In September of 2015, two delivery drivers filed a class action lawsuit in the United States District Court for the Middle District of Pennsylvania. The employees alleged that their former employer violated the Fair Labor Standards Act by failing to pay them overtime between 2012 and 2015. The class subsequently ballooned to 474 members (and an additional 588 former and current delivery drivers remain eligible to opt into the class). The members asserted that over that three year period, the employer denied them overtime for five to ten hours per workweek, totaling over $10 million in allegedly unpaid wages.

The employer initially argued that the employees were exempt from overtime requirements. It claimed that in addition to making deliveries, as “Route Sales Professionals,” the drivers could make additional sales, fill orders, and upsell when making deliveries. Therefore, according to the employer, the drivers fell within the FLSA’s “outside sales person” exemption. The drivers maintained that sales were not part of their job duties; they were simply delivery drivers who did not fit within the outside sales exemption.

After two years of discovery, in April of this year, the parties notified the court that they had reached a settlement agreement. They asked the court to approve agreement, as is required with both FLSA claims and class actions lawsuits.

The amount: $2.5 million.

This month, the court approved the FLSA settlement. It also preliminarily granted approval of the class action settlement, subject only to a fairness hearing scheduled for September.

For our blog subscribers that have delivery drivers who also engage in incidental sales, now is the time to reevaluate how you classify those employees. In addition, this case serves as an important reminder for all employers that FLSA classifications turn on the actual job duties of the position, not the job title. In fact, a written job description will not even be controlling, unless it is an accurate reflection of the employee’s job duties.

As we previously noted, the Pennsylvania General Assembly passed a law in November that amends the Pennsylvania Banking Code to permit the use of payroll debit cards, with certain conditions.  The law brought welcome clarity to this murky issue by authorizing formally the payment of employee wages via debit card and setting forth the requirements that need to be met to do so.  We discussed these requirements in our prior post on this topic.

This law is set to take effect on May 4.  Employers who wish to consider the payroll debit card option for paying employees (or who already are doing so) should review the specifics of the law to ensure they are in compliance when this law takes effect.

For much of 2016, employers and HR professionals were focused on preparing for the new Fair Labor Standards Act white-collar overtime exemption regulations.  The Department of Labor issued the final regulations on May 18, 2016, with an effective date of December 1, 2016.

As you may remember, the new regulations more than doubled the minimum weekly salary requirement for most white-collar overtime exemptions from $455 to $913.  The new regulations contained a number of additional provisions, the vast majority of which were not viewed favorably by employers.

And then, right before Thanksgiving, everything came to a screeching halt.  A federal district court issued on November 22, 2016, a nationwide preliminary injunction blocking the new FLSA white-collar overtime exemption regulations from taking effect on December 1.  Few anticipated the issuance of an injunction blocking the regulations, much less one a mere eight days before the regulations were set to take effect.  Happy Thanksgiving, indeed.

You may have noticed that we have not provided an update on this issue on this blog since the issuance of the injunction in November 2016.  That is because, frankly, not much of note has happened, either in the litigation in which the injunction was issued or regarding the issue in general.

As expected, the Department of Labor filed an appeal of the preliminary injunction on December 1, 2016.  The DOL initially sought to fast-track the appeal, asking the Fifth Circuit Court of Appeals for an expedited briefing schedule.  The motivation for this strategy was obvious.  The DOL’s leadership was set to change with the inauguration of Donald Trump in January, and the best hope for the new regulations was to have the injunction overturned before this change in leadership could affect the DOL’s litigation strategy.

The DOL’s strategy initially was successful, with the Fifth Circuit agreeing to an expedited briefing schedule, with all briefs regarding the appeal set to be filed by February 7, 2017.  However, on January 25, 2017 (i.e., shortly after the Trump administration took office), the DOL asked the Fifth Circuit for an extension of time to file its reply brief “to allow incoming leadership personnel adequate time to consider the issues.”  The Fifth Circuit ultimately agreed to extend the deadline for the DOL to file its reply brief until May 1, 2017.

Meanwhile, the federal district court that issued the preliminary injunction in November is still considering a summary judgment motion that could result in a final order being entered in that case.  Also, a motion filed by the Texas AFL-CIO in December 2016 to intervene as another defendant in the case also remains pending before that court.  The AFL-CIO sought to intervene because of its fear that the DOL’s new leadership will decide to cease defending the challenged regulations.

