We have been tracking the status of the proposed changes to the white-collar overtime exemptions in the Pennsylvania Minimum Wage Act (PMWA) regulations. In January 2018, Governor Wolf announced that the Pennsylvania Department of Labor and Industry (DLI) would be proposing new regulations to amend the PMWA regulations that govern its overtime and minimum wage exemption requirements for executive, administrative, and professional salaried employees. DLI submitted a proposed rulemaking in June 2018 for new regulations.

As we outlined in a prior blog post, the DLI’s proposed regulations included both big increases to the minimum salary requirements and changes to the duties tests for the PMWA’s white-collar overtime exemptions.

After their publication on June 23, 2018, DLI accepted written public comments on the proposed regulations through August 22, 2018. Not surprisingly, public comments on the proposed regulations were mixed, with employer groups being sharply critical of the proposed changes, while employee groups generally expressed favor.

The state’s Independent Regulatory Review Commission (IRRC) is tasked with examining proposed regulations before they can take effect. On September 21, 2018, the IRRC published its comments on the proposed regulations. The IRRC concluded that DLI needed to do more to justify the proposed regulations and outlined a number of questions and concerns. The IRRC noted the large number of employees, businesses, and non-profit organizations that will be affected by the changes contained in the regulations should they take effect. The IRRC flagged the fact that the proposed salary increases would greatly exceed the national average for salary increases and the actions with undesirable consequences that employers may take in response to the changes. The IRRC also expressed concern about the effect a change to PMWA’s regulations may have in advance of possible changes to the FLSA regulations, which could create even more confusion and compliance difficulties. The IRRC concluded that, based on the explanation of the proposed regulation in its Preamble, it was unable to determine if the regulation would be in the public interest.

It is unclear at this stage what effect, if any, the IRRC’s negative comments on the proposed regulations will have on the process and any final regulations issued. Pennsylvania law directs the DLI to respond to all comments received from the IRRC and any other source, and we await DLI’s responses to the IRRC’s comments.

The ball is now in the DLI’s court to address the comments provided by the public and IRRC and to determine (1) whether to issue final regulations and, (2) if so, the contents of the final regulations.

We will continue to monitor the progress of the DLI’s efforts in this area and provide updates as warranted.

Over the past fifteen years, wellness programs have generated more than their fair share of litigation and regulatory scrutiny – primarily over the issue of whether they comply with the Americans with Disabilities Act.  A related compliance issue that has attracted relatively little attention from courts and regulators is whether, under the Fair Labor Standards Act (FLSA), employees must be paid for time spent participating in wellness-related activities.  This question was addressed in an Opinion Letter (FLSA2018-20) issued by the U.S. Department of Labor’s Wage and Hour Division on August 28, 2018.

Opinion Letter 2018-20 specifically addresses whether an employer must pay employees for time spent in the following activities:

  1. biometric screenings (blood pressure, cholesterol levels, nicotine usage) both during and outside of their regular work hours;
  2. wellness activities such as nutrition classes, employer-facilitated gym classes, telephonic health coaching, participation in Weight Watchers and Fitbit challenges;
  3. attendance at benefits fairs to learn about employer-provided benefits, financial planning and college attendance opportunities.

The Opinion Letter concludes that employees need not be compensated for participating in the above activities if: a) their participation is purely voluntary;  b) they perform no job-related duties while participating; and c) the activities predominantly benefit the employee and not the employer.   In concluding that the activities were predominantly for the employees’ benefit, the DOL noted that participating employees may enjoy lower health insurance deductibles while also learning how to make “more informed decisions” about non-job related health issues.  Moreover, since employees were relieved of all job duties while participating, they were “off duty” as that term is defined in DOL regulations.

This Opinion Letter is helpful assurance for employers who are considering implementation of wellness programs.  If employee participation is strictly voluntary and no work is performed during the course of participating, the time will likely be deemed non-compensable under the FLSA.  However, as many employers have learned, it can be difficult to generate strong employee participation in wellness programs.  Although paying employees for their participation may not be required by the FLSA, some employers choose to do so as an incentive for participation.

If you have any questions regarding wellness programs or the Fair Labor Standards Act, please contact any member of our Labor and Employment Practice Group.

This morning the Supreme Court issued its long-awaited opinion in Janus v. AFCSME , holding that requiring public sector employees to pay fair share fees to unions violates the First Amendment. As we discussed in our prior posts , a fair share fee (sometimes called an agency fee) is a fee that non-union members must pay to the union to cover the expenses incurred by the union while representing bargaining unit employees.

