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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.
M.D.Fla.: Plaintiffs Entitled to Irrebuttable Presumption That Their Damage Calculations Are Correct Where Defendant Spoliated Payroll Records
This case was before the court on the plaintiffs’ motion for sanctions. Specifically, plaintiffs sought sanctions as a result of the defendant-employers intentional destruction of the relevant payroll records pertaining to plaintiffs’ employment. While the court denied plaintiffs’ motion to the extent that it sought a default judgment, the court ordered that—to the extent plaintiffs prevailed on liability at trial—their calculation based on payroll records available from a third-party would be deemed irrebuttably correct, subject to the court’s approval.
The court provided the following history of the defendants’ egregious discovery misconduct:
This case arises under the Fair Labor Standards Act of 1938 (“FLSA“), as amended, 29 U.S.C. § 201 et seq. Plaintiff alleges that Defendants mischaracterized their licensed practical nurse and registered nurse employees as independent contractors. (Compl., Doc. 1, at 3). On December 3, 2015, this Court entered a scheduling order directing the parties to exchange all documents germane to this case by January 15, 2016. (FLSA Scheduling Order, Doc. 29, ¶ 1). Defendants failed to timely comply with the disclosure of documents and, as a result, an Order to Show Cause why sanctions should not be imposed was issued. (Feb. 25, 2016 Order, Doc. 32, at 1-2). After a hearing on the matter, this Court found that sanctions were warranted against Defendants and Defendants’ counsel for their failure to comply with the Court’s order, but held the sanctions in abeyance so long as Defendants produced all relevant documents in their possession, custody, or control by March 21, 2016. (Mar. 7, 2016 Order, Doc. 37, ¶¶ 1-3).
On March 11, 2016, Plaintiff filed a motion for sanctions against Defendants. (Mot. for Sanctions, Doc. 38). Therein, Plaintiff alleged that Defendants willfully destroyed, or negligently allowed to be destroyed, payroll records prior to May 2015, despite an ongoing investigation by the Department of Labor (“Department”). (Id. at 12-13). Additionally, Plaintiff asserted that since May 2015, an administrative employee had been deleting payroll records on a weekly basis by writing [*3] over them at the end of each work week. (Id. at 15-16). Defendants acknowledged that an employee was writing over the payroll week-to-week but claimed that the records prior to May 2015 were destroyed by a disgruntled former employee, Karen Reyes. (Id. at 7). On September 22, 2016, this Court entered an order denying the motion for sanctions because there was a factual dispute regarding whether Reyes deleted the payroll records and because Plaintiff had not yet determined what, if any, prejudice Plaintiff had suffered. (Sept. 22, 2016 Order, Doc. 55, at 6-7, 9). Nevertheless, the Court was troubled by Defendants’ actions and ordered Defendants to “immediately halt the destruction of any Current Payroll Records” and produce all payroll records to Plaintiff on a bi-weekly basis. (Id. at 10). Now, Plaintiff again seeks sanctions against Defendants and Defendants’ counsel pursuant to Federal Rule of Civil Procedure 37(b), 28 U.S.C. § 1927, and this Court’s inherent authority.
Following a discussion of the relevant standards for sanctions under Fed. R. Civ. Proc. 37, the court determined that the appropriate “punishment to fit the crime” in this case was to order that plaintiffs’ damages calculations would be subject to an irrebuttable presumption of correctness. Specifically, the court explained that plaintiffs could not show the extreme prejudice to warrant a default judgment, because they were apparently ultimately able to obtain the payroll records at issue from defendants third-party payroll company, notwithstanding defendants’ destruction of the copies in defendants’ possession.
Thus, the court held:
Plaintiff represented at the evidentiary hearing that he was able to obtain a sampling of nurses’ paychecks from Caring First’s bank. From these paychecks, which contain the hours worked by the nurses and their pay rate, Plaintiff claims he will be able to accurately calculate back wages. Therefore, as a sanction the Court will order the production of the nurses’ paychecks from Caring First’s bank. In addition, the Court will allow Plaintiff to recalculate potential back wages based on these paychecks. If Plaintiff prevails as to liability at trial, this calculation will be irrebuttably presumed to be correct, subject to Court approval.
This is definitely a case for all wage and hour practitioners to hold on to, because the circumstances of this case are unfortunately far from unique.
Click Sec’y of Labor v. Caring First, Inc. to read the entire Opinion of the court.
3d Cir.: Employer Must Pay for All Breaks Shorter Than 20 Minutes Notwithstanding “Flex Time” Policy
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.
5th Cir.: Restaurant Cannot Take Tip Credit Where Retained Portion of Tips to Offset Credit Card Processing Costs in Excess of Its Direct Costs of Collecting Credit Card Tips
This case was before the Fifth Circuit on the parties’ cross-appeals. As discussed here, the case concerned an employer’s ability to withhold a percentage of an employee’s tips received by credit card to offset the fees associated with collecting credit card tips under the Fair Labor Standards Act (“FLSA”). Specifically, the issue was whether the 3.25% that the defendant-restaurant admittedly retained of all credit card tips exceeded its actual costs of processing same, such that the employer forfeited any entitlement to take the tip credit with regard to its tipped employees. The district court held that the defendant was not entitled to take the tip credit because this deduction exceeded the direct costs of collecting credit card tips for Perry’s’ tipped employees. The Fifth Circuit affirmed the finding and held that the retention of tips in excess of the actual cost of collecting those tips violated 29 U.S.C. § 203(m). As such, the employer was not entitled to benefit from the tip credit and was instead required to pay all tipped employees the regular minimum wage for all hours worked.
