from the FLSA’s overtime provisions, and improperly denied overtime premium compensation. He worked twenty-eight day “hitches” on an offshore oil rig where he would work daily twelve-hour shifts, often seven days per week, totaling 84 hours a week. Throughout his employment, the plaintiff was on a daily-rate basis, without overtime compensation, earning between $963 and $1,341 per day, an amount that equated with more than $200,000 annually.
Helix had argued that the plaintiff fell under the DOL’s exemption for highly compensated employees found in 29 C.F.R. §541.601. At the time of the toolpusher’s employment, the highly compensated employee (HCE) exemption applied to employees whose primary duties included performing office or non-manual work; who customarily and regularly performed at least one duty of an exempt executive, administrative, or professional employee; and who were paid at least $455 per week on a “salary or fee basis”; and who earned at least $100,000 annually. (Currently, the threshold salary and total compensation amounts are $684 per week and $107,432 annually, respectively.)
Opinion of the Court
In its decision, the high court stated that the “critical question” in this case was whether the plaintiff was paid on a “salary basis” pursuant to 29 C.F.R. §541.602(a). That regulation states that an employee is paid on a “salary basis” when the “employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation.”
Helix had argued that in any week in which the employee performed any work, he was guaranteed to receive an amount above the $455 weekly threshold, such that his compensation met the requirements of the salary basis test.
The court rejected this argument, holding that §541.602(a) “applies solely to employees paid by the week (or longer)” and the test is “not met when an employer pays an employee by the day.” The court noted that a companion regulation, 29 C.F.R. §541.604(b), allows an employee’s earnings to be computed on an hourly, daily, or shift basis without violating the salary basis requirement, that regulation states that the arrangement must include a guarantee of at least the minimum weekly required amount paid on a salary basis and that there be a reasonable relationship between the guaranteed amount and the amount actually earned. However, the parties in this case agreed that the plaintiff’s compensation failed the reasonable relationship test, such that the sole issue was whether his admitted day rates qualified as a “salary basis” within the meaning of §541.602(a).
Writing for the court, Justice Elena Kagan stated that “[i]n demanding that an employee receive a fixed amount for a week no matter how many days he has worked, §602(a) embodies the standard meaning of the word ‘salary’” which generally refers to a “steady and predictable stream of pay.” Justice Kagan stated that even a “high-earning employee” who is compensated on a “daily rate—so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on” is “not paid on a salary basis, and thus entitled to overtime pay.”
Key Takeaway
The court’s decision will likely have wide-ranging impact. Employers have long-argued that the FLSA was not intended to protect highly-compensated employees, notwithstanding the unambiguous language of the statute itself and the DOL’s regulations. The majority squarely rejected this reasoning, adopting a typically conservative textualist approach and holding that the regulations mean precisely what they say and must be strictly construed to protect employees, both low-wage and higher-wage.
Click Helix Energy Solutions Group Inc. v. Hewitt to read the entire opinion of the court and the dissents.
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.
President Obama Announces That Threshold Salary for FLSA’s White Collar Exemptions Will Rise From $23,660 ($455/week) to $50,400 ($969/week)
In an Op-Ed penned by President Obama on the website Huffington Post, the new proposed overtime rules from the administration officially began their roll-out. Most significantly, the new rules more than double the current salary threshold for exempt employees from $23,660 per year (or $455 per week) to $50,400 per yer (or $969 per week), and continue to increase automatically in years to come.
“In this country, a hard day’s work deserves a fair day’s pay,” Obama wrote in an op-ed published Monday evening by the Huffington Post — an outreach to the president’s base on the left. “That’s at the heart of what it means to be middle class in America.”
The President continued:
Without Congress, I’m very hard-pressed to think of a policy change that would potentially reach more middle class earners than this one,” said Jared Bernstein, a former economic adviser to Vice President Joe Biden who’s now a senior fellow at the Center on Budget and Policy Priorities.
According to an article published last night on Politico.com:
The new threshold wouldn’t be indexed to overall price or wage increases, as many progressives had hoped. Instead, it would be linked permanently to the 40th percentile of income. That would set it at the level when the overtime rule was first created under President Franklin Delano Roosevelt.
The timing reflects an administration increasingly feeling the clock ticking: it expects the overtime rule to be challenged in court, and will press to complete by 2016 the review process during which comments are submitted by the public and then considered by the Labor Department and the White House as it prepares the final rule. If all goes according to plan, the rule will go into effect before Obama leaves office.
The proposed rule comes after months of pitched internal debate, with Labor Secretary Tom Perez and Domestic Policy Council director Cecilia Muñoz pushing to keep the threshold at the 40th percentile, and other members of the White House economic team, including Council of Economic Advisers chairman Jason Furman, trying to lower it to the 37th percentile.
