The DOL Has Brought Back Opinion Letters

During the Obama administration, the DOL stopped providing opinion letters in favor of adopting “Administrator Interpretations.”  But, now they are back.

In January, the DOL reissued 17 previously withdrawn opinion letters; and last week, the U.S. Department of Labor (DOL) issued two opinion letters – the first since 2009.

Opinion letters can be a great benefit to employers.  First, they address specific questions submitted to the DOL by employers and provide important compliance guidance.  It is essentially the DOL and Wage and Hour Division (WHD) providing employers with guidance on how they believe employers should be complying with the laws.

Second, opinion letters can provide an affirmative defense to employers in litigation. In order to take advantage of the affirmative defense, the opinion letter must fully outline the facts involved in its opinions and explain and justify its interpretations.  The employer must also show that their acts conformed with opinion letter’s guidance.

So What Do These Opinion Letters Say?

The first letter addresses whether a request for FMLA that includes a 15-minute break provided each hour due to a continuing a serious health condition, must be paid.  The DOL noted that although short rest breaks up to 20 minutes in length are ordinarily compensable, because the FMLA-protected breaks are given to accommodate the
employee’s serious health condition, the breaks predominantly benefit the employee and need not be paid.  The DOL concluded that employees covered by the FMLA must, however, receive the same number of paid breaks as their peers.

In the second letter, the Wage and Hour Division (WHD) addressed travel time for non-exempt employees who travel on the weekend.  The letter focuses on how to determine travel time pay for employees who have no regular work schedule.

Links to the DOL’s new opinion letters are located here and here.

Wisconsin Further Confines Employers’ Use of Restrictive Covenants, including Non-Solicitation Agreements

Employers operating in Wisconsin are likely familiar with Wisconsin’s restrictive covenant statute which is quite…well…restrictive on employers.  While the statute has been in place for decades, a recent decision by the Wisconsin Supreme Court places even further limitations on the language and circumstances of these agreements.

Background

Under Wisconsin law, an agreement by an employee to “not compete with his or her employer” during or after employment is only enforceable “if the restrictions imposed are reasonably necessary for the protection of the employer or principal.”  And, any covenant that imposes an “unreasonable restraint” is void, even portions that would otherwise be legal.

For decades, a five-part test has been used by the Wisconsin courts to determine whether a restrictive covenant is reasonable.  To be reasonable, the restraint must:

  1. Be necessary for the protection of the employer;
  2. Provide a reasonable time limit;
  3. Provide a reasonable territorial limit;
  4. Not be harsh or oppressive as to the employee; and
  5. Not be contrary to public policy

Extension of the Law to Non-Solicitation Agreements

In Manitowoc Co. v Lanning,[1] the court reviewed not a noncompete agreement, but a non-solicitation agreement.  Lanning’s employment agreement contained the following:  “I agree that…for a period of two years from the date [of termination], I will not (either directly or indirectly) solicit, induce or encourage any employee(s) to terminate their employment…or to accept employment with any competitor, supplier or customer…”

In Lanning, the Wisconsin Supreme Court first reviewed whether Wisconsin’s restrictive covenant statute extends beyond non-compete agreements to non-solicitation agreements, or non-solicitation of employees.  Because the statute indicates that “any covenant” that imposes an unreasonable restraint is invalid, the Court reasoned for the first time that a non-solicitation agreement would be subject to the law.  The Court then applied the five-factor test outlined above and determined that the agreement was unreasonable and, as a result, wholly unenforceable.  In particular the Court found the use of the term “any and all employees” of the 13,000 member company overly broad. The $1 million award was vacated, which alleged Lanning had recruited 9 employees to his new employer.

What Should You Do in the Wake of Lanning?