Describing the relevant facts, the court explained:
Instead of paying servers their charged tips through their bi-weekly pay checks, Perry’s chose to pay its servers their charged tips in cash on a daily basis. Perry’s voluntarily started this practice in response to servers’ requests. In order to pay its servers their charged tips in cash on a daily basis, Perry’s arranged for armored vehicles to deliver cash to each of its restaurants three times per week. Perry’s’ Chief Operating Officer testified that such frequent deliveries were necessary due to security concerns associated with keeping a large amount of cash on its premises.
In August 2009, Plaintiffs initiated this collective action. In their third amended complaint, they alleged that Perry’s had violated the FLSA by charging its servers the 3.25% offset fee. On August 31, 2010, the district court entered a partial interlocutory judgment, holding that Perry’s may offset credit card issuer fees, but not other costs associated with computers, labor, or cash delivery…
Following a bench trial, the district court issued findings of fact and conclusions of law, holding that Perry’s’ 3.25% offset violated the FLSA because the offset exceeded Perry’s’ credit card issuer fees. The court also held that Perry’s’ cash-delivery expenses could not be included in the offset amount because “[t]he restaurant’s decision to pay it[s] servers in cash is a business decision, not a fee directly attributable to its cost of dealing in credit” and that Perry’s had failed to prove fees related to cancellation of transactions and manual entry of credit card numbers, and therefore could not rely on these amounts to justify the amount of its offset. Finally, the court held that Perry’s may not include other expenses, such as costs associated with bookkeeping and reconciliation of cash tips, in the offset amount because those costs are incurred as a result of ordinary operations only indirectly related to Perry’s’ tip policy. The court concluded that even if it included all of Perry’s’ indirect costs, the 3.25% offset fee exceeded Perry’s’ total costs.
After discussing the law regarding the tip credit generally, the Fifth Circuit framed the issue before it as follows:
In this case we must determine whether an employer may offset employees’ tips that a customer charges on a credit card to recover the costs associated with collecting credit card tips without violating § 203(m)’s requirement that the employee retains all the tips that the employee receives. Specifically, we must determine if the employer violates that requirement when it offsets credit tips to recover costs that exceed the direct fees charged by the credit card companies. Perry’s contends that it may offset both credit card issuer fees and its own cash-delivery expenses and still claim a tip credit under 29 U.S.C. § 203(m). Plaintiffs assert that Perry’s may offset only an amount no greater than the total amount of credit card issuer fees.
The court then discussed the only prior circuit court decision to discuss this issue at length, and relevant DOL regulations and guidance:
Both parties rely on the only circuit court decision to address this issue, Myers v. Copper Cellar Corp., 192 F.3d 546 (6th Cir. 1999). In Myers, the employer deducted a fixed 3% service charge from employee tips whenever a customer tipped by credit card to account for the discount rate charged by credit card issuers. Id. at 552. Because the employer always deducted a fixed percentage, the deduction sometimes rose above or fell below the fee charged on a particular transaction. Id. at 553. The employees challenged this deduction, arguing that any withholding of tips violates § 203(m). The Sixth Circuit disagreed, holding that “an employer may subtract a sum from an employee’s charged gratuity which reasonably compensates it for its outlays sustained in clearing that tip, without surrendering its section 203(m) [tip credit].” Id. The Sixth Circuit determined that an employee does not “receive” a charged tip under § 203(m) until the “debited obligation [is] converted into cash.” Id. The court noted that this conversion is predicated on the “payment of a handling fee to the credit card issuer.” Id. at 554.
To reach that conclusion, the Sixth Circuit relied on 29 C.F.R. §§ 531.52 and 531.53. Section 531.52 defines tip as “a sum presented by a customer as a gift or gratuity in recognition of some service performed for him.” Section 531.53 further clarifies that tips include “amounts transferred by the employer to the employee pursuant to directions from credit customers who designate amounts to be added to their bills as tips.” The Sixth Circuit held that these two regulations make it clear “that a charged gratuity becomes a ‘tip’ only after the employer has liquidated it and transferred the proceeds to the tipped employee; prior to that transfer, the employer has an obvious legal right to deduct the cost of converting the credited tip to cash.” Myers, 192 F.3d at 554. The court noted that “payment of a handling fee to the credit card issuer” is “required” for that liquidation. Id. at 553–54.
As recognized by the Sixth Circuit, the Department of Labor has long interpreted its regulations to permit employers to deduct credit card issuer fees. U.S. Dept. of Labor Field Operations Handbook § 30d05(a) (Dec. 9, 1988). In Myers, the Sixth Circuit added that such a deduction is allowed under the statute even if, as a consequence, some deductions will exceed the expense actually incurred in collecting the subject gratuity, as long as the employer proves by a preponderance of the evidence that, in the aggregate, the amounts collected from its employees, over a definable time period, have reasonably reimbursed it for no more than its total expenditures associated with credit card tip collections.
Myers, 192 F.3d at 554. Following Myers, the Department of Labor amended its position to allow employers to deduct an average offset for credit card issuer fees as long as “the employer reduces the amount of credit card tips paid to the employee by an amount no greater than the amount charged to the employer by the credit card company.” See U.S. Dept. of Labor Wage and Hour Division Opinion Letter FLSA2006-1.5 The parties do not contest that an employer may deduct a fixed composite amount from credit card tips, so long as that composite does not exceed the total expenditures on credit card issuer fees, and still maintain a tip credit. We agree. Credit card fees are a compulsory cost of collecting credit card tips. As a result, an employer may offset credit card tips for credit card issuer fees and still satisfy the requirements of § 203(m). However, our inquiry does not end with this holding.
