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On April 12, 2018, the Wage and Hour Division (WHD) of the Department of Labor reinstituted its practice of issuing opinion letters, providing the Agency’s interpretation of discrete issues under the Fair Labor Standards Act. The Obama administration had suspended the longstanding practice nearly a decade ago. Two of the opinion letters issued on April 12 address issues of compensability, including the compensability of short work breaks taken by employees for health-related reasons under the FMLA, and for certain time spent traveling for work.

A. Short Breaks Under the FMLA Are Not Compensable

In Opinion Letter FLSA 2018-19, the WHD addressed the question of whether a non-exempt employee’s 15-minute rest breaks, certified by a physician as necessary under the FMLA for a serious health condition, are compensable. The factual scenario considered by the WHD involved an employee who required a 15-minute break every hour, resulting in the employee’s only working six hours during an eight hour shift.

The Opinion Letter explained that the U.S. Supreme Court previously has ruled that the compensability of an employee’s time depends on “[w]hether [it] is spent predominantly for the employer’s benefit or for the employee’s.” Generally, courts applying this rule have found that short rest breaks of up to 20 minutes are compensable, as they primarily benefit the employer by providing a more efficient and re-energized employee.

The WHD explained that the breaks in question here differed, however, as they were provided to accommodate the employee’s serious health condition. Accordingly, the Opinion Letter concluded that the FMLA-protected breaks predominantly benefited the employee and, therefore, were not compensable.

Finally, the WHD warned that employers should be careful to provide employees who take FMLA-protected breaks with as many compensable rest breaks as their co-workers. In other words, employers should not penalize employees who utilize breaks for FMLA-related reasons with fewer paid breaks.

B. The Compensability of Travel Time Depends on the Circumstances

In Opinion Letter FLSA 2018-18, the WHD examined three separate scenarios involving the travel time of hourly technicians who do not work set schedules or at fixed locations, but rather work varying hours and at different customer locations each day.

In Scenario 1, the WHD addressed the compensability of a technician’s travel by plane on a Sunday from his home state to a different state in order to attend a training class beginning at 8:00 a.m. on Monday at his employer’s corporate office. The WHD explained that such travel away from the employee’s home community constitutes worktime when it cuts across the employee’s regular working hours, even on a non-work day like Sunday. Thus a “9 to 5” employee would need to be paid for any such travel time on Sunday between those hours. Because the scenario presented involved an employee with an irregular schedule, however, the WHD provided various alternative methods for calculating the “normal” work hours for employees who do not work a regular, set schedule. These included: reviewing the employee’s time records during the most recent month to determine if they reveal “typical work hours” during that month; calculating average start and end times during the most recent month; and, in rare cases in which an employee truly has no normal work hours, negotiating with the employee to determine a reasonable amount of compensable time for travel away from the employee’s home community.

Scenarios 2 and 3 addressed travel by technicians: 1) from home to the office in order to get job itineraries, followed by subsequent travel to customer locations; and 2) directly from home to multiple different customer locations. The WHD explained that both scenarios dealt largely with ordinary commutes to and from work. In both instances, whether traveling from home to the office or from home to the first customer location, “compensable work time generally does not include time spent commuting between home and work, even when the employee works at different job sites.” Of course, once the employee has arrived at his or her first job site, all subsequent travel between job sites is compensable.

The issuance of these opinion letters is a promising development for employers. It would appear to indicate that the WHD is seeking to provide employers with clarity regarding difficult issues under the FLSA and proactively assist them in complying with the law.

In a 5-4 decision, the Supreme Court on Monday held in Encino Motorcars, LLC v. Navarro, et al., that current and former service advisors in a car dealership were not entitled to overtime under the Fair Labor Standards Act. The Court ruled that the service advisors were exempt from overtime under 29 U.S.C. §2113(b)(10)(A), which applies to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements. . .”

The service advisors claimed that while their job description required them to attempt to sell additional services beyond what prompted the customers’ visits, they did not sell cars or perform repairs. The majority of the Supreme Court disagreed with the service advisors and stated that the question is whether service advisors are “salesm[e]n . . . primarily engaged in . . . servicing automobiles.”  The Court concluded that they were. Much of the majority opinion and the dissent focused on the grammatical interpretation of the use of “or” to disjoin three types of employees doing two types of work on three kinds of products. The majority found that the language meant that a salesman primarily engaged in servicing automobiles was exempt, while the dissent argued that a salesman had to be engaged only in selling automobiles to qualify.