Time is not on the side of the currently enjoined FLSA overtime exemption regulations.  As the appeal of the injunction drags on into the spring, the likelihood of the Trump administration DOL withdrawing the appeal and abandoning the fight to defend the regulations grows.  If it does so, the injunction likely will become permanent, placing the final nail in the coffin of the controversial regulations.

So, as we have been saying for months, stay tuned.

In a surprising 11th-hour move, late Tuesday, November 22, 2016, a Texas federal court issued a nationwide preliminary injunction blocking the U.S. Department of Labor’s new Fair Labor Standards Act “white-collar” overtime exemption regulations from taking effect on December 1, 2016.

U.S. District Judge Amos Mazzant, who was appointed to the federal bench in 2014 by President Obama, issued the injunction stopping the DOL from implementing the new regulations.  In a case brought by 21 states against the DOL, Judge Mazzant found that the DOL acted without statutory authority when it issued regulations more than doubling the current minimum salary requirement and providing for automatic updates of the minimum salary amount every three years.

At the very least, the injunction will put on hold the effective date of the new regulations, which had been December 1.  This means that the existing FLSA regulations, with the minimum weekly salary requirement of $455, will remain the law of the land come December 1.

Employers now face considerable uncertainty.  Many employers already have made changes to employees’ salaries and overtime exempt statuses in anticipation of the new regulations taking effect next week.  Other employers have sent communications to employees announcing changes that will take effect next week, all in response to the new regulations.

However, the fate of the new regulations is now in serious doubt.  The Trump Administration is set to assume control of the White House in January.  While yesterday’s decision likely will be appealed by the DOL, it is not clear whether and to what extent the Trump DOL will pursue the appeal and continue to defend the regulations’ validity in court.

As a result of yesterday’s injunction, it now appears that the new regulations will not take effect on December 1.  What lies ahead for the regulations is less clear, creating frustrating uncertainty for employers and employees alike.

We have been following litigation in Pennsylvania challenging the use of payroll debit cards by employers to pay employees. In one such case, the Pennsylvania Superior Court recently ruled that an employer violated the Pennsylvania Wage Payment and Collection Law (WPCL) by requiring employees to accept their wages on a payroll debit card, rather than in cash or by check.

The Pennsylvania General Assembly has stepped in to modernize the law and bring some welcome clarity to this issue. On November 4, 2016, Governor Tom Wolf signed into law Act 161, which amends the Pennsylvania Banking Code to expressly permit the use of payroll debit cards, with certain conditions.  These conditions include the following:

  • Payment of wages by payroll debit cards must be optional for the employee, and the employer cannot mandate such use to receive wages;
  • The employer must comply with various notice and authorization requirements;
  • The card must allow one free withdrawal of wages each pay period and one in-network ATM withdrawal at least weekly;
  • The employee must have the ability to check the card’s balance electronically or via telephone without cost to the employee; and
  • There must be no fees associated with various actions associated with the card, including the issuance of the initial card and one replacement card per calendar year, the transfer of wages to the card itself, and for non-use of the card for a period of less than 12 months.

The Act makes clear that it supercedes any inconsistent provision in any other statute, rule, or regulation, confirming that payment of wages with a payroll debit card in compliance with the Act’s requirements will comply with the WPCL. The Act will take effect in 180 days of its enactment on November 4.

For employers who wish to use payroll debit cards to pay wages, Act 161 provides a blueprint for how to do so in a manner that complies with Pennsylvania law. These requirements are somewhat complicated, however, and should be followed closely. Also, Act 161 confirms that use of payroll debit cards in a manner inconsistent with its requirements will violate Pennsylvania law. Employers who wish to use this new technology to pay employees should keep these points in mind to avoid future legal trouble.

As regular readers of our blog know, we have been following a pending class action lawsuit challenging a Pennsylvania employer’s use of payroll debit cards to pay its employees. There has been a key development in that case.  The Pennsylvania Superior Court has issued a decision that affirmed that the employer at issue violated the Pennsylvania Wage Payment and Collection Law (WPCL) by requiring employees to accept their wages on a payroll debit card, rather than in cash or by check.