Applying the law to the facts at bar, the court concluded that the employer’s 3.25% chargeback was an impermissible offset, because here the defendant-employer was seeking an offset for costs above and beyond their actual direct cost of collecting credit card tips. In so doing, the Fifth Circuit like the court below rejected the employer’s argument that it should be entitled to build its indirect costs of processing the credit card tips (that it voluntarily incurred based on its business decision) in addition to the direct cost of processing the credit card tips. The court reasoned:
Perry’s concedes that its 3.25% offset always exceeded the total credit card issuer fees, including swipe fees, charge backs, void fees, and manual-entry fees. Perry’s submitted demonstrative exhibits which showed that the total offset for each restaurant exceeded all credit card issuer fees by at least $7,500 a year, and by as much as $39,000 in 2012. As a result, Perry’s argues that an employer may also deduct an average of additional expenditures associated with credit card tips and still maintain a tip credit under § 203(m). Although Perry’s justified its 3.25% offset based on a number of other expenses before the district court, Perry’s now maintains that credit card issuer fees and its cash-delivery expenses alone justify the 3.25% offset. In support, Perry’s shows that on an aggregate basis (and across all restaurants), Perry’s’ expenses for collecting and distributing credit card tips to cash—including both credit card issuer fees and expenses for cash-delivery services—always exceeded the offset amount. We must determine whether deducting additional amounts for cash-delivery services violates § 203’s requirement that the employee must keep all of his or her tips.
A Perry’s corporate executive testified that it made a “business decision” to receive cash deliveries three times a week in order to cash out servers’ tips each day and to decrease security concerns associated with keeping too much cash in the register. Importantly, this executive testified that it was only necessary to cash out servers each night because of employee demand, and that if it instead transferred the tips to the servers in their bi-weekly pay checks, the extra cash deliveries would not be necessary. The district court found that Perry’s’ cash-delivery system was “a business decision, not a fee directly attributable to its cost of dealing in credit.” We agree.
In Myers, the Sixth Circuit allowed the employer to offset tips to cover reasonable reimbursement for costs “associated with credit card tip collections” and highlighted that credit card fees were “required” to transfer credit to cash.9 192 F.3d at 554–55 (emphasis added). That court emphasized that the employer’s deductions were acceptable because “[t]he liquidation of the restaurant patron’s paper debt to the table server required the predicate payment of a handling fee to the credit card issuer.” Id. at 553–54. The Department of Labor incorporated a reading of Myers in an opinion letter:
The employer’s deduction from tips for the cost imposed by the credit card company reflects a charge by an entity outside the relationship of employer and tipped employee. However, it is the Wage and Hour Division’s position that the other costs that [an employer] wishes the tipped employees to bear must be considered the normal administrative costs of [the employer’s] restaurant operations. For example, time spent by servers processing credit card sales represents an activity that generates revenue for the restaurant, not an activity primarily associated with collecting tips.
U.S. Dept. of Labor Wage and Hour Division Opinion Letter FLSA2006-1. While it is unnecessary to opine whether any costs, other than the fees charged directly by a credit card company, associated with collecting credit card tips can ever be deducted by an employer, we conclude that an employer only has a legal right to deduct those costs that are required to make such a collection.
Perry’s made two internal business decisions that were not required to collect credit card tips: (1) Perry’s responded to its employees’ demand to be tipped out in cash each night, instead of transferring their tips in their bi-weekly pay checks, and (2) Perry’s elected to have cash delivered three times a week to address security concerns.11 Unlike credit card issuer fees, which every employer accepting credit card tips must pay, the cost of cash delivery three times a week is an indirect and discretionary cost associated with accepting credit card tips. As the district court noted, this cash delivery was “a business decision, not a fee directly attributable to its cost of dealing in credit.” Moreover, Perry’s deducted an amount that exceeded these total costs—credit card issuer fees and cash-delivery expenses—in nine of the relevant restaurant-years.
Thus, the court concluded that:
Allowing Perry’s to offset employees’ tips to cover discretionary costs of cash delivery would conflict with § 203(m)’s requirement that “all tips received by such employee have been retained by the employee” for employers to maintain a statutory tip credit. Perry’s has not pointed to any additional expenses that are the direct and unavoidable consequence of accepting credit card tips. Because Perry’s offset always exceeded the direct costs required to convert credit card tips to cash, as contemplated in § 203(m) and interpreted by the Sixth Circuit, we hold that Perry’s’ 3.25% offset violated § 203(m) of the FLSA, and therefore Perry’s must be divested of its statutory tip credit for the relevant time period.
Click Steele v. Leasing Enterprises, Limited to read the entire Fifth Circuit decision.
4th Cir.: Strippers Are Employees NOT Independent Contractors; Trial Court Properly Applied the Economic Reality Test
In this case, multiple exotic dancers sued their dance clubs for failure to comply with the Fair Labor Standards Act and corresponding Maryland wage and hour laws. The district court held that plaintiffs were employees of the defendant companies and not independent contractors as the clubs contended. Following a damages-only trial and judgment on behalf of the dancers, the Defendant-clubs appealed the court’s finding that the dancers were employees and not independent contractors. The Fourth Circuit held that the court properly captured the economic reality of the relationship here, and thus affirmed the judgment.
The Fourth Circuit summarized the salient facts regarding the dancers’ relationship with the defendant-clubs as follows:
Anyone wishing to dance at either club was required to fill out a form and perform an audition. Defendants asked all hired dancers to sign agreements titled “Space/Lease Rental Agreement of Business Space” that explicitly categorized dancers as independent contractors. The clubs began using these agreements after being sued in 2011 by dancers who claimed, as plaintiffs do here, to have been employees rather than independent contractors. Defendant Offiah thereafter consulted an attorney, who drafted the agreement containing the “independent contractor” language.