  • If you operate in the state of Wisconsin and you utilize restrictive covenants, carefully review the language of your existing agreements. It is likely they will not comply with the narrow non-solicitation analysis the Court employed.
  • Updating agreements with current employees to be binding post Lanning is tricky: changes must be backed by consideration — each party must give something and get something.
  • Consider the interests your company must necessarily protect and ensure the restrictive language is tailored, specifically to the employee, to address those interests. Even agreements that contain limits on time and territory could be deemed unnecessary for the protection of the employer.  For example, Lanning’s agreement was found to be unreasonably restrictive because it prohibited him from recruiting any and all employees and was not limited to a specific group of employees.
  • Remember: you do not have to abandon valuable restrictive covenants and non-solicitation agreements altogether. Agreements personalized to your company’s needs, the employee, and the Wisconsin law can be valid and useful protections.

We stand ready to help you evaluate, update, and re-execute your restrictive covenants.  We can be reached at questions@foleylawpractice.com or 844-204-0505.

[1] 2018 WI 6

Leave Under the ADA Not a Guarantee

The Americans with Disabilities Act (ADA) Is Not a Leave Act, Or Is It?

 

This week the US Supreme Court let stand a decision from America’s heartland that has been closely watched. The Severson case arose from an employee with a back issue who had surgery at the end of his FMLA leave and was unable to return to work for another three months.  He was terminated. Severson sued, claiming his rights under the ADA were violated when he was not allowed extra leave.  The Seventh Circuit US Court of Appeals which covers Illinois, Indiana and Wisconsin disagreed. The Court found that ADA is an anti-discrimination statute, not a medical leave law.

 

What does this mean for employers? The Circuit Courts are split and a ruling from the Supreme Court would have been helpful. Unless and until that occurs, we recommend employers continue to utilize a case by case analysis in determining if leave is a reasonable accommodation under the ADA.  The interactive process with the employee and analysis of undue burden is the best practice for each instance. The trend favoring employees in these cases may be waning, but the risks in denying accommodation across the board are tremendous. Stay the course: treat the ADA as proscribed by law.

 

If you have any questions on ADA and FMLA leaves, please contact us.  It can be tricky business. questions@foleylawpractice.com

 

 

WWYLD – 4/10/18 – The DOL’s New Approach for Tip Pooling

Just a few days ago, the Department of Labor (“DOL”) issued a bulletin that speaks to the DOL’s changed position with regard tip pooling.  As readers with tipped employees know, tip pooling is the practice of sharing tips amongst employees.

Historically, the Fair Labor Standards Act (“FLSA”) stated that tip pooling was only permissible if:

  • Employees were paid below minimum wage; and
  • Employers claimed a tip credit; and
  • The tips were distributed only to “customarily and regularly” tipped employees

But, in July of 2017, the DOL indicated that it would not enforce its regulations prohibiting tip pooling amongst employees who are paid minimum wage.  The DOL indicated this non-enforcement policy would be taken while new regulations were drafted and adopted.  In late March 2018, Congress amended the language of the FLSA to align with the DOL’s position.

As part of the Consolidated Appropriations Act, 2018, Congress amended the FLSA so that it is now permissible to pool tips among employees, even if those employees’ hourly wages meet or exceed the federal minimum wage.  The amendment also allows for non-customarily tipped employees, like cooks and dishwashers, to participate in tip pooling.  Managers and supervisors remain barred from accepting tips or participating in tip pools. 

Note that this addresses changes to federal law only.  Some states have state-specific laws related to tipped employees.  Depending on the state(s) in which you operate, you’ll need to ensure you’re complying with your state’s law.

With that background, let’s turn to a related WWYLD question.

Question:  We run a small restaurant with few employees.  We keep our overhead costs low so that we can provide the highest quality food to our customers.  I’m the owner, but also the chef and the manager.  I sometimes serve customers as well.  Because we share duties, can we share tips? 

Answer:  Some of your employees may be able to share tips, but as the owner/manager, you are prohibited from participating in a tip pool.  The DOL has stated that any individual who meets the following criteria is a “manager” or “supervisor” and cannot participate in a tip pool:

  • An individual whose primary duty is management of the enterprise;
  • An individual who customarily and regularly directs the work of two or more other employees; and
  • An individual who has influence over or authority to hire/fire/promote other employees.

