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.

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?

On April 17, 2016, Pennsylvania Governor Tom Wolf signed the Medical Marijuana Act (MMA), which legalizes medicinal marijuana in Pennsylvania. The MMA, which takes effect on May 17, 2016, includes various provisions related to employment, and we have received many questions regarding what employers must, can and cannot do as a result of the new law. The simple answer is that, for the time being, we do not believe that employers are required to take immediate action. No immediate changes to your drug and alcohol policies or how you deal with drugs in the workplace are necessary for now, but stay tuned.

The MMA requires the Department of Health (“Department”) to promulgate full regulations within 18 months, and the Department is also required to begin publishing temporary regulations no later than six months from the Act’s effective date. Accordingly, we expect further guidance before the end of 2016 and anticipate frequent changes to the rules and regulations surrounding the MMA and its interpretation thereafter.

So, what do you need to know about the law now?

  • The MMA contains an employment anti-discrimination provision that states as follows:

No employer may discharge, threaten, refuse to hire or otherwise discriminate or retaliate against any employee regarding an employee’s compensation, terms, conditions, location or privileges solely on the basis of such employee’s status as an individual who is certified to use medical marijuana. MMA §2103(b)(1).

This anti-discrimination provision seems clear; however, it does raise some unanswered questions.  Although more than 20 other states have legalized medicinal marijuana, for purposes of the MMA, an “individual who is certified to use medical marijuana” seemingly refers only to individuals certified under Pennsylvania law. It is unclear whether an employee who is certified in another state would be entitled to the protection of §2103(b)(1).  Also, keep in mind that it will take some time for Pennsylvania to implement the regulatory framework to begin the certification process, set up dispensaries and begin actually distributing marijuana.

  • Employers are not required to accommodate the use of medical marijuana at work and employers retain the ability to discipline employees for using marijuana at work. Along these lines, the MMA provides:

Nothing in this Act shall require an employer to make an accommodation for the use of medical marijuana on the property or premises of any place of employment. This Act shall in no way limit an employer’s ability to discipline an employee for being under the influence of medical marijuana in the workplace or for working while under the influence of medical marijuana when the employee’s conduct falls below the standard of care normally accepted for that position. MMA §2103(b)(2).

While employers retain the right to discipline users of medical marijuana if they are “under the influence” at work, we do not yet know what is meant by “under the influence.” It remains to be seen which definition of “under the influence” will apply to potential employee discipline.

  • The MMA prohibits certified users from performing certain safety-sensitive jobs while “under the influence” of medicinal marijuana, including: (1) operating or being in physical control of chemicals which require a permit issued by the federal government, state government, federal agency or state agency; (2) operating or being in control of high-voltage electricity or any other public utility; (3) performing any employment duties at heights or in confined spaces, including, but not limited to, mining; (4) performing tasks that the employer deems life-threatening to either the employee or any employees of the employer; and (5) performing any duty that could result in a public health or safety risk. MMA §510.
  • The MMA does not require employers to “commit an act that would put the employer or any person acting on its behalf in violation of federal law.” MMA §2103(b)(3). For example, an employer would not be required to accommodate medicinal marijuana use if such accommodation violates federal DOT regulations.
  • The MMA does not, currently, supersede an employer’s rights under the ADA. For example, under current interpretations of the law, employers are not prohibited by the ADA from discharging an employee who tests positive for marijuana, even if the use is pursuant to a valid prescription. This could change, however, as the MMA evolves and as we further understand how “under the influence” will be defined in Pennsylvania. Further, the EEOC may change its position on the protected nature of medical marijuana as more states allow its use.

As with any new law, we have much left to learn. The McNees Labor and Employment Group will be closely monitoring the implementation of the temporary and permanent MMA regulations. We will keep you advised as things develop and are hopeful that the temporary regulations will address some of our unanswered questions, including: (1) what is meant by “under the influence;” and (2) whether the anti-discrimination provisions apply to those certified to use medical marijuana in other states. In the meantime, should you have specific questions about the law, your policies or your employees, please do not hesitate to contact any member of the McNees L&E Group.

For what seems like an eternity, we have been waiting for the U.S. Department of Labor to issue the new Fair Labor Standards Act “white-collar” overtime exemption regulations. While many have speculated on when the final regulations would be issued, most assumed that the DOL would wait until the summer or fall of 2016 to issue the new regulations.