Plaintiffs’ duties at Fuego and Extasy primarily involved dancing on stage and in certain other areas of the two clubs. At no point did the clubs pay the dancers an hourly wage or any other form of compensation. Rather, plaintiffs’ compensation was limited to performance fees and tips received directly from patrons. The clubs also collected a “tip-in” fee from everyone who entered either dance club, patrons and dancers alike. The dancers and clubs dispute other aspects of their working relationship, including work schedules and policies.
After discussing the traditional elements of the economic reality test, the Fourth Circuit discussed each element and concluded that, overall, they supported the district court’s holding that the dancers were employees and not independent contractors.
Here, as in so many FLSA disputes, plaintiffs and defendants offer competing narratives of their working relationship. The exotic dancers claim that all aspects of their work at Fuego and Extasy were closely regulated by defendants, from their hours to their earnings to their workplace conduct. The clubs, not surprisingly, portray the dancers as free agents that came and went as they pleased and used the clubs as nothing but a rented space in which to perform. The dueling depictions serve to remind us that the employee/independentcontractor distinction is not a bright line but a spectrum, and that courts must struggle with matters of degree rather than issue categorical pronouncements.
Based on the totality of the circumstances presented here, the relationship between plaintiffs and defendants falls on the employee side of the spectrum. Even given that we must view the facts in the light most favorable to defendants, see Ctr. for Individual Freedom, Inc. v. Tennant, 706 F.3d 270, 279 (4th Cir. 2013), we cannot accept defendants’ contrary characterization, which cherry-picks a few facts that supposedly tilt in their favor and downplays the weightier and more numerous factors indicative of an employment relationship. Most critical on the facts of this case is the first factor of the “economic realities” test: the degree of control that the putative employer has over the manner in which the work is performed.
The clubs insist they had very little control over the dancers. Plaintiffs were allegedly free in the clubs’ view to determine their own work schedules, how and when they performed, and whether they danced at clubs other than Fuego and Extasy. But the relaxed working relationship represented by defendants—the kind that perhaps every worker dreams about—finds little support in the record.
To the contrary, plaintiffs described and the district court found the following plain manifestations of defendants’ control over the dancers:
Dancers were required to sign in upon arriving at the club and to pay the “tip-in” or entrance fee required of both dancers and patrons.
The clubs dictated each dancer’s work schedule. As plaintiff Danielle Everett testified, “I ended up having a set schedule once I started at Fuego’s. Tuesdays and Thursdays there, and Mondays, Wednesdays, Fridays, and Saturdays at Extasy.” J.A. 578 (Everett’s deposition). This was typical of the deposition testimony submitted in the summary judgment record.
The clubs imposed written guidelines that all dancers had to obey during working hours. J.A. 769-77 (clubs’ rulebook). These rules went into considerable detail, banning drinking while working, smoking in the clubs’ bathroom, and loitering in the parking lot after business hours. They prohibited dancers from leaving the club and returning later in the night. Dancers were required to wear dance shoes at all times and could not bring family or friends to the clubs during working hours. Violations of the clubs’ guidelines carried penalties such as suspension or dismissal. Although the defendants claimed not to enforce the rules, as the district court put it, “[a]n employer’s ‘potential power’ to enforce its rules and manage dancers’ conduct is a form of control.” J.A. 997 (quoting Hart v. Rick’s Cabaret Int’l, Inc., 967 F.Supp.2d 901, 918 (S.D.N.Y. 2013)).
The clubs set the fees that dancers were supposed to charge patrons for private dances and dictated how tips and fees were handled. The guidelines explicitly state: “[D]o not [overcharge] our customers. If you do, you will be kicked out of the club.” J.A. 771.
Defendants personally instructed dancers on their behavior and conduct at work. For example, one manager stated that he “ ‘coached’ dancers whom he believed did not have the right attitude or were not behaving properly.” J.A. 997.
Defendants managed the clubs’ atmosphere and clientele by making all decisions regarding advertising, hours of operation, and the types of food and beverages sold, as well as handling lighting and music for the dancers. Id.
Reviewing the above factual circumstances into account the Fourth Circuit held that the district court was correct to conclude that the dancers were employees of the clubs under the FLSA and not independent contractors. The Court reasoned:
Taking the above circumstances into account, the district court found that the clubs’ “significant control” over how plaintiffs performed their work bore little resemblance to the latitude normally afforded to independent contractors. J.A. 997. We agree. The many ways in which defendants directed the dancers rose to the level of control that an employer would typically exercise over an employee. To conclude otherwise would unduly downgrade the factor of employer control and exclude workers that the FLSA was designed to embrace.
None of this is to suggest that a worker automatically becomes an employee covered by the FLSA the moment a company exercises any control over him. After all, a company that engages an independent contractor seeks to exert some control, whether expressed orally or in writing, over the performance of the contractor’s duties and over his conduct on the company’s premises. It is rather hard to imagine a party contracting for needed services with an insouciant “Do whatever you want, wherever you want, and however you please.” A company that leases space or otherwise invites independent contractors onto its property might at a minimum wish to prohibit smoking and littering or to set the hours of use in order to keep the premises in good shape. Such conditions, along with the terms of performance and compensation, are part and parcel of bargaining between parties whose independent contractual status is not in dispute.
If any sign of control or any restriction on use of space could convert an independent contractor into an employee, there would soon be nothing left of the former category. Workers and managers alike might sorely miss the flexibility and freedom that independent-contractor status confers. But the degree of control the clubs exercised here over all aspects of the individual dancers’ work and of the clubs’ operation argues in favor of an employment relationship. Each of the other five factors of the “economic realities” test is either neutral or leads us in the same direction.
