Back in January, Governor Wolf announced that the Pennsylvania Department of Labor and Industry (DLI) would propose new regulations under the Pennsylvania Minimum Wage Act (PMWA) that would increase the minimum salary requirement for the white-collar overtime exemptions under this law.

The PMWA is the state-law equivalent of the federal Fair Labor Standards Act (FLSA). The PMWA and FLSA both place minimum wage and overtime pay obligations for Pennsylvania employers. While the laws’ requirements are similar, they are not identical. Employers in Pennsylvania must meet the requirements of both laws to ensure compliance. In areas where one law is more favorable to employees than the other, Pennsylvania employers must comply with the more pro-employee requirements to avoid liability for unpaid minimum wages or overtime pay.

Last week, DLI submitted a proposed rulemaking to amend the PMWA regulations that govern its overtime and minimum wage exemptions for executive, administrative, and professional salaried employees. The proposed changes to the regulations are significant and will seem like déjà vu for employers who recall the saga of the 2016 FLSA regulations.

Increased Salary Requirement

The DLI’s proposed regulations would increase the minimum salary level for the PMWA’s white-collar exemptions to:

  • $610 per week ($31,720 annually) effective on the date the final rule is published in the Pennsylvania Bulletin;
  • $766 per week ($39,832 annually) effective one year after the publication of the final rule; and
  • $921 per week ($47,892 annually) effective one year later.

By comparison, the current minimum salary requirement for the FLSA’s white-collar exemptions is $455 per week ($23,660 annually). Thus, the proposed regulations would more than double the minimum salary requirement for the white-collar exemptions for Pennsylvania employers by 2021.

And that’s not all. Three years after the publication of the final rule in the Pennsylvania Bulletin, and on January 1 every three years thereafter, the minimum salary requirement automatically will be updated to the 30th percentile of weekly earnings of full-time non-hourly workers in the Northeast Census region in the second quarter of the prior year as published by the United States Department of Labor, Bureau of Labor Statistics.

The proposed regulations would allow up to 10% of the salary amount to be paid with “non-discretionary bonuses, incentives or commissions” that are paid at least quarterly.

Changes to the Duties Test

To qualify for most of the white-collar exemptions, an employer must be able to prove both that the employee at issue meets the minimum salary requirement and meets the exemption’s duties test. Unlike the 2016 FLSA regulations, DLI has proposed changes to the duties tests for the PMWA’s white-collar exemptions, in addition to the big increases to the minimum salary requirement.

DLI explained that the proposed changes to the duties tests were designed to more closely align them with the duties tests for the FLSA’s exemptions. However, with both the changes they propose and changes not proposed, the proposed regulations fail to do so.

For example, the proposed regulations would require exempt executive employees to “customarily and regularly exercise discretionary powers,” a requirement that does not expressly exist in the FLSA exemption. Similarly, the proposed regulations modify the administrative exemption to require that exempt administrators “customarily and regularly” exercise discretion and independent judgment with respect to matters of significance. The FLSA regulations require only that the exempt administrator’s primary duty “includes” the exercise of discretion and independent judgment with respect to matters of significance. While these language differences seem minor, they likely would be used by plaintiffs’ attorneys to argue that the duties requirements for the PMWA and the FLSA’s white-collar exemptions are not the same, complicating compliance efforts, increasing the risks for employers, and contradicting DLI’s stated objective with the proposed changes.

More disappointing, however, are the many areas where the PMWA’s regulations will continue to differ from the FLSA’s regulations even if the proposed regulations take effect. For example, unlike the FLSA and its regulations, DLI did not in its proposed regulations:

  • Recognize a computer professional exemption under the PMWA;
  • Recognize a highly compensated employee exemption under the PMWA;
  • Recognize a specific exemption for administrative employees of educational establishments under the PMWA; or
  • Make the requirements of the outside sales exemption the same under both laws.

The differences between the overtime exemption requirements of the FLSA and the PMWA create confusion and inhibit compliance efforts by employers. The proposed regulations will allow significant differences to continue to exist.

What’s Next?