In Siciliano v. Mueller, a unanimous three-judge panel of the Superior Court noted that the Wage Payment and Collection Law authorizes payment of wages only “in lawful money of the United States or check.”  The Court concluded that the mandatory use of payroll debit cards that may subject users to fees was not consistent with the “plain language” of the WPCL.  While the Court noted that “[t]he use of a voluntary payroll debit card may be an appropriate method of wage payment,” it confirmed that mandatory use of cards that may trigger fees is not under current Pennsylvania law.

Unless and until the Superior Court’s decision is overturned or the General Assembly amends the WPCL to expressly authorize payment of wages via payroll debit cards that may trigger fees, their use in Pennsylvania presents risk for employers, particularly if employers do not give employees other options to receive their wages.  Pennsylvania employers should consider these risks when determining whether and to what extent they wish to use payroll debit cards, at least until the law is changed.

In a recent decision, the Third Circuit emphasized the need for employers to capture and compensate all hours worked by non-exempt employees, even if the employer pays the employees for break time that it could treat as non-compensable under the Fair Labor Standards Act.

In Smiley v. E.I. DuPont De Nemours & Company, the plaintiffs filed an FLSA collective action and Pennsylvania state law class action seeking compensation for unpaid time spent donning and doffing their uniforms and safety gear and performing other activities before and after their shifts.  This unpaid time averaged approximately 30 to 60 minutes per day.  The plaintiffs worked 12-hour shifts and, per DuPont’s written policy, were paid for a 30-minute meal break and two other 30-minute breaks per shift.  DuPont counted the paid break time as hours worked for overtime purposes, even though the FLSA did not require it to do so.  The paid break time always exceeded the unpaid pre-shift and post-shift donning and doffing time.

DuPont argued that the plaintiffs’ claims for unpaid overtime fail, because it voluntarily treated the break time as hours worked, effectively serving as an offset against the 30 to 60 minutes of daily unpaid pre-shift and post-shift time.  The District Court agreed with DuPont’s offset argument and dismissed the lawsuit entirely.

On appeal, the Third Circuit rejected the offset argument and overturned the dismissal.  After mentioning the FLSA’s “broad remedial purpose,” the Court observed that employers have some flexibility when considering whether to treat bona fide meal breaks as hours worked.  The Court also noted that the FLSA explicitly permits offsets against overtime pay only in three specific situations, none of which addressed paid meal breaks.

The Court concluded that nothing in the FLSA authorized the offsetting of discretionary compensation that the employer included in calculating the employee’s regular rate of pay.  Even though the FLSA did not require DuPont to pay for the meal and other breaks or to treat that time as hours worked, once it did so, it could not use that time as an offset against other time spent working that it did not count for overtime purposes.

In other words, using the strict FLSA definition, the employees had a total of 11 to 11 1/2 hours worked per day (including the pre-shift and post-shift activities and excluded the 90 minutes of break time) and were paid for 12 hours worked per day.  Nevertheless, the Court held that DuPont’s practice violated the FLSA.

The Smiley decision is an important reminder for employers to review their pay practices and ensure that all hours worked by non-exempt employees are captured and compensated.  Even if an employer goes beyond what the FLSA requires and pays an employees for meal breaks, that generosity cannot be used to offset other potential overtime violations.

The Third Circuit again reminded us that the FLSA exists to protect employees, not employers, and the need for technical compliance with its requirements.  Unless a pay practice is expressly authorized by the FLSA or its regulations, the pay practice may run the risk of creating potential class-based liability for even generous employers.

On September 28, 2016, the United States House of Representatives passed a bill that would postpone implementation of the FLSA’s new salary threshold for “white-collar” overtime exemptions. As we noted earlier this month, the Department of Labor’s regulation will more than double the minimum weekly salary requirement to $913 and is set to take effect December 1. The recently passed House bill would push the effective date to June 1, 2017.

Employers shouldn’t get their hopes up for breathing room, however. Even if the bill makes it past the Senate and onto President Obama’s desk, the Commander-in-Chief has threatened a veto. With the overwhelming majority of congressional Democrats supporting the salary requirement increase, the chances that Congress will override the President’s veto are slim.