In a somewhat surprising move, the DOL on Tuesday sent its final regulations to the Office of Management and Budget (“OMB”) for its review. OMB review is the final step in the rulemaking process and can take anywhere from a few weeks to a few months. After completion of OMB review, the final rule will be published in the Federal Register and likely take effect 60 days after publication.

It now appears that, rather than in late 2016, the new FLSA white-collar overtime regulations will be issued this spring or early summer. We do not yet know what the final regulations will contain, but based on the content of the proposed regulations issued last June, we can assume that the changes to the FLSA white-collar exemptions will be significant and result in many currently exempt employees losing their exempt status. Specifically, we expect a sizable increase in the minimum salary requirement, as the proposed regulations would double the current $455 minimum weekly salary requirement to approximately $970 (i.e., over $50,000 per year).  In addition, we anticipate changes to the duties tests for a number of these exemptions, the details of which are currently unknown.

With Tuesday’s news, it is even more vital for employers to consider how they will respond to the new overtime exemption tests.  Many employees currently treated as exempt from overtime will need to be reclassified as non-exempt or otherwise have changes made to their compensation and/or duties to remain exempt.  Employers likely will have only 60 days to respond to the new rules and make necessary changes to employees’ compensation and overtime exempt status.  Now is the time for employers to consider the impact that the anticipated changes would have on the status of their exempt workforce and determine next steps.

A recent federal court decision in Pennsylvania affirmed the risks incurred by employers if they treat brief rest breaks as unpaid for non-exempt employees. In Perez v. American Future Systems, Inc. d/b/a Progressive Business Publications, the U.S. Department of Labor filed suit against the employer, a Pennsylvania publishing company, and its principal owner under the FLSA, claiming that the employer unlawfully required non-exempt sales employees working in its call center to log off and not be paid for any break time taken by the employees during the work day. These unpaid breaks included rest and bathroom breaks that lasted only a few minutes on occasion.

The employer’s policy permitted employees to take “personal breaks at any time for any reason.” The policy went on to state that such personal break time is unpaid. The employer also required the sales employees to log off its computer system (and be off the clock) unless they were on a sales call, recording the results of the call, or engaged in training, administrative, or other work-related activities. In other words, any time spent not working during the work day was unpaid, regardless of the length of the time spent not actively working.

In a decision issued in this case last month, Judge Restrepo of the U.S. District Court of the Eastern District granted summary judgment in favor of the DOL, finding both the employer and its principal owner liable for unpaid wages under the FLSA and an equal amount in liquidated damages, in an amount to be determined but estimated by the DOL to be at least $1.75 million. The Court found persuasive and applied the following DOL regulation (29 C.F.R. § 785.18) to the facts of the case:

Rest periods of short duration, running from 5 minutes to about 20 minutes, are common in industry.  They promote the efficiency of the employee and are customarily paid for as working time.  They must be counted as hours worked.  Compensable time of rest periods may not be offset against other working time such as compensable waiting time or on-call time. 

The Court also rejected the employer’s argument that another DOL regulation regarding off-duty time (29 C.F.R. § 785.16) applied, finding that breaks of 20 minutes or less during the work day did not constitute unpaid “off-duty” time for FLSA purposes.

This decision emphasizes that breaks for non-exempt employees of 20 minutes or less should be treated as compensable hours worked for minimum wage and overtime compensation purposes under the FLSA.  Employers who try to save some costs on wages (or discourage employees from taking such breaks) by treating such breaks as unpaid face risk of FLSA liability in the event that this practice is challenged by an employee or the DOL.

Whether meal breaks count as compensable hours worked for non-exempt employees under the Fair Labor Standards Act can be a thorny issue for employers. The FLSA regulations provide that meal periods during which an employee is “completely relieved of duty for the purpose of eating regular meals” do not count as hours worked. 29 C.F.R. § 785.19. Generally, an employee must be given 30 minutes or more and must be completely relieved of his or her duties for a period to qualify as a bona fide unpaid meal break.

But what if the employer places various restrictions on non-exempt employees during unpaid meal breaks?  For example, what if the employee is prohibited from leaving the employer’s premises without prior authorization during an unpaid meal break? What if employees also must remain on call to perform work at a moment’s notice during a meal break?

