Fair Labor Standards Act (FLSA)

On January 10, 2024, the U.S. Department of Labor (DOL) published its final independent contractor rule in the Federal Registrar in an attempt to provide greater clarity and consistency on how to classify a worker as an employee or independent contractor under the Fair Labor Standards Act (FLSA).

For decades, federal courts have analyzed the question using a multifactor, totality-of-the-circumstances economic reality test, with no factor or factors being dispositive. However, a rule that was published on January 7, 2021, known as the 2021 IC Rule, set forth “core factors” where some factors should be given additional weight over others. The 2021 IC Rule was criticized for not being supported by the DOL’s historical position and not fully aligned with the FLSA’s text.Continue Reading Navigating the labor landscape: Department of Labor announces final rule on independent contractors

As we previously reported here and here, in January 2021 the U.S. Department of Labor (DOL) proposed a business-friendly final rule concerning the classification of workers as independent contractors under the Fair Labor Standards Act (FLSA).  The final rule, which was scheduled to take effect in March 2021 (but never did), reaffirmed the use of the so-called “economic reality test” to distinguish between independent contractors and employees under the federal wage/hour law.  In essence, the rule was intended to provide a more uniform approach to worker classification.

Shortly after taking office, however, President Biden postponed the effective date of the final rule and suggested it should be repealed.  The Biden administration has now followed through on that plan, with the DOL blocking the rule entirely earlier today.  In a press release announcing the rule’s withdrawal, the DOL stated: “Upon further review and consideration of the rule and having considered the public comments, the [DOL] does not believe that the Independent Contractor Rule is fully aligned with the FLSA’s text or purpose, or with decades of case law describing and applying the multifactor economic realities test.”Continue Reading Department of Labor withdraws pro-business independent contractor final rule

This week, the U.S. Department of Labor (DOL) proposed a new rule that would create a uniform approach to the way companies classify workers as independent contractors or employees under the Fair Labor Standards Act (FLSA). The notion of classifying workers as independent contractors versus employees has continued to gain importance in recent years, given the growing gig economy, which makes independent contractors central to the business models of many major companies.

The DOL’s newly proposed rule would greatly benefit companies, by making it easier to classify workers as independent contractors and thereby remove a company’s obligation to provide typical employee benefits and workplace protections, such as paid leave, overtime pay and other fringe benefits. This marks a large shift from the standard proposed under the Obama administration, which would have broadened the scope of employee status, but was ultimately nixed by the Trump administration in 2017.
Continue Reading U.S. Department of Labor proposes new “reality” for classifying independent contractors

On May 20, 2020, the U.S. Department of Labor (DOL) published a final rule explaining that bonuses and other incentive payments—paid in addition to an employee’s weekly salary—are compatible with the fluctuating workweek (FWW) method of calculating overtime under the Fair Labor Standards Act (FLSA). The final rule went into effect on August 7, 2020.

On August 31, 2020, the DOL issued an opinion letter confirming that an employee’s work hours do not have to fluctuate above and below 40 hours per workweek for an employer to use the FWW method of calculating overtime pay. The opinion letter also cautioned that employers who use the FWW method generally may not “deduct from an employee’s salary for absences occasioned by the employee.” Both developments are discussed below, following the FWW refresher.
Continue Reading DOL issues new final rule and updated guidance for employers who use the fluctuating workweek method to calculate overtime

Earlier this year, the U.S. Department of Labor (DOL) issued a rule updating its interpretation of the “joint employer” doctrine under federal wage and hour law.  Yesterday, however, a New York federal judge struck down a significant portion of the rule.  Judge Gregory H. Woods’ 62-page decision delivers a significant blow to businesses that had relied on the business-friendly nature of the DOL’s new rule.

By way of background, the joint employment doctrine refers to a situation where a worker is deemed employed by more than one entity at the same time.  If multiple entities are considered joint employers, they can then generally each be held jointly and severally liable for workplace violations (e.g., discrimination, harassment, retaliation, unpaid wages).
Continue Reading New York federal judge nixes U.S. Department of Labor’s new “joint employer” rule

The Department of Labor’s (DOL’s) Wage and Hour Division recently issued three new opinion letters addressing the Fair Labor Standards Act’s (FLSA’s) sales exemptions. Two letters address the outside sales exemption, and the third addresses the retail or service establishment exemption.

FLSA2020-6: Do salespeople who travel to different locations to sell their employers’ products using their employers’ mobile assets qualify for the outside sales exemption?

The first opinion letter, FLSA2020-6, addresses whether salespeople who use “stylized” trucks to travel to high-population areas and events to sell products fall within the outside sales exemption of the FLSA.

Ordinarily, a position will qualify for the exemption only if (a) the employee’s primary duty is “making sales” to or “obtaining orders or contracts for services” from customers; and (b) the employee is “customarily and regularly engaged” in performing duties “away from the employer’s place or places of business.”  29 C.F.R. sections 541.500(a), 541.501, 541.502. The exemption includes not only sales work itself, but also “work performed incidental to and in conjunction with the employee’s own outside sales or solicitations.” 29 C.F.R. section 541.500(b).