Until this morning, fair share fees were legal under most state laws, and required by many collective bargaining agreements. This was true despite the fact that the employees paying the fees had intentionally opted not to join the union, because the union still had a legal obligation to represent all employees within the bargaining unit, regardless of whether the employee is a member of the union. These laws became common after the Supreme Court issued its 1977 opinion Abood v. Detroit Bd. of Educ., which held that fair share fees were constitutional and maintained labor peace by preventing “free riders.”

In recent years, there have been increasing challenges to the constitutionality of fair share fees and the validity of Abood. Back in 2014, we discussed the Supreme Court’s ruling in Harris v. Quinn. The Court in Harris began to question the validity of Abood and its supporting rationale. As we noted, the Court came close to overruling Abood but ultimately decided Harris on its specific facts. It held that collection of the fair share fees in the specific context (personal assistants in Illinois) violated the First Amendment. In 2016, another challenge made it to the Court, but we got a 4-4 split decision, due to Justice Scalia’s passing shortly after oral argument

Now, with Justice Gorsuch on the bench, as was foreshadowed in Harris, the Court ruled that fair share fees violate public sector employees’ right to free speech. As a basic premise, the Court recognized that the right to free speech includes the right to refrain from speaking at all. Thus, “[c]ompelling individuals to mouth support for views they find objectionable violates the cardinal constitutional command, and in most contexts, any such effort would be universally condemned.” Accordingly, forcing employees to pay fair share fees (i.e., compelling employees to speak in support of the union when they may otherwise remain silent) violates the First Amendment. Finally, the Court overruled Abood, dissecting and dismantling its labor peace and free rider justifications.

The end result of the Court’s holding is clear: “States and public-sector unions may no longer extract agency fees from nonconsenting employees. . . . Neither an agency fee nor any other payment to the union may be deducted from a non-member’s wages, nor may any other attempt be made to collect such payment, unless the employee affirmatively consents to pay.”

The Court recognized that the loss of these fair share payments would cause unions to “experience unpleasant transition costs in the short term,” but it did not think that such a challenge justified continued constitutional violations. Rather, it pointed out that such a disadvantage must be weighed against the considerable windfall that unions received in fair share fees for the 41 years after Abood.

Surely, there will be many questions that follow and we will be here to help our public sector clients navigate this new territory.

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.

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.

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.

Under the Fair Labor Standards Act (“FLSA”), employers are permitted to pay non-exempt employees a fixed salary to cover straight-time earnings for all hours worked in a week, provided several conditions are met: a) the employee’s hours must fluctuate week to week; b) the employee must be paid the fixed salary in weeks where employee works less than 40 hours; c) there must be a clear understanding that the salary is intended as straight-time compensation for all hours worked; d) the employee’s “regular rate” of pay (calculated by dividing the salary amount by the total weekly hours worked) must be at least the federal minimum wage; and e) for each hour worked in excess of 40 in a week, the employee must be paid an overtime premium of at least ½ the employee’s regular rate for that week.  This pay plan, commonly referred to as the “fluctuating work week” method (“FWW”), was long thought to be lawful in Pennsylvania.  However, in two federal court decisions issued in 2012 and 2014, FWW pay plans were found to violate the Pennsylvania Minimum Wage Act (“PMWA”).  Put another way, a pay practice that is permitted under federal FLSA regulations was found to violate Pennsylvania’s state law governing wages and overtime.

The earlier court decisions striking down FWW pay plans were both authored by federal judges who were interpreting state law.  Some employers have held out hope that the Supreme Court of Pennsylvania might disagree with their interpretation of the PMWA and resurrect FWW pay plans in Pennsylvania.  This issue has not yet reached Pennsylvania’s highest state court.  However, in Chevalier v. General Nutrition Centers, Inc. the Superior Court of Pennsylvania (an intermediate appellate court) considered the status of FWW plans under the PMWA.

In Chevalier, GNC’s store managers and assistant managers were treated as “salaried non-exempt” employees.  That is, they were paid a fixed salary regardless of how many hours they worked.  GNC also paid its managers an overtime premium consistent with the FWW method; i.e., a “regular rate” was calculated for each week (salary divided by total hours worked) and managers were paid ½ of the regular rate as a premium for each overtime hour worked.

Citing the prior federal court decisions referenced above, the plaintiffs argued that GNC’s FWW plan violated the PMWA.  From the plaintiff’s perspective, GNC was required to calculate each manager’s regular rate by dividing his or her weekly salary by 40 hours – and then pay 1 ½ times this rate for each hour worked in excess of 40.