The proposed regulations are expected to be published in the Pennsylvania Bulletin in the very near future. After publication, DLI will accept written public comments on the proposed regulations for a period of 30 days. After the public comment period closes, DLI will consider the submitted comments and then likely prepare a final rule, which DLI anticipates issuing in 2019.

It is unclear whether the final rule will be the same as the proposed regulations or different in substantive ways. It is likely that the new minimum salary requirements will be challenged in court, just as the 2016 FLSA regulations were challenged and ultimately blocked. Whether and to what extent any court challenge would be successful is unclear, and there certainly is no guarantee that a challenge would be successful. In other words, the defeat of the 2016 FLSA regulations in federal court in Texas by no means assures a similar fate for new PMWA regulations in this area.

We will continue to monitor the progress of DLI’s efforts to change the PMWA’s white-collar overtime exemption regulations and provide updates as they occur. Stay tuned.

On June 6, 2018, Governor Wolf signed Executive Order 2018-18-03, which is designed to combat the gender pay gap in Pennsylvania. The Executive Order directs all state agencies under the governor’s jurisdiction to:

  • no longer inquire about a job applicant’s current compensation or compensation history at any stage during the hiring process;
  • base salaries on job responsibilities, position pay range, and the applicant’s knowledge, skills, competencies, experience, compensation requests, or other bona fide factor other than sex, except where compensation is based on:
      • a collective bargaining agreement;
      • a seniority system;
      • a system of merit pay increases;
      • a system which measures earnings by quantity or quality of production, sales goals, and incentives
  • clearly identify the appropriate pay range on job postings.

The Executive Order does expressly state that applicants are not prohibited from volunteering information about their current compensation level or salary history in negotiating a salary. However, no agency can request that an applicant disclose current salary or salary history information.

So why the need for the Executive Order? Some argue that by asking an applicant to reveal their current salary or salary history, employers are perpetuating pay inequality between men and women. The reasoning is that because women have been paid less than men historically, asking applicants their salary history and then basing salary determinations on prior pay information further continues the cycle of pay inequality.

While the Executive Order is only applicable to Commonwealth agencies under the Governor’s jurisdiction, it may signal a push to address the gender pay gap throughout Pennsylvania.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice if you have any questions regarding this article.

If you have followed our blog over the past year, you are aware of the long and tortured history of the National Labor Relations Board’s joint employer standard.  The recent history starts with the Obama Board’s decision to overturn decades of case law.  But the saga continued.

Just last month, we reported on the Trump Board’s proposal to promulgate regulations adopting a joint employer standard.  According to the Board, issuing regulations will clear up the uncertainty currently surrounding the standard that was created by years of case law.  Those who have been following this matter might view the Board’s proposed rulemaking as a welcome opportunity for clarity on an issue that has vexed employers and unions alike in recent years.

But not everyone was pleased by the Board’s announcement.  In a joint letter to Trump-appointed Board Chairman John Ring, United States Senators Elizabeth Warren, Kirsten Gillibrand, and Bernie Sanders questioned the Board’s ability to remain independent on the issue given its overturned decision in Hy-Brand (in February 2018, the Board reversed its own ruling after its Ethics Officials determined that one of the Board Members should have been disqualified from participating in the case due to a conflict of interest).  Essentially, Senators Warren, Gillibrand, and Sanders accused the Board of using rulemaking to reinstate the Hy-Brand decision.  In other words, they believe that the Board has already decided on the final rule to be issued based on personal bias and without regard for the notice-and-comment process.  Serious allegations, to be sure.

Earlier this week, Chairman Ring responded to the Senators with a letter of his own.  The Chairman explained, in no uncertain terms, that a majority of the Board will engage in rulemaking on the joint employer issue and that it intends to issue a notice of proposed rulemaking sometime this summer.  He reminded the Senators that all Board Members, both past and present, have personal opinions formed by years of experience.  After assuring the Senators that the Board has not pre-determined the final joint employer rule, Chairman Ring also pointed out that the courts have held that personal opinions do not render Members incapable of engaging in rulemaking unless it can be shown that their mind is “unalterably closed” on the issue.