Perez spent months conferring with business groups while his team wrote the rule. Obama made the decision to go forward in a meeting of his economic team several months ago, and originally the plan had been to roll out the rule last week. That was put on hold so that Obama could instead deliver the eulogy Friday at Rev. Clementa Pinckney’s funeral in Charleston, S.C.
For years the White House has faced the frustrating reality that despite consistently improving economic numbers, wages have been largely stagnant. Obama’s 2014 push to raise the minimum wage struck many middle class voters as not having much to do with them. But the overtime rule would affect workers whose salaries approach the median household income.
As explained by Politico:
The regulation would be the most sweeping policy undertaken by the president to assist the middle class, and the most ambitious intervention in the wage economy in at least a decade. Administration aides warn that it wouldn’t always lead to wages going up, though, because in many instances employers would cut back employee hours worked rather than pay the required time-and-a-half. Even so, they say, the additional hires needed to make up for that time could spur job growth, and give existing workers either more time with their families or more opportunities to work second jobs and put more money in their pockets.
This change was badly needed. The overtime threshold has been updated only once since 1975 and now covers a mere 8 percent of salaried workers, according to a recent analysis by the left-leaning Economic Policy Institute. Raising the threshold to $50,440 would bring it roughly in line with the 1975 threshold, after inflation. Back then, that covered 62 percent of salaried workers. But because of subsequent changes in the economy’s structure, the Obama administration’s proposed rule would cover a smaller percentage — about 40 percent.
The current overtime rules contain a white collar exemption, which excludes “executive, administrative and professional” employees from receiving overtime pay. Advocates for changing the rule say the white collar exemption allows employers to avoid paying lower-wage workers overtime. The proposed rule contains no specific changes to this “duties test,” but instead solicits questions from the public about how best to alter it.
Click Huffington Post to read the President’s Op-Ed piece or Politico, to read Politico’s article. Of course, we will continue to update our readers as further details of the new regulations are rolled out.
D.D.C.: Laborers on Governmental Job, Who Have Exhausted Their Administrative Remedy, May Bring Case Under Davis-Bacon Act Against Bond of General Contractor; 2 Year SOL Applies
Castro v. Fidelity and Deposit Company of Maryland
It has long been the law that generally employees lack the right to bring a private cause of action under the Davis Bacon Act (DBA). Rather, the sole avenue under which aggrieved employees, on governmental jobs, can seek repayment of their improperly withheld wages under the DBA is through a proceeding brought by the Department of Labor. However, the Department of Labor rarely brings such proceedings and thus, workers on governmental projects are often left without a remedy where they have been the victims of wage theft. This case sheds some light on another avenue that such employees can use to attempt to recover their wages however. In this case, after exhausting their administrative remedies (i.e. filing with the DOL and being told the DOL could not pursue their claims) the plaintiffs—employees of a sub-contractor on a job for the District of Columbia—sued on the bond of general contractor to seek payment of their wages. Denying the defendant-bond company’s motion to dismiss, the court explained that this was a valid cause of action.
Discussing the relevant facts and procedural history, the court explained:
Plaintiffs were employed by S & J Acoustics, a second-tier subcontractor (or subsubcontractor) retained to complete ceiling installation on the Consolidated Forensic Laboratory, a building owned by the District of Columbia. See Am. Compl., ¶¶ 2, 5. Pursuant to the DBA, 40 U.S.C. § 3141, et seq., and the DCLMA, D.C.Code § 2–201.01, et seq., the project’s prime contractor, Whiting–Turner Contracting Co., provided a payment bond to the District of Columbia as an assurance that project laborers would receive payment at Department of Labormandated hourly rates. See Am. Compl., ¶¶ 3, 8. In bringing this action against Defendants (1) Fidelity and Deposit Company of Maryland and (2) Travelers Casualty and Surety Company of America, who insured Whiting–Turner’s bond as co-sureties, see id., ¶ 3, Plaintiffs allege that they were not paid for their contributions to the project in accordance with these designated wage rates. See id., ¶¶ 16–18, 21. As background, the DCLMA requires contractors on governmentfunded projects to secure payment bonds to protect the interests of suppliers of materials and subcontractors, and the DBA establishes prevailing wage rates for workers who contribute to government-funded construction projects.