Though you are prohibited from participating in a tip pool, you could consider implementing a “house” or “administrative” charge.  Generally, these charges are set percentages that are automatically added to a customer’s bill.  The funds from these charges can be used for multiple purposes, but are often used to supplement the wages of employees otherwise prohibited from receiving tips/participating in tip pools.  Courts have found that such charges are permissible so long as customers clearly understand that the charges do not equate to a tip.

WWYLD 4/5/18 – Is the Worker an Independent Contractor or Employee?

Yesterday, Tim Kenneally wrote about the interaction of the federal and state laws.  As Tim explained, anytime both federal and state laws apply, the law that affords the employee the most protection is the law that controls.  In Tim’s blog, the applicable laws addressed exempt versus non-exempt classifications.  But, there are many, many situations in which federal and state laws differ, including leaves of absence, overtime, meals & breaks, COBRA, final pay, and workers’ compensation.  It’s the employer’s obligation to know which laws apply; and, it can be daunting.

A recent question about independent contract classification provides another great example of federal and state laws interacting.  The Federal DOL recently retracted some Obama-era guidance that had employers erring on the side of caution and categorizing workers as employees.  But, many states have state-specific laws with regard to independent contractor classification.  In today’s example, we review two states:  Wisconsin and Massachusetts.  You don’t operate in either state?  I urge you to read on nonetheless as the concept remains important:  many states have tests that limit the classification of a worker as an independent contract.

Question:  Are there some rules that outline what it means to be a contractor versus an employee? Are there guidelines for what a contractor is/is not and what an employee is/ is not?

Determination of the working relationship is a pretty hot topic right now.  Some big-name companies like FedEx, Amazon, and Uber have been sued for alleged improper classification of individuals as independent contractors.  Unfortunately for our purposes, most of these cases have either settled (so, we don’t know how a court would rule), been dismissed on technicalities, or remain unresolved.  To add complexity, in 2015 and 2016 the Department of Labor provided some specific guidance on independent contractors.  But, just a few months ago that guidance was retracted by the current administration.  This is all to say that it’s not a straightforward answer.  Each relationship should be assessed on a situation by situation basis.

Federal Law
At a federal level, both the Department of Labor (DOL) and the Internal Revenue Service (IRS) provide rules for determining the worker’s relationship.

DOL

The Department of Labor uses the Fair Labor Standards Act (FLSA) definition of employ very broadly to include “to suffer or permit to work.” This is one of the broadest definitions of employment under the law. When applying the FLSA’s vague definition, workers who are economically dependent upon the business of the employer, regardless of skill level, are considered to be employees, and most workers could be employees.  On the other hand, independent contractors are workers with economic independence who are in business for themselves. There are a number of “economic realities” factors that guide the DOL’s assessment of whether an individual should be appropriately classified as an independent contractor. Permanency of the relationship; control; and whether the services rendered are part of the principal’s business are some of the factors.

IRS

Three categories are relevant in determining whether the individual would be more appropriately categorized as an employee or independent contractor by the IRS:

  • Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?  Greater company control indicates an employer/employee relationship
  • Financial: Are the business aspects of the worker’s job controlled by the payer (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)?  Greater payer control indicates an employer/employee relationship
  • Type of Relationship:
    • Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)?  Such things would indicate an employer/employee relationship
    • Will the relationship continue?  An ongoing relationship would indicate an employer/employee relationship
    • Is the work performed a key aspect of the business?  If the individual is performing work that is a key aspect of the business, an employee/employer relationship may be more appropriate.  For example, if a landscape company needs lawnmowing, the individual doing the mowing would be an employee.  But, if the owner of several retail shops needs someone to mow the lawns outside the shops, they would hire the mower as an independent contractor, not an employee.  This is because the landscape company is in the business of maintaining lawns.  But, the retails shops are in the retail business, not the lawnmowing business.

The guidance tells us that all of the above factors should be considered:  “There is no magic or set number of factors that makes the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.  The key is to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”

The 3-category analysis is used now rather than the 20-factor test employed by the IRS for many years.