Two of those factors relate logically to one other: “the worker’s opportunities for profit or loss dependent on his managerial skill” and “the worker’s investment in equipment or material, or his employment of other workers.” Schultz, 466 F.3d at 305. The relevance of these two factors is intuitive. The more the worker’s earnings depend on his own managerial capacity rather than the company’s, and the more he is personally invested in the capital and labor of the enterprise, the less the worker is “economically dependent on the business” and the more he is “in business for himself” and hence an independent contractor. Id. at 304 (quoting Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 570 (10th Cir. 1994)).
The clubs attempt to capitalize on these two factors by highlighting that dancers relied on their own skill and ability to attract clients. They further contend that dancers sold tickets for entrance to the two clubs, distributed promotional flyers, and put their own photos on the flyers. As the district court noted, however, “[t]his argument—that dancers can ‘hustle’ to increase their profits—has been almost universally rejected.” J.A. 999 (collecting cases). It is natural for an employee to do his part in drumming up business for his employer, especially if the employee’s earnings depend on it. An obvious example might be a salesperson in a retail store who works hard at drawing foot traffic into the store. The skill that the employee exercises in that context is not managerial but simply good salesmanship.
Here, the lion’s share of the managerial skill and investment normally expected of employers came from the defendants. The district court found that the clubs’ managers “controlled the stream of clientele that appeared at the clubs by setting the clubs’ hours, coordinating and paying for all advertising, and managing the atmosphere within the clubs.” J.A. 1001. They “ultimately controlled a key determinant—pricing—affecting [p]laintiffs’ ability to make a profit.” Id. In terms of investment, defendants paid “rent for both clubs; the clubs’ bills such as water and electric; business liability insurance; and for radio and print advertising,” as well as wages for all non-performing staff. Id. at 1002. The dancers’ investment was limited to their own apparel and, on occasion, food and decorations they brought to the clubs. Id. at 1002-03.
On balance then, plaintiffs’ opportunities for profit or loss depended far more on defendants’ management and decision-making than on their own, and defendants’ investment in the clubs’ operation far exceeded the plaintiffs’. These two factors thus fail to tip the scales in favor of classifying the dancers as independent contractors.
As with the control factor, however, neither of these two elements should be overstated. Those who engage independent contractorsare often themselves companies or small businesses with employees of their own. Therefore, they have most likely invested in the labor and capital necessary to operate the business, taken on overhead costs, and exercised their managerial skill in ways that affect the opportunities for profit of their workers. Those fundamental components of running a company, however, hardly render anyone with whom the company transacts business an “employee” under the FLSA. The focus, as suggested by the wording of these two factors, should remain on the worker’s contribution to managerial decision-making and investment relative to the company’s. In this case, the ratio of managerial skill and operational support tilts too heavily towards the clubs to support an independent-contractor classification for the dancers.
The final three factors are more peripheral to the dispute here and will be discussed only briefly: the degree of skill required for the work; the permanence of the working relationship; and the degree to which the services rendered are an integral part of the putative employer’s business. As to the degree of skill required, the clubs conceded that they did not require dancers to have prior dancing experience. The district court properly found that “the minimal degree of skill required for exotic dancing at these clubs” supported anemployee classification. J.A. 1003-04. Moreover, even the skill displayed by the most accomplished dancers in a ballet company would hardly by itself be sufficient to denote an independent contractor designation.
As to the permanence of the working relationship, courts have generally accorded this factor little weight in challenges brought by exotic dancers given the inherently “itinerant” nature of their work. J.A. 1004-05; see also Harrell v. Diamond A Entm’t, Inc., 992 F.Supp. 1343, 1352 (M.D. Fla. 1997). In this case, defendants and plaintiffs had “an at-will arrangement that could be terminated by either party at any time.” J.A. 1005. Because this type of agreement could characterize either an employee or an independent contractor depending on the other circumstances of the working relationship, we agree with the district court that this temporal element does not affect the outcome here.
Finally, as to the importance of the services rendered to the company’s business, even the clubs had to concede the point that an “exotic dance club could [not] function, much less be profitable, without exotic dancers.” Secretary of Labor’s Amicus Br. in Supp. of Appellees 24. Indeed, “the exotic dancers were the only source of entertainment for customers …. especially considering that neither club served alcohol or food.” J.A. 1006. Considering all six factors together, particularly the defendants’ high degree of control over the dancers, the totality of circumstances speak clearly to an employer-employee relationship between plaintiffs and defendants. The trial court was right to term it such.
Significantly, the Fourth Circuit also affirmed the trial court’s holding that the performance fees collected by the dancers directly from the clubs’ patrons were not wages, and that the clubs were not entitled to claim same as an offset in an effort to meet their minimum wage wage obligations. Discussing this issue, the Court explained:
Appellants’ second attack on their liability for damages targets the district court’s alleged error in excluding from trial evidence regarding plaintiffs’ income tax returns, performance fees, and tips. The clubs contend that fees and tips kept by the dancers would have reduced any compensation that defendants owed plaintiffs under the FLSA and MWHL. According to defendants, the fees and tips dancers received directly from patrons exceeded the minimum wage mandated by federal and state law. Had the evidence been admitted, the argument goes, the jury may have awarded plaintiffs less in unpaid wages.