The Third Circuit recently issued a decision in which it, for the first time, clarified the test to be used to determine whether restrictions placed on employees during meal periods make the periods compensable hours worked, even if the employee did not actually perform any work during the meal period.

The Case

In Babcock v. Butler County, a group of corrections officers at the Butler County Prison alleged that the Prison’s policy of providing one-hour meal periods, of which 45 minutes were paid and 15 minutes were unpaid, resulted in unpaid overtime compensation in violation of the FLSA. They claimed that the entire hour of the meal period should be treated as compensable hours worked, due to restrictions placed on them during the meal periods. Specifically, during the meal periods, the officers could not leave the prison without prior authorization and were required to remain in uniform and be on call and in close proximity to emergency response equipment in the event of an emergency. The Prison filed a motion to dismiss the complaint, arguing that the meal periods were not hours worked because the officers received the “predominant benefit” of the meal period. The District Court agreed and dismissed the complaint.

The officers appealed, and in a 2-1 precedential decision, a panel of the Third Circuit affirmed the dismissal. Following the lead of the majority of other courts of appeals, the Third Circuit adopted the “predominant benefit” test, which asks whether the employee is primarily engaged in work-related duties during the meal period. By doing so, the Third Circuit expressly rejected the alternative and more restrictive “relieved from all duties” test.

The Third Circuit noted that the “predominant benefits” test is a “fact-intensive inquiry” that assesses the “totality of the circumstances to determine, on a case-by-case basis, to whom the benefit of the meal period inures.” After reviewing the facts alleged in the complaint, the Third Circuit majority concluded that, despite the restrictions imposed on them, the officers on balance received the predominant benefit of the unpaid meal periods. The Third Circuit majority also considered the parties’ collective bargaining agreement, noted that officers must be paid for the entire meal period if it is “interrupted” by work,  and concluded that the CBA’s protections on overtime compensation also supported its conclusion.

Circuit Judge Greenaway filed a dissenting opinion, stating that the majority used a “flawed application” of the predominant benefit test and erroneously relied on the CBA to dismiss the complaint.

Takeaways for Pennsylvania Employers

Because the Third Circuit Court of Appeals has jurisdiction over Pennsylvania, the Babcock decision provides a number of clarifications and reminders for employers in Pennsylvania.

  1. Restrictions on non-exempt employees during meal breaks, such as restrictions on leaving the employer’s facilities and requiring that the employees remain on call during the meal break, do not necessarily make the meal time compensable hours worked under the FLSA.
  2. The proper analysis is whether those restrictions are so significant and expansive that the employer, and not the employee, predominantly benefits from the meal time.
  3. This case considered “uninterrupted” meal breaks. Even if the restrictions are not onerous, employers should treat meal breaks as compensable hours worked if the employee is interrupted by work duties at any point during the meal break. In other words, if an employer wishes to make meal breaks for non-exempt employees unpaid, it should have policies and procedures in place to ensure that employees know (1) not to perform any work, such as answering calls or responding to e-mails, during a meal break unless expressly instructed by management to do so, and (2) to report any interrupted meal breaks to ensure they receive compensation for them.

Meal break cases present significant liability concerns for employers, as they easily can become class action lawsuits covering many employees. The Babcock decision helps employers and employees by providing some clarity in this often murky issue. Employers should be vigilant and have and enforce lawful meal break policies to ensure that unpaid meal breaks do not become a troublesome and expensive class-based lawsuit.

You may recall that, in late June 2015, the U.S. Department of Labor issued a Notice of Proposed Rulemaking seeking public comment on proposed changes to the Fair Labor Standards Act’s  “white-collar” overtime exemption regulations. The DOL’s proposed rule changes would more than double the minimum salary required for the FLSA’s white-collar exemptions from the current $455 to approximately $970 per week, with additional potential increases each year based on inflation.  Also, while the DOL did not propose specific changes to the exemptions’ duties tests, it invited public comment on the subject, hinting that changes to the duties tests likely would be forthcoming in the final regulations.

The period for public comment on the proposed rules closed in September.  Since September, observers have speculated about when the DOL would issue final binding regulations.  Many commentators believed that we would see final rules likely sometime in late 2015/early 2016.  Employers have begun reviewing their pay practices to being planning for the implementation of the final regulations, which likely will require conversion of many employees currently treated as overtime exempt to non-exempt status or significant changes to the pay of these employees to meet the anticipated increased minimum salary requirement.