Prior to initiating this action, Plaintiffs filed an administrative complaint with DOL, requesting that payments to the project’s prime contractor be withheld until an investigation could be completed and Plaintiffs compensated for the alleged back wages. See id., ¶¶ 23–25. As the project had since wound up and all payments had been released to Whiting–Turner, the DOL investigator closed the case without making any findings on Plaintiffs’ eligibility for relief under the DBA. See id., ¶¶ 24–25. After Plaintiffs brought suit and Defendants filed their Motion to Dismiss, the Court sua sponte raised the issue of subject-matter jurisdiction, questioning whether Plaintiffs had sufficiently exhausted their administrative remedies with DOL. See Order to Show Cause at 2–3. Out of deference to DOL’s plenary role in making DBA back-wage determinations, the Court issued a temporary stay in the proceedings and ordered Plaintiffs to return to DOL and request that conclusive findings be made. See ECF No. 16 (Order) at 4. Plaintiffs did so, but without success. DOL refused to take further action on the ground that the government had already made all payments to the prime contractor and had no further funds to withhold. See Joint Status Report, ¶¶ 6–7 & Exh. A. Satisfied that Plaintiffs had made all efforts to exhaust remedies with DOL, the Court concluded that it did have subjectmatter jurisdiction under the DBA and could consequently address the substance of their claims and Defendants’ pending Motion to Dismiss. See Castro v. Fid. & Deposit Co. of Maryland, No. 13–818, 2014 WL 495464 (D.D.C. Feb. 7, 2014).
Under these circumstances, the defendant argued that the plaintiffs lacked any remedy. The court summarized the defendants contentions as follows:
Defendants first argue that Plaintiffs cannot invoke the DCLMA to sue on Whiting Turner’s payment bond because eligibility under the statute is restricted to those suppliers of labor and materials that have been retained either by the prime contractor or by an immediate subcontractor. See Mot. to Dismiss at 9; Reply at 1–2. Since Plaintiffs were hired by a second- tier subcontractor, Defendants suggest that they fall outside of the scope of the statute. See Supp. to Mot. to Dismiss at 3.
Defendants further maintain that Plaintiffs also have no remedy under the DBA. They premise this argument on the text of DBA § 3144(a)(2), which provides that “laborers and mechanics have the same right [of] action … as is conferred by law on persons furnishing labor or materials.” See Reply at 4. The use of the phrase “same right,” according to Defendants, demonstrates that § 3144(a)(2) does not actually grant aggrieved workers an independent cause of action, but merely references the applicable bond statute – in this case, DCLMA § 2–201.02. See Mot. to Dismiss at 9; Reply at 1 (“Plaintiffs do not have separate cause [sic ] of action against the Defendants in this case under the DBA….”). Alternatively, even if § 3144(a)(2) does create a freestanding cause of action, Defendants reason that the result should be the same because “the rights, if any, that were conferred [by § 3144(a)(2) ] were limited by the express terms of the bond statute.” Reply at 7. The DBA, by this logic, merely duplicates the DCLMA, mirroring its procedural requirements and limitations on eligibility.
Addressing the defendants’ contentions, the court first analyzed the scope and requirements of the DCLMA, acknowledging that plaintiffs lacked standing thereunder, because like the federal Miller Act, it applies only to prime contractor and immediate subcontractors. That did not end the court’s inquiry however. It then turned to an examination of § 3144(a)(2) of the DBA to determine whether it provides an independent remedy with its own terms and conditions. Holding that the DBA, under these circumstances, provided the plaintiffs with a remedy the court explained:
The game is not over, however, because the DBA protects precisely those “ordinary laborers” that the Miller Act appears to exclude. The DBA applies to any construction contracts for public works and public projects that exceed $2,000 in value and to which either the Federal Government or the District of Columbia is a party. See 40 U.S.C. § 3142(a). It obliges contractors on such projects to pay workers in accordance with prevailing wage rates, established by the Secretary of Labor. See id. In the event that contractors do not comply with prevailing wage rates, a worker may seek redress through the mechanism set out in DBA § 3144(a)(2). Promulgated in 1935 – just six days after the federal Miller Act was updated to reflect its current language – § 3144(a)(2) is broadly worded, granting a right of action to “all the laborers and mechanics who have not been paid the wages required” pursuant to the DBA. In contrast to the Miller Act and DCLMA, which condition their protections on a requisite level of contractual proximity to the prime contractor, DBA eligibility appears to hinge upon a laborer’s presence at the job site. Section 3144(a)(2) stipulates that each “contractor or subcontractor” involved in a “contract” governed by the DBA “shall pay all mechanics and laborers employed directly on the site of the work, unconditionally and at least once a week … regardless of any contractual relationship which may be alleged to exist between the contractor or subcontractor and the laborers and mechanics.” § 3142(c)(1) (emphasis added).