In FLSA2020-6, the DOL concluded that the employees satisfy both requirements and are therefore exempt.Continue Reading Are your sales employees exempt? DOL provides guidance in three new opinion letters

The U.S. Department of Labor, Wage and Hour Division (WHD) recently announced it will no longer automatically pursue pre-litigation liquidated damages from employers.  WHD now takes the position that recovering pre-litigation liquidated damages should only occur in a limited number of cases and it will more selectively pursue such additional recoveries.

WHD issued this new guidance in response to Executive Order 13294.  Per WHD’s announcement, the policy shift represents an effort to help spur economic recovery.  The change also is intended to reduce the time needed to conclude Fair Labor Standards Act (FLSA) administrative cases to facilitate faster payment of back-wages to aggrieved employees.
Continue Reading Pursuit of pre-litigation liquidated damages no longer the DOL’s default policy

The Fair Labor Standards Act (FLSA) exempts certain highly-compensated employees (HCEs) from the requirement that they receive overtime pay for hours worked over 40 in a workweek.  To be considered highly compensated, the employee must receive both (1) at least $684 per week paid on a salary or fee basis; and (2) at least $107,432 in total annual compensation.  To satisfy the HCE exemption, the employee must also (1) customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee; and (2) perform office or non-manual work as part of his or her primary duties.

In a recent opinion, the Fifth Circuit examined the job duties required to satisfy the HCE  exemption.  Smith v. Ochsner Health Sys., No. 18-31264, — F.3d –, 2020 WL 1897186 (5th Cir. Apr. 17, 2020).  Smith, a former organ procurement coordinator for Ochsner, sued for overtime pay under the FLSA.  In response, Ochsner asserted the HCE exemption, arguing that Smith performed one or more administrative duties and received the required level of compensation.  Smith did not contest that he met the compensation requirements, but argued that he did not perform the duties required to satisfy the HCE exemption because he was required to follow exact procedures in performing his organ procurement work and, thus, did not exercise discretion and independent judgment as required to establish the administrative exemption.
Continue Reading Fifth Circuit examines the job duties required for the highly-compensated employee exemption from overtime pay under the FLSA

The Fair Labor Standards Act (FLSA) exempts employees with certain executive, administrative, or professional job duties from the requirement that they receive overtime pay for hours worked over 40 in a workweek. Determining whether one or more of these “white collar” exemptions apply to a particular employee requires a fact-intensive analysis of the employee’s job duties. But there is another, sometimes overlooked, requirement: the employee must be compensated on a “salary basis” at a rate of not less than $684 per week. 29 C.F.R. § 541.600(a). An employee is paid on a salary basis if the employee regularly receives, on a weekly or less frequent basis, a predetermined amount which “is not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.602(a). Employers who make improper deductions from their employees’ salaries will lose the ability to claim that the executive, administrative, and professional exemptions apply if the facts demonstrate that they did not pay the employee on a salary basis. 29 C.F.R. § 541.603.

There has been a substantial amount of litigation regarding the types and frequency of deductions from an otherwise exempt employee’s salary that will cause an employer to lose the ability to claim that the white collar exemptions apply. One area of contention has been whether an employer’s policy stating that it will make improper deductions from an employee’s salary is sufficient to defeat exempt status, or whether there must be an actual practice of making such deductions for the employer to lose the exemption. Previously, courts followed the Secretary of Labor’s view that, if an employer’s policy created a “significant likelihood” of improper salary deductions, this could result in a loss of exempt status. Auer v. Robbins, 519 U.S. 452 (1997). But the Department of Labor has since promulgated regulations stating that the focus is on “an actual practice of making improper deductions.” 29 C.F.R. § 541.603.
Continue Reading Fifth Circuit clarifies when improper pay deductions make an employee ineligible for exemptions from overtime under the FLSA

On January 12, 2020, the U.S. Department of Labor (DOL) issued its final rule updating and revising its interpretation of joint employer status under the Fair Labor Standards Act (FLSA). The new rule simplifies the FLSA joint employer analysis with a four-factor test for determining whether workers are jointly employed by associated businesses or persons. The DOL’s changes are the first meaningful revisions since the department’s interpretive regulation was issued 60 years ago. According to the department, the purpose of the rule is “to promote certainty for employer and employees, reduce litigation, promote greater uniformity among court decisions and encourage innovation in the economy.” Although application of this final rule is limited to FLSA wage and hour issues, the National Labor Relations Board and the Equal Employment Opportunity Commission are expected to similarly revisit the joint employer analysis in their respective contexts.

History

The new DOL rule replaces an interpretation that had broadened liability for joint employment under the FLSA. In 2016, former head of the Wage and Hour Division David Weil issued guidance that increased scrutiny of situations in which multiple companies might employ workers jointly. In 2017, the DOL rescinded Weil’s interpretation and in April 2019, provided a “Notice of Proposed Rule Making” relating to the joint employer test.   The final rule adopted on January 12, 2020, makes certain changes to and clarifications of the April 2019 proposed version. The rule takes effect on March 16, 2020.Continue Reading DOL makes historic, pro-business changes to FLSA joint employer test