The service advisors also argued that the FLSA exemptions should be construed narrowly. The Supreme Court also rejected this argument because, according to the majority, the FLSA gives no “textual indication” that its exemptions should be construed narrowly and that there was no reason to give them “anything other than a fair (rather than a ‘narrow’) interpretation.” Notably, the Court stated that exemptions contained in the FLSA are to be construed just the same as the basic protections in the Act, noting that exceptions are often the price paid to have the law passed in the first place.

This is the second time this case has been before the Supreme Court.  In 2011, the Department of Labor issued a rule that interpreted “salesmen” to exclude service advisors, and the Ninth Circuit deferred to that administrative determination. In 2016, the Supreme Court, in its prior Encino Motorcars’ decision, held that courts should not defer to that rule because it was procedurally defective. The Supreme Court remanded the case back to the Ninth Circuit Court of Appeals to address whether service advisors are exempt. The Court of Appeals for the Ninth Circuit held on remand that service advisors were exempt without regard to the 2011 interpretation and that decision was reversed by the Supreme Court on April 2.

Employers should take note that on April 1, 2018 more rigorous Department of Labor (“DOL”) regulations take effect governing the administration of benefit claims and ensuing appeals under ERISA plans providing disability benefits. (“ERISA” refers to the Employee Retirement Income Security Act of 1974, the federal law governing private sector employee benefit plans). These regulatory changes will have their most significant impact on private sector long-term disability plans. However, they will also affect those retirement plans (including 401(k) plans) that provide benefits upon disability. Short-term disability plans are generally not subject to these rules because they are typically exempt from ERISA as “payroll practices”. Click here to read the full client alert.

The Employee Benefits Security Administration of the Department of Labor has just released for public consideration, and published for comment, a significant new interpretation of the term “employer” under ERISA. Under the proposal, small businesses and sole proprietors would have more freedom to band together to provide health coverage for employees in what are referred to as “Small Business Health Plans” or “Association Health Plans”.  The proposal would allow employers to form a Small Business Health Plan on the basis of geography or industry. A plan could serve employers in a state, city, county, or a multi-state metro area, or it could serve all the businesses in a particular industry nationwide.

Up until now, most association arrangements, such as Multiple Employer Welfare Arrangements (MEWAs), have been considered as a collection of individual employer plans, rather than a single plan. This meant that the plans were treated as being in the small employer group market or the large employer group market based on the number of participants in each employer’s workforce. The effect of the new interpretation would be to put all the employer populations together, so they would all be in (most commonly) either the large group market or, if the association decides to be self-insured, in the self-insured market.

In addition, the new interpretation would permit sole proprietors and partners to be treated as both employers, for certain purposes, and employees for the purpose of being able to participate in the Association Health Plan. In the past, “employee-less” groups were treated as not covered by ERISA. Now, entrepreneurs with zero employees can obtain coverage through the association, and business owners who are active in the business can obtain coverage alongside their employees.

A third major part of the new interpretation is a non-discrimination requirement. As currently envisioned, an association cannot discriminate against employers based upon any health characteristic of the employer’s workforce. Nor can the plan discriminate within an employer group based on health characteristics of any participant. However, the association can establish different rates for “non-health” characteristics, such as bargaining unit membership, beneficiary vs. participant status, retiree vs active status, full- vs. part-time status, and occupation. The specifics of what associations can do to “police” member employer conduct and how the association can encourage wellness initiatives will require additional interpretation.

The fourth major change from current interpretative guidance is that associations may be formed specifically for the purpose of having a benefit plan. Until now, an association had to have had a reason to exist apart from providing benefits, such as promoting the industry in which its members operate. The limitation is now that the association may be formed specifically to offer health plans if it offers them (1) within a state or (2) within a metropolitan area, even if the metropolitan area covers more than one state. The definition of the metropolitan area is one of the points as to which the DOL is seeking input.

As with all things ERISA, the new interpretation is complex and raises significant issues for small- and medium-sized employers who are not already self-insured. Interested parties now have 60 days to submit comments. Because the initiative for the new interpretation was an Executive Order, it is anticipated that the time from the close of comments to issuance of a final rule will be short. Employers would be well-advised to follow developments closely, submitting comments where appropriate and encouraging any associations to which they belong to weigh in.