If we’ve learned anything from this dust-up between the Senators and the Board, it’s that the Board will proceed with rulemaking on the joint employer standard, and that accusations of bias from U.S. Senators will not stop it from doing so.  As we said last time – stay tuned.  More news is coming, and soon.

President Trump recently signed into law Congress’ $1.3 trillion, 2,232-page omnibus budget bill.  Notably, tucked away on page 2,025 of the bill, Congress amended the Fair Labor Standards Act to address rules affecting tipped employees.  These rules have been a hot topic lately and there is a lot of misinformation floating around.  Here is what you need to know:

To recap, the FLSA requires employers to pay employees the minimum wage, currently $7.25 per hour for most employees.  In the restaurant industry, however, employers are allowed to count up to $5.12 per hour of employees’ tips against their total minimum wage obligation.  In other words, restaurants can pay tipped employees such as servers, bartenders, bussers, and runners as little as $2.13/hour plus customer tips.  The Department of Labor’s rules make it clear that employers cannot take this “tip credit” if the employer uses a tip pooling arrangement where any portion of tips are kept by the house, or if the restaurant requires employees to share tips with managers or employees who do not “customarily and regularly” receive at least $30 per month in tips (e.g., “back of the house” personnel such as cooks, dishwashers, etc.).  These basic rules are still in place.

What was not clear, until now, was whether the FLSA imposes any restrictions on tip pooling arrangements for employers who do not take the tip credit (i.e. pay their employees at least the minimum wage).  In 2011, the Obama administration said yes, tips could never be shared with managers or kitchen staff even if the restaurant paid the servers the full minimum wage and did not take advantage of the tip credit.  In 2017, the Trump administration, and several federal courts, said no, restaurants paying the full minimum wage could do whatever it wanted with customer tips.  The Trump Administration’s 2017 proposed regulation started a process aimed at reversing the Obama Administration’s 2011 regulation.

The 2018 Omnibus Budget Bill settles the tug of war.  Buried deep in the law is an easy-to-overlook provision relating to “Tipped Employees.”  The Tipped Employees provision establishes a compromise and permits tip splitting among and with non-supervisory, non-service employees (such as cooks and dishwashers) where no tip credit is taken. Otherwise, the amendment specifically prohibits employers from requiring employees to share their tips with the employer, including any managers or supervisors, whether or not the employer takes a tip credit. This is significant because it means that an employer can now violate the FLSA through an improper tip pooling arrangement even if it is paying employees the full minimum wage.

Employers who unlawfully keep any portion of an employee’s tips may now be liable to injured employees for the amount of tip credit taken and the amount of the tip unlawfully taken, plus an additional, equal amount as liquidated damages. Furthermore, the amendment authorizes the Secretary of Labor to assess a civil penalty of $1,100 per violation.

Ultimately, Congress’ new amendment means that, for now, employees who are paid at least the minimum wage in cash can be required to share tips with cooks, dishwashers, and other non-management, non-supervisory “back of the house” employees.  When deciding the right tipping strategy, restauranteurs should consult with legal counsel.  Particularly, tip pooling policies should be carefully reviewed with counsel before implementation to ensure compliance with all applicable federal and state requirements.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice Group for assistance with labor and employment law issues and/or if you have any questions regarding this article.

With increasing frequency, when employees sue their employer or former employer, they also name individual managers or the company’s owners as defendants in their suit.  Under federal EEO laws (e.g. Title VII, ADA, ADEA), individuals generally cannot be held liable for acts of discrimination.  However, employment laws such as the FMLA, FLSA and the Pennsylvania Human Relations Act do allow for individual liability under some circumstances.  In Abdellmassih v. Mitra OSR (February 28, 2018), the U.S. District Court for the Eastern District of Pennsylvania addressed whether individuals may be held liable under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for failing to issue required COBRA notices.

