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.

In 2015, the National Labor Relations Board (NLRB) expanded the joint employer doctrine through its controversial decision in Browning-Ferris Industries of California. The House of Representatives will vote today on the “Save Local Business Act” (SLBA), a recent effort advanced in Congress to re-define the concept of “joint employers” for collective bargaining purposes as well as wage-and-hour, safety, and other employment liability.  If passed, the bill would effectively undo Browning-Ferris.

The Browning-Ferris decision broadened the standard used in evaluating joint employment beyond the “direct and immediate” control over the essential terms and conditions of employment.  Instead, it created a two-part “indirect control” test for determining “employer” status that examined whether a common law relationship exists with the employee(s) in question and whether the potential employer “possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful bargaining.” That broadened standard drew significant criticism and caused concern across a variety of industries, as companies that merely had “potential” or “reserved control” to hire, terminate, discipline, supervise, and direct an affiliated company’s employees – but who did not actually exercise that right – could now be liable for various employment claims and collective bargaining requirements.

If passed by Congress and signed into law, the SLBA would limit the extent to which affiliated businesses are considered to be “joint employers” under the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA).  Under the SLBA’s proposed terms, a person could be considered a joint employer under the NLRA only where it “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment” over an employee.  The definition of “employer” under the FLSA would also be amended to include a reference to the NLRA’s definition, which is consistent with the Department of Labor’s decision in June 2017 to withdraw prior guidance that applied the broadened joint employer definition to the FLSA.

After the Browning-Ferris decision, franchisees, which typically get standardized training and employment manuals from franchisors, and staffing agencies, which recruit temporary workers for their client companies, feared increased liability under the new joint employer standard.  Unsurprisingly, then, the U.S. Chamber of Commerce, National Retail Federation, and the International Franchise Association all support the bill. Opponents argue, however, that the bill would enable wage theft by immunizing unscrupulous employers and would reduce collective bargaining rights of employees.

Until the SLBA becomes law, companies, including those using franchise models and staffing agencies, should be aware of potential liability not only for their own actions, but also for those of any other entity with which they can be determined to be a joint employer.  For more information on how to manage these liabilities, please contact one of Frantz Ward LLP’s Staffing Industry attorneys.

Recently, House Republicans renewed efforts to rein in expansion of two federal labor laws’ joint employer definition by introducing the Save Local Business Act (“SLRA”) (H.R. 3441). The SLRA limits how affiliated companies are considered joint employers for collective bargaining liability purposes and within wage and hour laws.

The SLRA represents an expanded effort to reverse the National Labor Relations Board’s (“NLRB”) Browning-Ferris Industries of California Inc., 362 NLRB No. 186 (Aug. 27, 2015) decision. In Browning-Ferris, the NLRB reversed a 30-year old standard for determining joint employer status under the National Labor Relations Act (“NLRA”). According to Browning-Ferris, affiliated companies are joint employers if they 1) “are both employers within the meaning of the common law” and 2) “share or co-determine” matters governing the essential terms and conditions of employment. Under the first prong, the NLRB focuses on a company’s “right to control” employees and does not consider whether the company exercises that right. For example, a company may create a common law employer relationship if it reserves ultimate discharge authority over temporary workers but does not exercise that right. For the second prong, the NLRB defines “essential terms and conditions” to include wages, hours, hiring, firing, and supervision. Evidence of controlling these “essential terms and conditions” may include dictating the number of contingent workers supplied and controlling schedules or overtime.

The SLRA also addresses recent expansion of the joint employer definition by courts under the Fair Labor Standards Act (“FLSA”). For example, in Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017), the federal Fourth Circuit Court of Appeals, covering Maryland, North Carolina, South Carolina, West Virginia, and Virginia, applied an expanded test to conclude that general and subcontractors were joint employers. Under the Salinas-applied test, joint employment exists when 1) two companies “share, agree to allocate responsibility for, or otherwise codetermine – formally or informally, directly or indirectly – the essential terms and conditions of a worker’s employment” and 2) the companies’ combined influence “over the terms and conditions of the worker’s employment” renders the person an employee instead of an independent contractor. This determination has significant implications because, as joint employers, both companies must comply with the FLSA as it relates to an individual’s entire employment for a workweek. In other words, a company must add the hours worked for both employers to determine whether and to what extent the individual earned overtime pay.