We disagree. The district court found that evidence related to plaintiffs’ earnings was irrelevant or, if relevant, posed a danger of confusing the issues and misleading the jury. See Fed. R. Evid. 403. Proof of tips and fees received was irrelevant here because theFLSA precludes defendants from using tips or fees to offset the minimum wage they were required to pay plaintiffs. To be eligible for the “tip credit” under the FLSA and corresponding Maryland law, defendants were required to pay dancers the minimum wage set for those receiving tip income and to notify employees of the “tip credit” provision. 29 U.S.C. 203(m); Md. Code Ann., Lab. & Empl. § 3-419 (West 2014). The clubs paid the dancers no compensation of any kind and afforded them no notice. They cannot therefore claim the “tip credit.”
The clubs are likewise ineligible to use performance fees paid by patrons to the dancers to reduce their liability. Appellants appear to distinguish performance fees from tips in their argument, without providing much analysis in their briefs on a question that has occupied other courts. See, e.g., Hart, 967 F.Supp.2d at 926-34 (discussing how performance fees received by exotic dancers relate to minimum wage obligations). If performance fees do constitute tips, defendants would certainly be entitled to no offset because, as noted above, they cannot claim any “tip credit.” For the sake of argument, however, we treat performance fees as a possible separate offset within the FLSA’s “service charge” category. Even with this benefit of the doubt, defendants come up short.
For purposes of the FLSA, a “service charge” is a “compulsory charge for service … imposed on a customer by an employer’s establishment.” 29 C.F.R. § 531.55(a). There are at least two prerequisites to counting “service charges” as an offset to an employer’s minimum-wage liability. The service charge “must have been included in the establishment’s gross receipts,” Hart, 967 F.Supp.2d at 929, and it must have been “distributed by the employer to its employees,” 29 C.F.R. § 531.55(b). These requirements are necessary to ensure that employees actually received the service charges as part of their compensation as opposed to relying on the employer’s assertion or say-so. See Hart, 967 F.Supp.2d at 930. We do not minimize the recordkeeping burdens of the FLSA, especially on small businesses, but some such obligations have been regarded as necessary to ensure compliance with the statute.
Neither condition for applying the service-charge offset is met here. As conceded by defendant Offiah, the dance clubs never recorded or included as part of the dance clubs’ gross receipts any payments that patrons paid directly to dancers. J.A. 491-97 (Offiah’s deposition). When asked about performance fees during his deposition, defendant Offiah repeatedly stressed that fees belong solely to the dancers. Id. Since none of those payments ever went to the clubs’ proprietors, defendants also could not have distributed any part of those service charges to the dancers. As a result, the “service charge” offset is unavailable to defendants. Accordingly, the trial court correctly excluded evidence showing plaintiffs’ earnings in the form of tips and performance fees.
This case is significant because, while many district courts have reached the same conclusions, this is the first Circuit Court decision to affirm same.
Click McFeeley v. Jackson Street Entertainment, LLC to read the entire Fourth Circuit decision.
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
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 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 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.
10th Cir.: Award of Liquidated Damages Under FLSA Does Not Preclude Award of Similar Penalties Under Colorado Law (CWCA)
Following the entry of judgment on his behalf on both his FLSA and Colorado wage and hour claims, plaintiff appealed the district court’s judgment. Specifically, plaintiff appealed the district court’s holding that an award of liquidated damages under the FLSA precluded an award of penalties under the CWCA. Whereas the district court had held that plaintiff was entitled to an award of one or both because awarding both would have constituted a double recovery, the Tenth Circuit disagreed. Rather, the Tenth Circuit held that because liquidated damages under the FLSA and penalties under the CWCA serve different purposes, an employee who prevails on claim under both statutes may be awarded both liquidated damages and penalties.
Framing the issue before it, the Tenth Circuit explained:
The court then stated that “these claims give rise to similar and, at least partially, overlapping damages.” Aplt. App. at 15. The court cited Mason v. Oklahoma Turnpike Authority, 115 F.3d 1442, 1459 (10th Cir. 1997) (quoting U.S. Indus., Inc. v. Touche Ross & Co., 854 F.2d 1223, 1259 (10th Cir. 1988)), overruled on other grounds by TW Telecom Holdings Inc. v. Carolina Internet Ltd., 661 F.3d 495 (10th Cir. 2011), for the principle that “‘[i]f a federal claim and a state claim arise from the same operative facts, and seek identical relief, an award of damages under both theories will constitute double recovery.'” Then without evaluating the nature of relief available under FLSA and CWCA, the court further concluded that Mr. Evans could “recover damages only on the statute which provides the greatest relief.” Aplt. App. at 15.
Without explaining why it believed CWCA provided greater relief than FLSA, the district court awarded Mr. Evans $7,248.75 in compensatory damages for unpaid wages under CWCA. Further, after finding that Mr. Evans had made a proper, written demand for payment under CWCA and that the defendants had willfully failed to pay the owed wages, the district court also awarded Mr. Evans a penalty under CWCA of 175% of the unpaid wages: $12,685.31. See Colo. Rev. Stat. § 8-4-109(3). Although noting that Mr. Evans had provided no support for his prejudgment-interest claim, the court nevertheless exercised its discretion and [*4] awarded prejudgment interest—solely on the compensatory damages—in the amount of $1077.18, together with postjudgment interest. In addition, it ruled that Mr. Evans was entitled to his attorney fees and costs.
In reaching its holding that liquidated damages under the FLSA and penalties under the CWCA are not mutually exclusive, the Tenth Circuit differentiated the reasons underlying both types of damages, and explained:
On appeal, Mr. Evans contends that he is entitled to FLSA liquidated damages in addition to the CWCA penalty because the two monetary awards serve different purposes. More specifically, he contends that FLSA liquidated damages are meant to compensate employees wrongly unpaid their wages, but that the CWCA penalty is meant to punish employers that wrongly fail to pay their employees’ earned wages. We agree with Mr. Evans’s position.