Interestingly, the Superior Court did not side entirely with either party.  The Court found that GNC properly calculated each manager’s regular rate by dividing his or her weekly salary by the total number of hours worked by the manager in the week (and not by 40, as argued by the plaintiffs).  This holding results in a lower regular rate in weeks during which overtime is worked.

However, upon reviewing Section 231.43(b) of PMWA regulations, the Court agreed with the plaintiffs that overtime hours must be paid at a rate of 1 ½ times the regular rate for all hours worked in excess of 40 – or three times more than the ½ time premium that was being paid by GNC to its salaried non-exempt managers.  By way of example, if a non-exempt manager is paid a fixed salary of $1,000 each week, regardless of hours worked – then his or her “regular rate” is $20/hour in a week during which the manager works 50 hours.  Applying the Superior Court’s reasoning, this manager must then be paid $30/hour (1 ½ X $20) for each of the 10 overtime hours worked that week.

Notably, while the Chevalier case was pending, the Superior Court invited the Pennsylvania Department of Labor and Industry (“L&I”) to state its position as to whether the FWW method of calculating overtime pay is permitted under PMWA.  L&I declined to do so, explaining that, by taking a formal position on the issue, the Department would arguably be taking regulatory action without following the required regulatory review process.

In sum, the Chevalier decision makes it clear that employers may realize some wage savings by treating certain employees as “salaried non-exempt.”  However, the PMWA applies a stricter standard for calculating overtime pay than is permitted under FLSA regulations for FWW pay programs.   While Pennsylvania employers may calculate a salaried non-exempt employee’s “regular rate” in the same manner as they would under an FWW, the PMWA requires payment of 1 ½ times that rate for each overtime hour – and not merely payment of a ½ time premium.

Until the Supreme Court of Pennsylvania says otherwise (or the PMWA is amended), employers who employ salaried non-exempt employees in Pennsylvania should be careful to ensure that their overtime pay practices are consistent with the Chevalier decision.  If you have any questions regarding the Chevalier case or any other wage and hour compliance issue, please contact any member of our Labor and Employment Practice Group.

As many will recall, the U.S. Department of Labor issued regulations in May 2016 that would have increased dramatically the minimum salary requirements for the Fair Labor Standards Act’s “white-collar” overtime exemptions.  The 2016 FLSA regulations would have more than doubled the minimum weekly salary requirement for most white-collar overtime exemptions from $455 to $913 and contained a number of additional provisions, the vast majority of which were not viewed favorably by employers.

In November 2016, mere days before those FLSA regulations were set to become law, a federal judge issued an injunction blocking those regulations from taking effect.  Since then, the possibility of those regulations ever taking effect has diminished substantially.

Now, it appears that the changes the 2016 FLSA regulations promised may become a reality for Pennsylvania employers.  Yesterday, Governor Wolf announced that the Pennsylvania Department of Labor and Industry will propose new regulations under the Pennsylvania Minimum Wage Act that will increase the minimum salary requirement for the white-collar overtime exemptions under this state law.

The PMWA is the state-law equivalent of the FLSA.  The PMWA and FLSA both place minimum wage and overtime pay obligations on 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, employers must comply with the more pro-employee requirements to avoid liability for unpaid minimum wages or overtime pay.

Governor Wolf announced that the proposed PMWA regulations will raise the salary level to determine overtime eligibility for most white-collar workers from the current FLSA minimum of $23,660 (i.e., $455 per week) to $31,720 (i.e., $610 per week) on January 1, 2020.  If the proposed regulations ultimately take effect, the annual salary threshold will increase to $39,832 (i.e., $766 per week) on January 1, 2021, followed by $47,892 (i.e., $921 per week) in 2022.  Starting in 2022, the salary threshold will update automatically every three years.  (The terms of such automatic increases have not yet been released.)

In addition, unlike the 2016 FLSA regulations, Governor Wolf announced that the new PMWA regulations will “clarify” the duties tests for the white-collar exemptions.  We can only assume that such “clarifications” when issued will not be favorable for employers and will make even more currently exempt employees now eligible for overtime.

The Department of Labor and Industry anticipates releasing the proposed regulations for public comment in March 2018.

For Pennsylvania employers, all of this will feel very familiar.  Should the proposed regulations become final and take effect, employers in Pennsylvania will need to take the following steps:

  • Identify those employees currently treated as exempt from overtime pay and determine whether their salaries will meet the new minimum salary thresholds.
  • For those employees currently treated as exempt who earn less than the new minimum salary thresholds, consider whether to increase their salaries to meet the new salary requirements or convert the employees to non-exempt status and pay them for overtime worked.

