Third Circuit Affirms Bright-Line FLSA Rule on Short Breaks, and Rejects Employer’s ‘Good-Faith’ Absent Disclosure of Legal Advice

On October 13, 2017, the Court of Appeals for the Third Circuit held that short breaks during the work day of 20 minutes or fewer are compensable as a “bright-line rule” under the Fair Labor Standards Act (“FLSA”).  The case, DOL v. American Future Systems, et al., arose out of the employer’s policy of withholding compensation for any breaks in excess of 90 seconds. Under the employer’s “flexible” break policy, employees were permitted to log out of their computer at their workstation at any time, for any reason, for any length of time, as often as they wished.  If they remained logged off for more than 90 seconds, however, they would not be paid for any part of the time they remained logged off. In other words, even if employees logged out to use the restroom or get a cup of water, they would not be paid if they could not make it back to their computer and log back in within 90 seconds. 

The Department of Labor (“DOL”) filed suit against the company, alleging a violation of the FLSA based on the DOL’s interpretation of its own regulation regarding short rest periods, 29 C.F.R. § 785.18.  That regulation provides that “[r]est 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.”  The District Court granted summary judgment to the DOL, upholding the regulation and awarding grant of liquidated damages.  The District Court specifically rejected the company’s assertion that its flexible, unpaid break policy was implemented in a good faith attempt to comply with the FLSA.  American Future Systems appealed the decision, arguing that an individualized assessment of the purpose behind each break – specifically, whether the break was more for the employee’s benefit or the employer’s benefit – should govern whether the break is compensable or not, and that because it sought legal advice prior to implementing its rule, it acted in good faith and should not be liable for liquidated damages. Continue Reading

DOL’s Overtime Rule Invalidated

Recently, a Texas federal judge struck down an Obama administration Department of Labor rule that doubled the salary employees must make to be considered exempt from overtime pay.  The rule’s invalidation should provide immediate relief to employers concerned about additional overtime pay, or increased salaries that the Obama administration’s overtime rule would have required.

In 2016, after years of consideration, the Obama administration issued the long-anticipated DOL rule that increased the minimum salary for exempt workers (workers exempt from receiving overtime pay) from $23,600 to just more than $47,000, and the minimum salary for workers who qualify for the “highly compensated” exemption from $100,000 to about $134,000.  Late last year, U.S. District Judge Amos Mazzant issued a preliminary injunction that blocked the rule from coming into effect.  Judge Mazzant granted summary judgment in favor of certain business groups that had challenged the Obama administration’s rule.  Judge Mazzant reasoned that the significant salary increase would render the analysis of employees’ duties, functions, and tasks meaningless, and exclude from the exemption many employees who perform primarily exempt duties. Continue Reading

Third Circuit Finds No ADA Violation Where Employee Deemed Unfit for Duty

On Tuesday August 15, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of a claim for disability discrimination, where the plaintiff was deemed psychologically unfit for duty and subsequently had his employment terminated. The Third Circuit’s decision provides guidance for employers regarding the extent of their obligations to accommodate employees under the Americans with Disabilities Act (“ADA”).

In McNelis v. Pennsylvania Power & Light Co., No. 16-3883 (3d Cir., Aug. 15, 2017), the plaintiff, an armed security guard for a nuclear power plant, sued his former employer for disability discrimination following his termination.  McNelis had experienced mental health problems, including extreme paranoia.  His behavior prompted a fitness-for-duty evaluation by an independent psychologist, which was required under PPL policy, as well as under regulations promulgated by the Nuclear Regulatory Commission.  The psychologist determined that McNelis was unfit for duty, and his employment was terminated shortly thereafter. Continue Reading

NYC Proposes Ban on Non-Competes

New York City, which for years has been a trailblazer in employee-friendly workplace legislation, is at it again. Late last month, the NYC Council proposed a bill that would prohibit non-compete agreements for low-wage workers.  The bill would also bar non-competes for all other employees, if the potential that the employee might be asked to sign a non-compete is not disclosed, in writing, at the beginning of the hiring process.  As is often the case with NYC employment legislation, this is a first-of-its-kind bill.

More particularly, the bill states, quite simply, that “[n]o employer shall enter into a covenant not to compete with any low-wage employee of such employer.” The term “covenant not to compete” is, in turn, defined as any agreement “between an employee and an employer that restricts such employee from performing 1) work for an employer not a party to such agreement for a specified period of time; 2) work in a specified geographical area for an employer not a party to such agreement; or 3) work for an employer not a party to such agreement that is similar to such employee’s work for the employer who is a party to the agreement.”

As noted above, the proposed restriction would only apply to “low wage employees.” According to the bill, a “low wage employee” is any employee who is not a “manual worker,” “railroad worker,” or “commission salesman,” as those terms are defined under Article 6 of the New York Labor Law.  The prohibition would also not apply to an individual employed in a bona fide executive, administrative, or professional capacity earning more than $900/week. Continue Reading

Employers Beware: Fifth Circuit Narrows “Fluctuating” Workweek

In a recent Wage and Hour development, the Fifth Circuit held that the “fluctuating workweek method,” which allows employers to decrease their liability for overtime payments in situations where they misclassify exempt employees, should not automatically be used where the employee works a different number of hours each week, based on a recurring, fixed schedule.