Mr. Abdellmassih was terminated from his position at a KFC restaurant and sued his employer under a variety of laws.  He named the co-owners of the company as individual defendants with respect to his claims under several laws, including COBRA.  The basis for his COBRA claim was that he was allegedly never issued a COBRA notice after he lost his health coverage due to the termination of his employment.

COBRA provides that a plan administrator who fails to comply with COBRA’s notice requirements may, at a court’s discretion, be held personally liable for up to $100 per day that the required notice is not provided.  Mr. Abdelmassih argued that his former employer’s co-owners served as the health plan’s administrators and, therefore, should be individually liable for the plan’s failure to issue required COBRA notices.  However, upon reviewing the company’s health insurance brochure, the court noted that the owners were not named anywhere in the document – as plan administrators or otherwise.  Indeed, the brochure merely directed employees to contact a human resources representative if they had questions regarding their COBRA rights.  Since the co-owners were not named in the document, the court found there was no basis to impose individual liability upon them under COBRA.  However, Mr. Abdelmassih’s COBRA claim against the corporate entity remained intact.

The lesson of the Abdelmassih case is simple.  When identifying the “plan administrator” in a plan document or summary plan description, avoid naming individuals.  A general reference to the employer (or third party administrator firm) – or the department with responsibility for plan administration (e.g. human resources) –  is the best way to avoid individual liability situations under COBRA.  A quick check of your company’s plan language on this point may save you (or someone in your company) from significant liability!

The Supreme Court of the United States held today that arbitration agreements, which waive the right to proceed as part of a class or collective action, are enforceable in the employment context. In Epic Systems Corp. v. Lewis, the Court held that employment agreements that call for individualized arbitration proceedings to resolve workplace disputes between employers and employees are lawful. Interestingly, the Court’s 5-4 decision was authored by the newest Justice, Justice Gorsuch.

In a series of cases, employees and former employees had asserted that agreements requiring individual arbitration violate the National Labor Relations Act, because the NLRA protects employee rights to proceed in class or collective actions. Although it had previously taken a different position, in 2012, the National Labor Relations Board agreed that arbitration agreements, which waive the right to proceed in class or collective actions, violate the NLRA. The Board’s controversial position was set forth in D.R. Horton and Murphy Oil USA.

Employers countered that the Federal Arbitration Act expresses a strong preference for arbitration and makes clear that arbitration agreements are presumptively valid. The FAA requires that courts enforce arbitration agreements, including procedural terms related to the arbitration process itself. The FAA does provide that arbitration agreements will not be enforced if there is a legal basis to set aside the agreement, such as fraud or duress in the making of the contract. However, in this case, the only argument presented was that the individual arbitration agreements violate the NLRA.

The Supreme Court rejected that contention. Ultimately, a slim majority of the Supreme Court agreed with the employers and held that the FAA requires enforcement of arbitration agreements, including agreements that call for individual proceedings, because such agreements do not violate NLRA. The Court noted that in order for a law such as the NLRA to trump the FAA, there must be a clear statement of intention in the law. The Court found no such clear intention in the NLRA.

The Supreme Court’s decision is the law of the land, and that means that arbitration agreements in the employment context that require individualized claims are lawful. Employers looking to update their employment agreements in light of this decision can reach out to any member of the McNees Labor and Employment Group. In addition, if you are thinking about implementing arbitration requirements for the first time, we can help.

It appears that a number of labor unions are planning for the potential negative impact of a big decision regarding fair share fees.  We have heard from several public sector clients who have been contacted directly, or who have had employees contacted, by labor unions about the potential impact of Janus v. AFSCME Council 31, which is currently pending before the United States Supreme Court.  The case, which could ultimately declare fair share fees unlawful, is expected to be released before the end of June of 2018.

Based on what we have read from these unions, they seem to believe that there is a good chance that the Supreme Court will declare fair share fees unconstitutional.

As a reminder, fair share fees are fees that are required to be paid by bargaining unit employees who elect not to be full-fledged union members.  By operation of state law, employees who are in the bargaining unit but who elect not to be union members are forced to pay “fair share” fees in many states, including Pennsylvania.  These fees are often a large percentage of the actual cost of union membership.