Earlier this month, the DOL finally indicated when we could expect the final FLSA overtime exemption regulations, and the answer came as a surprise to many.  As reported by the Wall Street Journal last week, Solicitor of Labor Patricia Smith said during a panel discussion at the American Bar Association’s Labor and Employment Law conference in Philadelphia that the DOL did not expect to issue the final regulations until “late 2016.”  (The WSJ article noted that this comment elicited “gasps” from the attendees in the audience, confirming that the wage and hour laws can be much more exciting than we think!)

This news is a bit surprising, as the DOL seems to be waiting until the very end of the Obama administration to issue the final regulations.  That said, employers now know that they will have more time than initially expected to prepare for the likely sweeping changes we anticipate to the FLSA white-collar overtime exemption regulations.

Because of the significance of the expected changes to the exemption tests, this delay does not mean that employers should put off thinking about these issues.  Now is still the time to begin developing a strategy to access and address the exempt status of many white-collar workers.  This delay is good news for employers, but not an excuse to avoid the issue.  Advance planning and preparation will only help employers address what likely will be the most significant changes to the overtime exemption tests we have ever seen.

It appears that the U.S. Department of Labor intends to remain busy through the rest of the summer.  After releasing in June a Notice of Proposed Rulemaking seeking public comment on proposed changes to the Fair Labor Standards Act’s  “white collar” overtime exemption regulations, the DOL now has indicated that it will formally seek public input on the thorny issue of mobile device use by non-exempt employees outside their working hours.

The now seemingly ubiquitous use of mobile devices like smartphones and tablets has changed our culture and impacted our work in many ways.  Many employees, including both exempt and non-exempt employees, now have remote access to work-related e-mail, voice-mail, text messages, and telephone calls.  This 24/7 access creates the risk of unpaid overtime for employers if they have non-exempt employees performing work in the form of e-mail, telephone calls, and texting “off-the-clock” outside their normal working hours.  For FLSA purposes, employers are required to count such time for compensation purposes if they “knew or should have known” the non-exempt employees were engaged in such work-related activities, regardless of whether they actually asked the employees to perform such tasks.  Looking the other way can create real liability, and this issue may become the next wave of wage and hour class action lawsuits.

While courts and the DOL recognize that employers are not liable under the FLSA for “de minimis” uncompensated work time, there exists little guidance on what constitutes “de minimis” for these purposes.  Because the time spent to check and respond to e-mail on a mobile device can take as little as a few seconds, it may appear to be de minimis.  However, what if the employee is engaged in such activities five times an hour for hours on end?  The law is unclear on where the line is drawn between de minimis and compensable hours worked, and this lack of clarity is especially problematic when addressing the subject of mobile device use outside work hours by non-exempt employees.

(To make matters worse, Pennsylvania courts have not even recognized a de minimis exception under the Pennsylvania Minimum Wage Act.  Thus, liability for unpaid overtime may exist in Pennsylvania even if employees spend a very small amount of time accessing work-related materials outside of work hours.)

A DOL spokesperson confirmed that the DOL intends to issue a request for public information on this subject by the end of August, setting the stage for possible new regulations sometime in 2016.

In the meantime, the risk of liability is real for employers who have a sizable number of non-exempt employees with remote off-hours access to work-related e-mail, text messages, and telephone calls.  Such employers should consider the following:

  1. Determine whether and to what extent the operational benefits offered by giving off-hours access to work e-mail and telephone systems by non-exempt employees exceed the potential costs of class-based claims for unpaid overtime.  This practice is not risk-free, and employers should give such access to employees only where the benefits exceed the potential risks.  This analysis may result in reducing the number of non-exempt employees who have such access, which would help avoid the issue altogether.  Even if it is determined that certain non-exempt employees need remote access at certain times (such as when on-call), the employer may want to consider blocking remote access by these employees at all other times, to help reduce the potential risks.
  2. Have in place a policy for non-exempt employees that addresses working remotely and outside of normal work hours.  The policy should require employees to report all time spent working and provide a procedure to do so.  Also, to the best extent possible, the policy should confirm for employees when they may (and may not) access their devices or otherwise work remotely.  The employer then must enforce the policy.
  3. Continue to monitor legal developments in this area, which hopefully will provide greater clarity regarding what is and isn’t compensable time worked.