Calculating Hourly Rates: Fixed Method vs. Fluctuating Workweek Method

Since overtime pay is computed in terms of an hourly rate based on an employee’s regular rate of pay, to determine how much overtime pay a misclassified employee may be due, courts must first determine an employee’s regular rate of pay. Where the misclassified employee is paid on a salary basis, courts must convert the employee’s salary compensation to an hourly rate.

The “fixed” or “standard” method of calculating a salaried employee’s regular hourly rate of pay is to divide the employee’s salary by the number of hours that the salary is intended to compensate. However, for some salaried arrangements, the employee is not expected to work a fixed number of hours each week.  Many salaries are intended to compensate however many hours the job demands in a particular week, with the weekly salary staying the same whether many or few hours are actually worked.  When an employee agrees to such an arrangement, the hours worked in each workweek fluctuate, and the appropriate way to determine the regular hourly rate of pay is through what is called the “fluctuating workweek method.”  Using this method, the regular rate of pay is calculated by dividing the salary paid in a workweek by the total of number of hours worked.  As a result, the use of the “fluctuating workweek method” almost always results in a lower regular rate of pay than under the “fixed method.” Continue Reading

EEOC Determination: Denial of Transition-Related Health Care Benefits Violates Title VII Rights of Transgender Employees

In a recent Letter of Determination, the U.S. Equal Employment Opportunity Commission (“EEOC”) found probable cause to believe an employer violated the Title VII rights of a transgender employee when it excluded coverage for “transgender treatment/sex therapy” services from its medical benefit plans.  Specifically, the EEOC determined that denying coverage for transition-related services constituted sex discrimination under Title VII.

The extent of protections for LGBTQ employees under federal non-discrimination laws continues to be an area of intense debate, with many Circuit Courts of Appeal split over whether sexual orientation is a form of sex discrimination under Title VII.  With respect to transgender status, however, every Circuit Court to consider the matter has found that discrimination on the basis of transgender status is a form of sex discrimination.

Transition-related health care coverage is a relatively recent area of coverage offered by insurers, and litigation regarding the provision of transition-related coverage is even newer.  Many employers have been awaiting implementing regulations under the Affordable Care Act’s (“ACA) Section 1557, regarding non-discrimination, to purchase transition-related coverage.  Under the current administration, however, the fates of Section 1557 and the ACA as a whole are uncertain.

Regardless of the ACA, the EEOC reaffirmed its commitment to pursuing protections for transgender employees, including with respect to employment benefits, with this recent Determination.  For that reason, employers should take the EEOC’s position into account when selecting coverage options for employees.  In addition to deciding whether to provide transition-related coverage, employers need to understand which transition-related services should be included in such a policy.

For more information regarding this evolving area of employment law and human resources considerations, please contact Miriam Edelstein at medelstein@reedsmith.com or your existing Reed Smith attorney.

Employment Tribunal Fee Regime: An Unlawful Barrier to Justice

The Supreme Court has today found in favour of the trade union UNISON in its judicial review of the UK Employment Tribunal fees regime, unanimously holding that the legislation implementing the current regime is unlawful both under domestic and EU law. The immediate consequence is that the Tribunal fees regime is quashed with effect from today’s date, meaning that Tribunal and EAT fees cease to be payable, and all fees paid since the regime was introduced will need to be reimbursed.

The Headline Points

  • The current fee regime was introduced by the government in 2013 with the stated intention of transferring the cost burden of the tribunals from taxpayers to users of their services, deterring claims with no merit and encouraging earlier settlement in cases. The introduction of the regime led to a dramatic and sustained decline in the number of Tribunal claims brought, prompting persistent calls for the government to overhaul the current system.
  • In UNISON’s judicial review application (which followed earlier unsuccessful applications to the High Court and Court of Appeal), UNISON argued that the legislation underpinning the fee regime was unlawful on the grounds that the prescribed fees interfered unjustifiably with the right of access to justice, frustrated the operation of employment rights granted by Parliamentary legislation and discriminated unlawfully against women (on the basis that claims attracting a higher fee are more likely to be brought by women).
  • The Supreme Court has unanimously upheld UNISON’s application on each of these grounds. Emphasising the fundamental importance of the right to access to justice, the Court found that the Tribunal fee regime’s intrusion into this right was greater than could be justified by its legitimate purposes. In assessing the extent of the intrusion, the Court closely examined empirical evidence relating to the impact of fees on behaviour in the real world. It was particularly concerned by evidence showing that there had been a greater fall in the number of lower value claims, suggesting that fees (which range from £390 to £1,200 but are not directly linked to the value of a claim) were disproportionately impacting individuals on lower incomes.
  • In reaching its decision, the Court provided a detailed commentary on the principles underpinning the constitutional right of access to justice, warning that without proper access to the courts, laws are liable to become a dead letter and the democratic election of members of Parliament a meaningless charade. It is likely that any future restrictions on access to the legal system will be subjected to close scrutiny in light of the principles set out in the Supreme Court’s judgment.
  • Although it was not necessary to decide the issue of indirect discrimination, the Court found that the fee regime did put women at a particular disadvantage because a higher proportion of women bring “type B” claims (which incur a higher fee) and that the fee structure could not be objectively justified on the basis of the government’s legitimate aims.