Public sector employees have raised multiple challenges to the constitutionality of fair share fees.  Specifically, a number of public sector employees have alleged that such fees violate employee First Amendment Rights.  We wrote about one such challenge here.  That decision, Harris v. Quinn, was highly critical of fair share fees, and the underlying justification for requiring fair share fees.  Harris closely examined the precedent that initially determined that such fees were lawful, which concluded the goals of limiting or eliminating “free riding” and the promotion of labor peace overrode any impact on employee First Amendment rights.

While it was highly critical of these stated goals, the Harris Court came just short of declaring all fair share fees unconstitutional.  A subsequent challenge to fair share fees that also reached the Supreme Court case also fell short of declaring the fees unlawful.

Enter Janus.  Janus is a public employee and member of a bargaining unit, but not a member of the union.  He has been forced to pay fair share fees for some time. Janus has argued that the union engages in certain activities that he does not support, and that the union uses his fair share fees to engage in such conduct.  Essentially, he does not support any of the union’s activities, and he believes it is unfair that he is forced to pay them to engage in such activities.  Janus wants to be able to opt out of paying any fees to the union.  Janus argues that forced fair share payments to a union he does not support is “compelled speech” in violation of his First Amendment rights.

Janus is currently pending before SCOTUS, and many believe that the Court finally has the votes to declare fair share fees unconstitutional.  Based on what we have seen, it appears that at least some labor unions agree.

Some observers believe that the elimination of fair share fees will significantly weaken the political clout of public sector labor unions.  We should soon know the fate of fair share fees generally, as the Janus decision is expected in the near future.  However, if fair share fees are declared unconstitutional, only time will tell what impact, if any, the elimination of fair share fees would have on public sector labor unions.

Stay tuned, we will keep you posted.

For several years we have been providing updates on the Obama-era National Labor Relations Board’s rather employer-unfriendly joint employer standard.  We have yet another. We believe the final episode in this saga should be good news for employers.  We’re just not sure whether the good news will come from the Courts, from the regulatory process, or both.

This may be hard to follow, but stay with us…

To recap, in 2015, the Obama Board issued a decision in Browning-Ferris Industries of California, and vastly expanded the situations in which a franchisor or a source employer could be deemed a joint employer with its franchisee or with a supplier of a contingent workforce.  All that needed to be shown under this new standard was some reserved ability by the franchisor or source employer to potentially control the terms and conditions of the other entity’s employees. To the relief of employers, Browning-Ferris quickly appealed this decision to the United States Court of Appeals for the D.C. Circuit.

As we reported in the Spring of 2017, the Board’s new standard appeared to receive a cool reception from the Court of Appeals during oral argument. We waited and waited, but no opinion came from the Court.

Then, in December 2017, the Trump Board decided Hy-Brand Industrial Contractors, and announced that it would return to the prior standard that required proof of a joint employer’s actual exercise of control over essential employment terms, rather than merely having reserved the right to exercise control. After Hy-Brand was issued, Browning-Ferris was no longer relevant, so the Court of Appeals remanded that appeal back to the Board.  All appeared to be right in the world.

Alas, this return to normalcy was short-lived.  In late February 2018, the Board issued an Order vacating Hy-Brand based on a determination by the Board’s Ethics Official that one of the three Members who participated in the matter should have been disqualified. With that disqualification no Board quorum existed.  So, what next?  The Board asks the Court of Appeals for a “do-over”: please recall Browning-Ferris and issue a decision. Please?!

On April 6, a divided Court of Appeals granted the Board’s request and recalled Browning-Ferris, and just like 2017, we again await that appellate decision.

But hold on.  There’s more.  Yesterday the Board announced that it is considering rulemaking to address the standard for determining joint-employer status. That would be actual regulations, folks. New Board Chair John Ring’s comments accompanying the announcement are telling: “Whether one business is the joint employer of another business’s employees is one of the most critical issues in labor law today. The current uncertainty over the standard to be applied…undermines employers’ willingness to create jobs and expand business opportunities. In my view, notice-and-comment rulemaking offers the best vehicle to fully consider all views on what the standard ought to be.”