In addition to requiring employers to pay wages owed, FLSA authorizes the imposition of an equal amount as liquidated damages unless “the employer shows both that he acted in good faith and that he had reasonable grounds for believing that his actions did not violate the Act.” Doty v. Elias, 733 F.2d 720, 725-26 (10th Cir. 1984); see also 29 U.S.C. §§ 216(b), 260. Liquidated damages awarded under FLSA are compensatory rather than punitive. Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945). In other words, [*5] they “‘are not a penalty exacted by the law, but rather compensation to the employee occasioned by the delay in receiving wages due caused by the employer’s violation of the FLSA.'” Jordan v. U.S. Postal Serv., 379 F.3d 1196, 1202 (10th Cir. 2004) (quoting Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 142 (2d Cir. 1999)); see also Renfro v. City of Emporia, 948 F.2d 1529, 1540 (10th Cir. 1991) (“The purpose for the award of liquidated damages is ‘the reality that the retention of a workman’s pay may well result in damages too obscure and difficult of proof for estimate other than by liquidated damages.'” (quoting Laffey v. Northwest Airlines, Inc., 567 F.2d 429, 463 (D.C. Cir. 1976))).
The relief available under FLSA and CWCA does partially overlap because both laws allow employees to recover unpaid wages as compensatory damages. And Mr. Evans concedes that he can recover his unpaid wages only once. But, as discussed above, FLSA allows for additional compensatory damages as liquidated damages. In contrast, CWCA imposes a penalty on an employer who receives an employee’s written demand for payment and fails to make payment within fourteen days, and it increases the penalty if the employer’s failure to pay is willful. See Graham v. Zurich Am. Ins. Co., 296 P.3d 347, 349-50 (Colo. App. 2012). No Tenth Circuit case directly addresses whether these damages duplicate one another.
Other jurisdictions have concluded that an award of both a state statutory penalty and FLSA liquidated damages does not constitute a double [*6] recovery. See, e.g., Mathis v. Housing Auth., 242 F. Supp. 2d 777, 790 (D. Or. 2002) (“[A]n award of the penalty under [the state law] and an award of liquidated damages under the FLSA do not constitute a double recovery.”); Morales v. Cancun Charlie’s Rest., No. 3:07-cv-1836 (CFD), 2010 WL 7865081, at *9 (D. Conn. Nov. 23, 2010) (unpublished) (allowing recovery of liquidated damages under both FLSA and state law because the provisions “serve different purposes—the FLSA damages are compensatory and the [state law] damages serve a punitive purpose”); Do Yea Kim v. 167 Nail Plaza, No. 05 CV 8560 (GBD), 2008 WL 2676598, at *3 (S.D.N.Y. July 7, 2008) (unpublished) (“New York Labor Law provides separately for liquidated damages in overtime compensation claims, in addition to federal liquidated damages.”). We agree with the rationale of these cases.
We note further that, like FLSA liquidated damages, prejudgment interest also is meant “‘to compensate the wronged party for being deprived of the monetary value of his loss from the time of the loss to the payment of the judgment.'” Greene v. Safeway Stores, Inc., 210 F.3d 1237, 1247 (10th Cir. 2000) (quoting Suiter v. Mitchell Motor Coach Sales, Inc., 151 F.3d 1275, 1288 (10th Cir. 1998)). It follows that “a party may not recover both liquidated damages and prejudgment interest under the FLSA.” Doty, 733 F.2d at 726. Thus, on remand, if the district court awards FLSA liquidated damages it must vacate its award of prejudgment interest. See Dep’t of Labor v. City of Sapulpa, 30 F.3d 1285, 1290 (10th Cir. 1994) (“If the district court finds that liquidated damages should be awarded it must vacate [*7] its award of prejudgment interest, because it is settled that such interest may not be awarded in addition to liquidated damages.”).
Therefore, we remand to the district court to recalculate the amount of damages in light of our determination that it is permissible for the court to award both FLSA liquidated damages and a CWCA penalty. If the court awards FLSA liquidated damages, it must vacate the award of prejudgment interest.
While this decision is limited in application to cases in which employees make claims simultaneously under the FLSA and CWCA, it’s application and reasoning can certainly be applied to other so-called “hybrid” cases in which FLSA claims are paired with state wage and hour law claims.
Click Evans v. Loveland Auto. Invs. to read the entire decision.
11th Cir.: Trial Court Erred in Denying Liquidated Damages Where Sole Evidence of Good Faith Was VP’s Testimony He Researched Alleged Exemption After Plaintiff Commenced Legal Action
This case was before the Eleventh Circuit for a second time. Previously, the plaintiff had successfully appealed the trial court’s decision that he was exempt from the FLSA under the so-called Motor Carrier Exemption. Following remand, plaintiff prevailed at trial and was awarded unpaid overtime wages. The plaintiff then moved for an award of liquidated damages and attorneys’ fees and costs. As discussed here, despite virtually non-existent evidence of any good faith on the part of the defendant to determine its FLSA obligations prior to the lawsuit, the court below denied plaintiff liquidated damages. The Eleventh Circuit reversed reiterating that a defendant (and not plaintiff) bears the burden of proof on this issue and that the burden is a relatively high one.
Discussing the relevant burden of proof, the court explained:
Under the FLSA, liquidated damages are mandatory absent a showing of good faith by the employer. See 29 U.S.C. § 216(b) (2012); Joiner v. City of Macon, 814 F.2d 1537,1538-39 (11th Cir. 1987). Although liquidated damages are typically assessed at an equal amount of the wages lost due to the FLSA violation, they can be reduced to zero at the discretion of [*7] the court. See 29 U.S.C. §§ 216(b), 260. If an employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the Fair Labor Standards Act . . . the court may, in its sound discretion, award no liquidated damages . . . .