What does this mean?

Whether the Supreme Court’s judgment spells the end for Tribunal fees in the UK remains to be seen. Whilst the Court has strongly endorsed the public importance of access to justice, given the existing funding pressures on the judicial system, it is possible that the government will seek to introduce a different fee regime at a lower level at some point in the future. In the immediate term, the Lord Chancellor will be under pressure to act promptly on his commitment to reimburse all fees paid under the fee system over the past four years, and UK employers will be keeping a watchful eye on any emerging trends in tribunal claim numbers in the coming months.

For more information on developments in this area, please get in touch Ed Hunter at ehunter@reedsmith.com or your usual contact in the team.

California Supreme Court Expands Scope of PAGA Discovery

On July 13, 2017, in a decision with serious repercussions on the scope of PAGA discovery, the California Supreme Court overruled the Court of Appeals in Williams v. Superior Court to allow state-wide discovery of Marshalls employees’ contact information, without the plaintiff first having to show any evidence to support his own individual claims or the existence of a company-wide policy.

Plaintiff was a Marshalls employee who brought an action under the California Labor Code Private Attorneys General Act (“PAGA”) for meal and rest break violations, timely wage payment, and wage statement violations. At the start of discovery, the plaintiff sought employee contact information pertaining to the approximately 16,500 non-exempt workers across all Marshalls locations in California.  Although the trial court and the Court of Appeals held that incremental discovery was more appropriate and denied the plaintiff’s request for any employee contact information outside of his own work location until after undergoing “six productive hours of deposition,” the California Supreme Court disagreed.

Instead, the Supreme Court, in a lengthy opinion, shut down each of the Court of Appeals’ objections to the plaintiff’s request for state-wide discovery.   First, the Supreme Court held that “[i]n pursuing such [representative] discovery, the strength or weakness of the plaintiff’s individual claim is immaterial.”  Second, the Supreme Court stated that state-wide discovery was proper absent any company-wide or uniform policy as “[a] uniform policy may be a convenient or desirable way to show commonality of interest in a case where class certification is sought, but it is not a condition for discovery, or even success, in a PAGA action…” Continue Reading

NY Court Rules That Class Action Waivers Are Unenforceable

While pundits and practitioners eagerly await the U.S. Supreme Court’s looming decision on whether class action waivers in employment-related agreements violate the National Labor Relations Act (NLRA) – which will not be issued until 2018 – one New York State court has decided to wade into the fracas. On July 18, a New York State appellate court – whose jurisdiction covers Manhattan and the Bronx – concluded in Gold v. N.Y. Life Insurance Co. that contract clauses barring employees from commencing class, collective, and other representative actions against their employers are unenforceable and do indeed violate the NLRA.

In Gold, the appellate court examined whether an employer can force its employees to sign an agreement requiring that all legal claims against the employer be brought only through arbitration and, perhaps more importantly, only on an individual basis and in separate proceedings.  After recognizing that “there is a recent split among the Federal Circuit Courts regarding these types of clauses,” the Court answered this question with a resounding “no.”

In the underlying case, a group of former New York Life Insurance Company agents filed a class action lawsuit claiming that the agency took illegal wage deductions and committed assorted violations of the state minimum wage and overtime laws. One of the agents, however, had signed an agreement upon joining New York Life requiring her to arbitrate any claim or dispute with the insurance agency.  Additionally, under the arbitration provision, the agent agreed that no claim could be brought or maintained “on a class action, collective action or representative action basis either in court or arbitration.”  Despite this, the insurance agents nevertheless filed their wage case together in court and as a proposed class action.  After New York Life moved to compel arbitration, the claims of the agent who had signed the arbitration agreement were ordered to be submitted to arbitration on an individual basis.  The plaintiffs subsequently appealed. Continue Reading

NYC Agency Publishes Rules for New Independent Contractor Law

As we previously reported, the New York City “Freelance Isn’t Free” Act (the Act) took effect on May 15, 2017. The Act requires virtually all entities that engage an independent contractor in NYC for $800 or more in services to execute a written agreement with the contractor before work begins.  The Act additionally bars wage theft and retaliation against contractors, and imposes substantial penalties on businesses that fail to comply with its nuanced requirements.

As part of the Act’s implementation, the NYC Department of Consumer Affairs, the agency tasked with enforcing the new law, recently issued rules (the Rules) clarifying the Act’s provisions. Specifically, the Rules:

  • Invalidate contractual provisions that purport to waive or limit an independent contractor’s right to participate in or receive relief from a collective or class action – thereby preventing employers from using collective/class action waivers in independent contractor agreements – or to disclose the terms of the contract at issue to the NYC Office of Labor Standards

Continue Reading

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