Although the DBA does not separately delineate the terms “contract,” “contractor,” “subcontractor,” or “laborer,” these terms are defined in corresponding regulations promulgated by the Secretary of Labor. See 29 C.F.R. § 5.2. The term “contract” comprises “any prime contract which is subject … to the labor standards provisions of [the DBA] and any subcontract of any tier thereunder, let under the prime contract.” § 5.2(h) (emphasis added). This definition, unlike that in the DCLMA, is not limited by a particular degree of separation from the prime contractor. The regulations, in fact, expressly disavow any requirement that a worker demonstrate a particular contractual relationship, instead providing that “[e]very person performing the duties of a laborer or mechanic in the construction … of a public building or public work … is employed regardless of any contractual relationship alleged to exist between the contractor and such person.” § 5.2(o). The regulatory definition of “laborer” is governed by function, not by contractual formality, and extends to “at least those workers whose duties are manual or physical in nature.” § 5.2(m).
Even in the unlikely event that a court were to find the text of the DBA ambiguous, it would still be bound to apply DOL’s regulatory definitions in making its decision. “Because the Secretary of Labor has interpreted the Act,” courts must defer to the Secretary’s judgment provided that these “interpretations are reasonable.” AKM LLC v. Sec’y of Labor, 675 F.3d 752, 754 (D.C.Cir.2012) (citing Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 843 (1984)). In this case, the regulatory interpretations are more than merely reasonable – they are grounded in the most basic common sense. Because a prime contractor should have ample notice of laborers working at its project site, it can institute sufficient controls to ensure that they are accounted for and paid for their contributions, regardless of any particular contractual arrangement. In contrast to the situation with suppliers, who may come and go without any physical connection to a job site, there is far less risk that laborers will be completely “[un]known to the prime contractor,” U.S. ex rel. E & H Steel Corp., 509 F.3d at 187, and thereby expose it to unforeseen liability.
The court then explained that where, as here, workers had exhausted their administrative remedy (i.e. filed with the DOL), they were entitled to bring a private cause of action under the DBA:
Clearly titled as a “[r]ight of action,” DBA § 3144(a)(2) provides that, if the Secretary of Labor’s withholdings under the terms of a contract are “insufficient to reimburse all the laborers and mechanics who have not been paid the wages required[,] … the laborers and mechanics have the same right to bring a civil action and intervene against the contractor and the contractor’s sureties as is conferred by law on persons furnishing labor or materials.” (Emphasis added). Two points are notable here. First, the express title of § 3144(a)(2) indicates that Congress believed that it was creating a new and fully functional right of action, and not merely a superficial reference to remedies already available under the bond statutes. While many battles have been waged over whether or not an aggrieved worker can claim an implied right of action under the DBA and thereby circumvent the administrative-exhaustion requirements of § 3144(a), see, e.g., Univers. Research Ass’n v. Coutu, 450 U.S. 754, 780 (1981), courts have long recognized that § 3144(a)(2) furnishes an express cause of action once remedies have been exhausted. See, e.g., U.S. ex rel. Bradbury v. TLT Const. Corp., 138 F.Supp.2d 237, 241 (D.R.I.2001).
Second, the formulation “all the laborers … who have not been paid” sets an expansive scope of application that is not obviously restricted by what follows. If Congress had intended to limit the scope of eligibility to sue on a bond to the narrow class of workers who might qualify under the terms of the Miller Act, it stands to reason that the legislature would have said so in clear and unambiguous terms or, more plausibly, would have completely omitted § 3144(a)(2) from the DBA. If Defendants are correct, § 3144(a)(2) would be mere surplusage, offering nothing of value over and above the remedies already available via the Miller Act and DCLMA. The Court cannot ignore the ” ‘cardinal principle of statutory construction’ that ‘a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.’ ” TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (quoting Duncan v. Walker, 533 U.S. 167, 174 (2001)).
Perhaps even more troubling, Defendants’ assessment of § 3144(a)(2) would create two arbitrary classes of workers – first, those who satisfy the technical qualifications imposed by the terms of the Miller Act and DCLMA, and second, all otherwise DBA-eligible workers. If the Court were to endorse Defendants’ highly restrictive interpretation, it might encourage prime contractors to insulate themselves behind several layers of subcontracts and thus opt out of the obligation to pay DBA-mandated wages, particularly as a project draws to a close and the government is no longer able to withhold funds. It should be obvious, accordingly, that all laborers present on the worksite of a DBA-eligible project should stand to benefit from the Act’s protections, regardless of contractual formalities. The Court thus concludes that § 3144(a)(2) of the DBA creates an independent cause of action that grants the ability to collect on a prime contractor’s bond to all eligible on-site workers, regardless of who hired them.
Finally, the court rejected the defendant’s argument that the plaintiff’s were limited by a one year statute of limitations, and held that a two year statute of limitations was applicable to the claims, pursuant to the Portal-to-Portal Act.
Click Castro v. Fidelity and Deposit Company of Maryland to read the entire Memorandum Opinion of the court.
Overtime Law Blog 