Are the changes to the overtime rules going to take effect or not? Ever since a federal court issued an injunction in late 2016 stopping major changes to the federal overtime rules, employers have anxiously been waiting for an answer to that question. Last week, the U.S. Department of Labor (DOL) turned the tables, and asked employers and others whether the overtime rules should change and, if so, how they should change. More specifically, the DOL published a formal Request for Information (RFI) in the Federal Register on July 26 acknowledging concerns about the previously proposed changes and asking the public for its help in formulating a new proposal.

The DOL’s RFI poses eleven specific questions and asks interested individuals and organizations to provide written answers to those questions within 60 days. The questions suggest that the DOL may be open to considering increasing the minimum salary level for exempt employees, but perhaps not increasing it as much as the DOL had proposed in 2016. The questions also suggest the DOL may revisit the idea of automatic increases to the minimum salary level and may explore other overtime rule changes.

Many commenters view the DOL’s action as a positive sign for employers, especially given certain business-friendly comments made by Secretary of Labor Alexander Acosta during his March 2017 confirmation hearing. At the very least, this is the first step in a process that will hopefully result in more balanced and reasonable changes to the overtime rules. We will certainly continue to monitor the issue.

On March 27, 2017, President Donald Trump signed a resolution that permanently blocked an executive order previously issued by President Obama, which had required federal contractors to disclose labor law violations.

The Fair Pay and Safe Workplaces executive order signed by President Obama in 2014 had been called the “blacklisting” order by those in the business sector, as it required federal contractors  and subcontractors bidding on large ($500,000) contracts to report violations of certain federal and state labor and employment laws that occurred in the last 3 years, and to update those disclosures every six months, as well as track the compliance by subcontractors, regardless of whether the violations had been finalized.

In order for the resolution to get to President Trump’s desk, it had to pass both the House and Senate, which it did by narrow margins.  A significant aspect of the resolution is that it was passed by Congress under the Congressional Review Act (CRA), which was part of the 1996 Contract with America that was enacted under then House Speaker Newt Gingrich.  By passing the resolution under the CRA, this means that a federal agency cannot create a substantially similar rule in the future without Congressional approval.

The “blacklisting” rules were widely criticized by federal contractors as being costly, requiring companies to report mere allegations that had not been fully adjudicated, and as duplicating existing debarment procedures.

A similar rule to President Obama’s “blacklisting” order had been issued by President Clinton near the end of his term, but that rule was quickly repealed by President Bush.  This action by President Trump renders moot an action pending in the Eastern District of Texas, wherein a federal judge had temporarily blocked implementation of portions of the rule last fall.

White HouseThe Office of Management and Budget released President Trump’s “America First” budget blueprint for discretionary spending earlier this morning. Overall, it increases spending on defense, veterans’ health, immigration enforcement and combatting opioid abuse while decreasing civilian discretionary spending. Hardest hit are programs such as the National Endowment for the Arts, the Legal Services Corporation, The Corporation for Public Broadcasting, which were cut completely from the budget. The Environmental Protection Agency and State Department received deep cuts, which will reduce foreign aid. The Department of Labor will have its budget reduced by about one-fifth.

The Budget document provides the following introduction to the DOL appropriation request:

The Department of Labor fosters the welfare of wage earners, job seekers, and retirees by safeguarding their working conditions, benefits, and wages. With the need to rebuild the Nation’s military without increasing the deficit, this Budget focuses the Department of Labor on its highest priority functions and disinvests in activities that are duplicative, unnecessary, unproven, or ineffective.

The President’s 2018 Budget requests $9.6 billion for the Department of Labor, a $2.5 billion or 21 percent decrease from the 2017 annualized CR level.

The President would totally eliminate the Senior Community Service Employment Program (SCSEP), which retrains unemployed older workers for unsubsidized private sector jobs on the basis that it is ineffective. It closes underperforming Job Corps Centers, although it does not specify which ones. The budget would limit the Department’s International activity to ensuring that American Workers are protected under trade arrangements. While reducing federal subsidies for job training and employment service grants to states (in favor of greater reliance on state and local government and employer funding), it increases support for “evidence-based” apprenticeship programs to prepare individuals for jobs. Finally, it eliminates OSHA training grants, so that the agency can focus on its core mission of worker safety.

Overall, the cuts do not appear to drastically reduce the ability of the DOL to conduct its investigation and enforcement activities as much as might have been expected. There is much yet to be determined, however, and the budget process is likely to lead to substantial changes in the budget.  It is clear, however, that the Trump Administration is prepared to make major cuts in civilian discretionary spending in order to increase funding for border security and military capacity.