So, stay tuned for more news.  We know it’s coming.  Just not sure which channel will air it first.

Today, the United States Supreme Court has finally put to rest the issue of whether service advisors are exempt from the overtime compensation requirements of the Fair Labor Standards Act (FLSA).  You may recall an earlier post, discussing the law’s ambiguity in how auto dealers should classify service advisors under the Fair Labor Standards Act (FLSA).  It is an issue that has been before the Supreme Court twice now and a decision to clarify the standard has been much anticipated by auto dealerships across the country.

As a recap, the plaintiffs in Encino Motor Cars were current and former service advisors of a Mercedes-Benz dealership in California.  The service advisors sued the dealership for backpay, alleging that the dealership failed to pay them overtime compensation under the FLSA.  The dealership moved to dismiss the complaint, arguing that the service advisors were exempt from overtime under an FLSA exemption that applies to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.”

In a 5-4 decision, the Court found that auto service advisors are exempt under the FLSA’s overtime provisions because they are salesmen primarily engaged in servicing automobiles.  Specifically, the Court found that while the term salesman is not defined under the FLSA, it could be defined as “someone who sells goods or services.”  Because service advisors sell customers services for their vehicles, Justice Thomas, authoring the opinion, found that “a service advisor is obviously a ‘salesman.’”

The Court also found that service advisors are primarily engaged in servicing automobiles.  In particular, the court found that they “meet customers; listen to their concerns about their cars; suggest repair and maintenance services; sell new accessories or replacement parts; record service orders; follow up with customers as the services are performed (for instance, if new problems are discovered); and explain the repair and maintenance work when customers return for their vehicles.”  Notably, the Court found that “if you ask the average customer who services his car, the primary, and perhaps only, person he is likely to identify is his service advisor.”  For these reasons, the Court concluded that the service advisors are exempt from overtime compensation.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice Group for assistance with labor and employment law issues and/or if you have any questions regarding this article.

Winter is coming…still.  Some parts of the state are expected to receive possible snow squalls as well as a potential rain/snow storm in the weeks to come.  Weather conditions such as these often create challenges with business closures and employee absences.  With that in mind, employers should consider the following issues that may arise due to inclement weather:

Are employers required to pay employees when the business is closed because of inclement weather?

If weather conditions cause an employer to shut down operations and close, non-exempt employees need not be paid for time they did not work because of the closing. On the other hand, exempt employees must be paid their salary for the week regardless of the business closure.  An employer may require that exempt employees use accrued paid time off (PTO).

Must employees be paid if they do not report to work due to inclement weather when the business is open?

Non-exempt employees need not be paid for the time they are absent from work.  An employer may, however, at its discretion, allow non-exempt employees to use PTO for the absence. Additionally, exempt employees need not be paid for a whole day’s absence due to inclement weather. An exempt employee absent for part of a day may be required to use accrued paid time off.  If the exempt employee has no accrued paid time off, however, his or her salary may not be docked for a partial day absence.

May an employee be disciplined or discharged for failing to report to work due to weather conditions when the business is open?

Generally, an employer may apply its normal attendance policy to weather related absences. However, there is one major exception. Under Pennsylvania law, an employer may not discipline or discharge an employee who fails to report to work due to the closure of the roads in the county of the employer’s place of business or the county of the employee’s residence, if the road closure is the result of a state of emergency. The law does not apply to the following jobs: drivers of emergency vehicles, essential corrections personnel, police, emergency service personnel, hospital and nursing home staffs, pharmacists, essential health care professionals, public utility personnel, employees of radio or television stations engaged in the gathering and dissemination of news, road crews and oil and milk delivery personnel.

Ultimately, to avoid confusion about how weather-related closures and absences will be handled, employers should have a written inclement weather policy in their employee handbooks.  The policy should be clear that employee safety is the main concern.  The policy should also be clear as to the employees’ responsibility to give notice if they cannot make it to work due to bad weather.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice Group for assistance with labor and employment law issues and/or if you have any questions regarding this article.