So, employers should stay the course and continue planning as if the new regulations will take effect on December 1, 2016. A helpful list of considerations and action steps can be found here.

The calendar (if not the weather) tells us that fall is almost here. With the change in seasons comes another reminder that the effective date of the U.S. Department of Labor’s new Fair Labor Standards Act “white-collar” overtime exemption regulations is fast approaching.

Effective December 1, new rules that more than double the minimum weekly salary requirement for the FLSA’s white-collar overtime exemptions to $913 will be the law of the land. If an employer cannot show that an employee meets the requirements of one of the exemption tests, that employee will be legally entitled to overtime, and the employer could face significant potential liability for unpaid overtime pay, liquidated damages, and attorneys’ fees.

Now is the time for Pennsylvania employers to consider the following action items:

  • Identify those employees you currently treat as exempt from overtime pay and determine whether their salaries will meet the new threshold of $913 per week (i.e., $47,476 annually).
  • For those employees currently treated as exempt who earn less than $913 per week, consider whether to increase their salaries to meet the new salary requirement or convert the employees to non-exempt status and pay them for overtime worked. This decision will require an in-depth cost/benefit analysis that considers the employee’s pay, the hours worked by the employee, the employer’s ability to record and control or manage the hours worked, and the relative strength of the employer’s position that the employee meets the duties test for one of the exemptions.
  • Review all positions you treat as exempt, regardless of salary, and determine whether you could prove, if challenged, that the employee meets the duties test for one of the exemptions. For most of the FLSA’s white-collar exemptions, an employee can be treated as exempt only if the employee meets both the minimum salary requirement AND the duties test for the exemption. Simply paying a salary, even in excess of $913 per week, is not enough to exempt an employee from overtime pay.
  • Confirm that you are properly tracking all hours worked and calculating the overtime rate for your non-exempt employees. Even though the new regulations do not change the pay rules applicable to non-exempt employees, they likely will increase the number of non-exempt employees you have, making compliance in this area even more critical.

December 1 will be here before we know it, and much work needs to be done by employers to prepare for the changes that take effect on that date. Are you ready?

Since 2012, the United States Department of Labor (DOL) reports that it has recovered over $40 million in back wages for employees in the oil and gas industry.  Employers in the industry can expect claims to rise as the DOL continues its enforcement initiatives.  The leading cause of back pay awards? Worker misclassification.  The DOL’s nearly 1,100 investigations into the oil and gas industry’s workforce classifications have focused primarily on two areas; independent contractors and white-collar exemptions.

Misclassifying Employees as Independent Contractors

Many employers in the energy sector commonly pay certain types of workers on a per diem or flat rate basis, irrespective of the number of hours that they work.  Oftentimes, these workers are classified as independent contractors and many even enter into independent contractor agreements with their employers.  As many companies in the oil and gas industry have learned the hard way, these factors alone are not enough to establish the existence of an independent contractor relationship.  Instead, there are a number of criteria that must be met in order for a worker to be properly classified as an independent contractor (and lawfully exempt from minimum wage and overtime provisions of the Fair Labor Standards Act).  Employees in the energy sector who are misclassified as independent contractors are often entitled to considerable back pay due to the considerable amount of overtime that they work.

Misclassifying Employees as Exempt Based on Job Title

The DOL’s investigations of oil and gas employers also commonly uncovers employees who are misclassified as exempt from minimum wage and overtime requirements under the Fair Labor Standard Act’s white collar exemptions. These employees are frequently and improperly considered by their employers to qualify for the executive, administrative, or professional exemptions in particular.  Employers operate under the inaccurate assumption that these exemptions apply based upon the employees’ job titles which regularly include one or more of the following “buzzwords”: manager, foreman, engineer, technician, and specialist.  As the DOL has made clear, however, job titles are not determinative of exempt status.  Instead, employees’ salary levels and job duties are the true measure of whether they are eligible for these exemptions.

Employers in the oil and gas industry (and in general) are well-advised to ensure proper classification of workers who they consider as independent contractors or as exempt from minimum wage and overtime under a white collar exemption.  In the meantime, the DOL can be expected to continue pursuing its misclassification enforcement initiative.