On December 19, the United States Department of Labor issued comprehensive new guidance making it clear that it intends to continue to aggressively pursue employers who misclassify employees as independent contractors. The transmittal message for the new guidance, entitled “Misclassification Affects Everyone,” states the DOL’s position that “The misclassification of employees as independent contractors is a huge problem for workers, employers who play by the rules and our economy.” Although the document states that the DOL supports valid independent contractor arrangements, the definite direction of the DOL is to limit many common ways businesses use independent contractors rather than employees.

The DOL’s new guidance is accessible through a web page and provides quotes from misclassified workers, including one who compares his job as a taxi driver to “modern day slavery.” Although the approach may seem overly dramatic, the web site does provide a variety of useful tools, such as a section entitled “Myths About Misclassification,” which addresses twelve commonly held misconceptions about independent contractor arrangements.

The DOL’s overall direction under the incoming presidential administration cannot be predicted with complete certainty, but employers can safely predict that their classification of workers as independent contractors will continue to be closely scrutinized—not just by the DOL, but also by state and local taxing authorities. Employers should therefore consider auditing their independent contractor arrangements by using the DOL’s new guidance and by consulting with their employment counsel.

BlockedIn a much-welcomed eleventh-hour ruling yesterday, the United States District Court in the Eastern Division of Texas issued a preliminary injunction enjoining the United States Department of Labor (“DOL”) from implementing changes to overtime rules under the Fair Labor Standards Act (“FLSA”) (the “Final Rule”). The Final Rule, which nearly doubles the salary threshold for the overtime exemption, was scheduled to take effect on December 1, 2016. The injunction blocks the Rule, for now. For more information on what the Final Rule would mean for you or your company, click here.

In his Memorandum Opinion and Order, Judge Mazzant found that the Final Rule’s salary increase has the effect of excluding from the exemption some 4.2 million workers who are performing exempt-type work, and that this exclusion conflicts with the FLSA.

The Court imposed the injunction nationwide, not just within its jurisdiction. Thus, the injunction blocks (or at least delays) the Final Rule for all employers.

This is not the end. The judge’s ruling is only temporary, and could be overturned later by the same court or a higher one (including the United States Supreme Court). What is certain, however, is that the Final Rule will not go into effect on December 1, 2016 as previously expected.

So what should employers do now?

If you have already changed your compensation structure to conform to the new rule, it might be unpopular to reverse those changes, although you may have the right to do so-at least temporarily. Conversely, if you were waiting until December 1 to make any changes, you may now wait until the courts (or Congress) render a final decision. It will definitely be worth watching to see what action the new administration takes with regard to defending or disowning the Final Rule, since the litigation is certainly not going to be completed before January 20, 2017.

Sick-Leave-Sign-2-smallThe U.S. Department of Labor recently released its final rule requiring federal contractors and subcontractors to provide their employees with paid sick leave each year. This rule implements Executive Order 13706, which President Obama signed in September 2015. The rule takes effect on November 29, 2016, though generally it applies only to new contracts that are awarded on or after January 1, 2017. Nevertheless, covered contractors should begin taking steps to comply with the rule soon.

Under the rule, employees are entitled to one hour of paid leave for every 30 hours worked, up to a maximum of 56 hours of leave per year. Alternatively, contractors may provide 56 hours of leave to employees at the beginning of each year. In either case, the leave must generally carry over from year to year. In some situations, however, the amount of available leave can be capped at 56 hours.

Employees may use the leave for their own illness, preventative treatment or other health care needs, or to care for a family member or domestic partner. Employees may also use the leave in certain domestic violence, sexual assault, or stalking situations.

The rule does not apply to all employees of a covered contractor, but only to those who perform work in connection with a covered contract. There is also a short-term exemption for employees who are governed by a collective-bargaining agreement, if the CBA provides at least 56 hours of paid time off that may be used for sickness- and health- related reasons. These contractors have until the CBA expires or January 1, 2020 (whichever comes first) to comply with the rule.

Because non-compliance can result in significant penalties, including a possible three-year debarment, contractors should review their existing sick leave policies and ensure compliance with the rule before it takes effect. Contractors should also familiarize themselves with the various procedures governing leave administration, including leave tracking, employee notice, and health care-provider certifications.