The SLRA rolls back these expanded definitions by redefining joint employer in both the NLRA and FLSA.  Specifically, under the Act:

A person may be considered a joint employer in relation to an employee only if such person directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment (including hiring employees, discharging employees, determining individual employee rates of pay and benefits, day-to-day supervision of employees, assigning individual work schedules, positions, and tasks, and administering employee discipline).

Ultimately, the bill seeks to reinstate the traditional joint employer standard and restore some semblance of predictability that the NLRB eviscerated in the Browning-Ferris decision. Although the House is on recess, the bill will almost assuredly proceed within Education and Workforce Committee upon Congress’s September return. In addition, the bill could quickly move to the House floor for consideration and, with sufficient support, advance to the Senate. Frantz Ward will keep close track of the bill and provide updates on the SLRA’s progress.

In a development that may be of interest both to those who follow Fair Labor Standards Act (“FLSA”) developments and to those interested in mediation, the U.S. District Court of the Southern District of New York has mandated early mediation for all FLSA cases. The pilot program responds to the surge in FLSA case filings by sending cases to mediation immediately upon the appearance of the defendant.

The mediation is to be scheduled within four (4) weeks of the Court’s issuance of its standard order. Limited disclosures are required as follows:

  1. Both parties to produce any existing documents describing plaintiff’s duties and responsibilities
  2. Both parties to produce records of pay and hours worked by plaintiff
  3. Plaintiff to produce spreadsheet of alleged underpayments and other damages
  4. Defendant to produce documents describing compensation policies
  5. If claiming inability to pay, defendant to produce proof of financial condition

If the mediation is successful, the parties are then required to provide a memorandum to the Court so that it can perform its function of approving the FLSA settlement.

Some see a conflict between the voluntary process of mediation and forcing parties to participate in it. However, getting parties to agree to mediate disputes before discovery has taken place is a tough sell, especially to lawyers. In FLSA cases, the key facts are often available and material/factual issues may be limited. FLSA cases should lend themselves well to early resolution, and mandating prompt mediation with limited, but relevant, disclosures is probably well worth the investment in the pilot project. It remains to be seen if other courts will follow along.

By now most employers are (hopefully) aware that the U.S. Department of Labor has significantly changed some of the rules governing exemptions from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”). The revised regulations will go into effect on December 1, 2016, and they will principally do the following:

  • Immediately double the minimum salary threshold for the “white collar” exemptions to $913 per week ($47,476 annualized)
  • Adjust the minimum salary threshold for inflation every three years
  • Change the way the minimum salary threshold is calculated so that employers can count certain bonuses and commissions toward as much as 10% of the threshold
  • Set the total annual compensation requirement for the highly-compensated employee exemption to the annual equivalent of the 90th percentile of full-time salaried workers nationally (i.e., $134,004)

Needless to say, these unprecedented changes present significant challenges for employers. Given the potential consequences of noncompliance it is essential that employers act immediately to ensure they have taken all necessary steps to comply with the new regulations prior to December 1st. While each workplace will be different, some general suggestions that employers should consider include the following:

  • Immediately identify exempt positions that fall below the new minimum salary threshold and consider
    • Who will get a pay raise to maintain the exemption
    • Who will be reclassified as non-exempt
  • For reclassified employees, study the employees’ average hours worked for purposes of setting new pay rates
  • Given the likelihood of increased litigation and stepped up DOL enforcement, consider reclassifying other “vulnerable” positions
  • Ensure accurate timekeeping of all hours worked
    • Train reclassified employees, many of whom will be uncomfortable with or resistant to tracking their hours worked
    • Train managers
    • Address “bring your own device” issues (e.g., after-hours e-mails, texts, and phone calls)
  • Review and update policies and procedures
    • Policies related to overtime
    • Policies related to recording hours worked
  • Communicate the changes to your workforce
  • Plan for future inflation-driven adjustments to the minimum salary threshold to the extent possible