Of course, Governor Wolf announced only that proposed regulations containing these changes will be coming in March.  There is no guarantee that the proposed regulations will become final in the same or similar form, and, even if they do, legal challenges may await.  The PA Chamber of Business and Industry already has announced its strong opposition to the proposed changes.  There is also a gubernatorial election in November 2018 that may play a large role in the ultimate fate of these proposed regulations.

Whether and to what extent these changes will become law in 2020 remains to be seen.  We will provide updates on the proposed regulations as the situation warrants.  In the meantime, to quote the late great Yogi Berra, it’s déjà vu all over again.

In a recent change of position, the Department of Labor (“DOL”) has endorsed a new standard for determining when an unpaid intern is entitled to compensation as an employee under the Fair Labor Standards Act (“FLSA”).  We previously reported on an earlier DOL effort to tighten up the restrictions on the use of unpaid interns.  It looks like the DOL has decided to change course.

By way of further background, the United States Supreme Court has yet to address the issue, but several federal circuit and district courts have attempted to determine the proper standard to assess these situations.  Recognizing that internships are widely supported by the education community, these courts have sought to strike a balance between providing individuals with legitimate learning opportunities and the exploitation of unpaid interns.

In keeping with the rulings of the courts, the DOL, stated last Friday that “the Wage and Hour Division will update its enforcement policies to align with recent case law [and] eliminate unnecessary confusion among the regulated community…”

Accordingly, the DOL rescinded a 2010 Fact Sheet and adopted the primary beneficiary test, which considers the following factors to determine whether an intern or student is, in fact, an employee under the FLSA:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

No one factor is determinative and, therefore, the inquiry of whether an intern or student is an employee under the FLSA depends upon the unique circumstances of each case.  The Labor & Employment attorneys at McNees are ready to help employers with the analysis of whether the intern or the employer is the primary beneficiary of the relationship.

The United States Supreme Court will address again whether service advisors are exempt from overtime compensation requirements of the Fair Labor Standards Act (“FLSA”).

In a case involving several procedural twists and turns, the Supreme Court, for the second time, will hear Encino Motorcars, LLC v. Navarro.  That case involves five service advisors who were employed by a California Mercedes-Benz dealership.  In 2012, the employees sued the dealership, under the FLSA, after it refused to pay them overtime compensation.  The employees alleged, among other things, that as a part of their job duties, they were required to upsell customers for additional automobile services, but were not required to actually sell cars or perform auto repairs.  They further alleged that they were only paid by commission and were “mandated” to work from 7 a.m. to 6 p.m. at least five days a week.

The FLSA requires that employers pay employees overtime compensation equal to 1 and 1/2 times their regular rate for all hours worked in excess of forty per week, unless an exemption applies.  Section 213(b) of FLSA is at issue in this case and provides that overtime compensation is not required for an employee who is a “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles…”

A California district court dismissed the case, but the Ninth Circuit Court of Appeals reversed that decision, finding that the service advisors were eligible for overtime compensation, as they did not fall within the meaning of a “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.”  The Ninth Circuit rested its decision on a Department of Labor regulation, issued in April 2011, which the Supreme Court later found invalid.

In its first time reviewing the case, instead of determining the issue of whether the service advisors were qualified for the Section 213(b) exemption, the Supreme Court kicked the question back to the Ninth Circuit for reconsideration, instructing the lower court to rule without considering the Department of Labor’s regulation.  Although the Supreme Court side stepped the issue in 2016, Justice Thomas in a dissenting opinion joined by Justice Alito projected how they would resolve the issue, opining that Section 213(b) covered the employees.

After reconsideration, the Ninth Circuit again found that service advisors do not fall with Section 213(b) of the FLSA.  The Ninth Circuit’s ruling is at odds, as it acknowledged, with several other courts, including the Fourth Circuit, Fifth Circuit, and the Supreme Court of Montana.  Given this discrepancy, the Supreme Court will hear the case yet again to hopefully put this topic to rest by issuing a final resolution.

In the meantime, there is a clear ambiguity in how auto dealers should classify employees in service advisor type roles.  Until this case is resolved, auto dealers who wish to classify service advisors as exempt from overtime should consider the applicability of Section 7(i) of the FLSA.  That section provides an overtime exemption applicable to employees who are employed by a retail or service establishment and are paid primarily on a commission basis.