29 U.S.C. § 260.
An employer who seeks to avoid liquidated damages bears the burden of proving to the court that its violation was “both in good faith and predicated upon such reasonable grounds that it would be unfair to impose upon him more than a compensatory verdict.” Reeves v. Int’l Tel. & Tel. Corp., 616 F.2d 1342, 1352 (5th Cir. 1980) (quoting Barcellona v. Tiffany English Pub, Inc., 597 F.2d 464, 468 (5th Cir. 1979)). “Before a district court may exercise its discretion to award less than the full amount of liquidated damages, it must explicitly find that the employer acted in good faith.” Joiner, 814 F.2d at 1539.
The Eleventh Circuit then held that the defendant in this case had not carried its burden of proof:
The district court erred in denying liquidated damages on this record. Aqua Life had the burden of proving good faith and reasonable belief and failed to carry that burden. The only evidence of the alleged good faith was the testimony of its Vice President, [*8] Mr. Ibarra, who ostensibly researched the Motor Carrier Act exception to the FLSA, concluding that Mr. Reyes did not need to be paid overtime hours for his work. Yet, Mr. Ibarra also admitted that he had never heard of the FLSA until legal action was taken by Mr. Reyes. Aqua Life thus did not make a sufficient factual showing upon which the district court could have reasonably relied to deny liquidated damages and the record does not support the district court’s refusal to grant liquidated damages.
We need not reach Mr. Reyes’s alternative arguments against the denial of liquidated damages, as the factual record contains no evidence to support the district court’s denial of liquidated damages. Accordingly, we REVERSE, and direct the district court to assign full liquidated damages in the amount of $14,770.00 to Mr. Reyes.
Click Reyes v. Aqua Life Corp. to read the entire decision.
D.D.C.: Revised Regulations re Companionship Exemption Reinstated; DOL Acted Within Its Rulemaking Authority and the New Regulation Grounded in Reasonable Interpretation of the FLSA
This case was before the D.C. Circuit on the Department of Labor’s appeal of a lower court’s decision that held the DOL’s recent amendments to the companionship exemption regulations to be unenforceable. Specifically, in 2 separate decisions, the same lower court judge had invalidated the new regulations, both as they applied to third-party staffing companies and as they revised the definition of companionship duties within the scope of the exemption. The D.C. Circuit reversed the lower court’s decision and reinstated the revised regulation, finding that the DOL acted within its rulemaking authority with regard to the revision pertaining to third-party staffing companies. The D.C. Circuit declined to reach the second issue regarding the definition of companionship services, because it held that the plaintiffs lacked standing to challenge same in light of the fact that the exemption was inapplicable to them under the regulation in the first instance.
Explaining the issue before it, the court stated:
The Fair Labor Standards Act’s protections include the guarantees of a minimum wage and overtime pay. The statute, though, has long exempted certain categories of “domestic service” workers (workers providing services in a household) from one or both of those protections. The exemptions include one for persons who provide “companionship services” and another for persons who live in the home where they work. This case concerns the scope of the exemptions for domestic-service workers providing either companionship services or live-in care for the elderly, ill, or disabled. In particular, are those exemptions from the Act’s protections limited to persons hired directly by home care recipients and their families? Or do they also encompass employees of third-party agencies who are assigned to provide care in a home?
Until recently, the Department of Labor interpreted the statutory exemptions for companionship services and live-in workers to include employees of third-party providers. The Department instituted that interpretation at a time when the provision of professional care primarily took place outside the home in institutions such as hospitals and nursing homes. Individuals who provided services within the home, on the other hand, largely played the role of an “elder sitter,” giving basic help with daily functions as an on-site attendant.
Since the time the Department initially adopted that approach, the provision of residential care has undergone a marked transformation. The growing demand for long-term home care services and the rising cost of traditional institutional care have fundamentally changed the nature of the home care industry. Individuals with significant care needs increasingly receive services in their homes rather than in institutional settings. And correspondingly, residential care increasingly is provided by professionals employed by third-party agencies rather than by workers hired directly by care recipients and their families.
In response to those developments, the Department recently adopted regulations reversing its position on whether the FLSA’s companionship-services and live-in worker exemptions should reach employees of third-party agencies who are assigned to provide care in a home. The new regulations remove those employees from the exemptions and bring them within the Act’s minimum-wage and overtime protections. The regulations thus give those employees the same FLSA protections afforded to their counterparts who provide largely the same services in an institutional setting.
The D.C. Circuit held that the DOL acted within its rulemaking authority when it issued the regulations at issue and that they were not arbitrary and capricious. For these reasons it held the regulations were proper and enforceable:
Appellees, three associations of home care agencies, challenged the Department’s extension of the FLSA’s minimum-wage and overtime provisions to employees of third-party agencies who provide companionship services and live-in care within a home. The district court invalidated the Department’s new regulations, concluding that they contravene the terms of the FLSA exemptions. We disagree. The Supreme Court’s decision in Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 127 S.Ct. 2339, 168 L.Ed.2d 54 (2007), confirms that the Act vests the Department with discretion to apply (or not to apply) the companionship-services and live-in exemptions to employees of third-party agencies. The Department’s decision to extend the FLSA’s protections to those employees is grounded in a reasonable interpretation of the statute and is neither arbitrary nor capricious. We therefore reverse the district court and remand for the grant of summary judgment to the Department.
To read the entire decision click Home Care Association of America v. Weil.
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.