Wisconsin
Unlike the federal law’s broad reliance on any number of factors, Wisconsin gives us specifics.  Under WI law, to be properly classified as an independent contractor, all nine of the following factors must be met.  The individual must:

  1. Maintain a separate business
  2. Obtain a Federal Employer Identification Number or has filed business or self-employment income tax returns with the IRS based on the work or service in the previous year.
  3. Operate under specific contracts
  4. Be responsible for operating expenses under the contract
  5. Be responsible for satisfactory performance of the work under the contracts
  6. Be paid per contract, per job, by commission or by competitive bid
  7. Be subject to profit or loss in performing the work under the contracts
  8. Have recurring business liabilities and obligations
  9. Be in a position to succeed or fail if business expenses exceed income

 

The WI department of workforce development provides concise descriptions of each factor and also provides links to cases that further explain the factors.  The information is available here:  https://dwd.wisconsin.gov/worker_classification/wc/ninepart/

Massachusetts
Massachusetts favors the employee status and uses a three prong-test.  To be classified as an independent contractor, all three parts must be answered with a “yes.”  If any one part is “no,” the individual should be categorized as an employee.

  1. Is the worker free from the Company’s control and direction in performing the service both under a contract and in fact?  To be free from an employer’s direction and control, a worker’s activities and duties must actually be carried out with independence and autonomy.  For example, an independent contractor completes the job using his or her own approach without instruction and also dictates the hours that he or she will work on the job.
  2. Does the worker provide a service that is outside the Company’s usual course of business?  Typically, a worker who performs the same type of work that is part of the normal service delivered by the employer may not be treated as an independent contractor.
  3. Is the worker customarily engaged in an independent trade, occupation or profession?  The particular service to be performed must be “similar in nature” to the independently established trade of the worker.  An independent contractor must represent his or herself to the public as “being in business” to perform the same or similar services that he or she is performing for the company.

Let’s Summarize:

  • Each time you form a working relationship, perform an individualized assessment of the relationship.
  • Consider the factors outlined by both federal and state laws.
  • The law that affords the most protections to the worker applies. Here, that would mean that if the worker would be categorized as an employee under either federal or state law, the worker must be categorized as an employee.
  • If you have questions on how to classify workers, we can help. We offer a Position Classification Audit service to identify potential pitfalls of independent contractors and wage and hour issues. It is an efficient and easy way to protect your business. If you would like more information about this service or any other questions, please contact (508) 548-4888 or info@foleylawpractice.com

Another Noteworthy Wage and Hour Law Development

By Timothy G. Kenneally, Esquire

A business owner from Texas, we’ll call him George, posed this question, “Why is a Texas-based business required to provide a 30-minute meal break to certain company employees working shifts of more than 6 hours in Massachusetts, when no such breaks are required in the company’s home state of Texas?” The response to this inquiry seemed clear – Massachusetts wage and hour laws apply to employees working in Massachusetts. However, George pressed on, “I looked at the Fair Labor Standards Act (FLSA), he said, and it does not require a meal break.  Why doesn’t the federal law trump Massachusetts?”   The answer – many states throughout the country have state specific wage and hour laws in place. When state and federal laws address the same topic, the law that provides the greater benefit to the employee prevails.

Just this week, we saw an example of an important United States Supreme Court (Supreme Court) decision that will impact thousands of automobile dealerships in states across the country, and yet that decision will not change anything in Massachusetts.

The Supreme Court’s April 2, 2018 decision in Encino Motorcars, LLC v Navarro, et al. was heard loud and clear over the din of service departments in automobile dealerships throughout the United States.  The issue: whether Encino Motorcars violated the FLSA by failing to pay overtime wages to service advisors who regularly worked more than forty (40) hours in a week.  The answer: NO.

Encino Motorcars claimed that its service advisors were exempt from the FLSA’s overtime-pay requirement under 29 U. S. C. §213(b)(10)(A), which states : “[A]ny salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers” is exempt from the overtime wages requirement of the law (the 10A exemption).  The Court of Appeals for the Ninth Circuit had ruled that the 10A exemption did not apply to service advisors who did not perform any work on the vehicles for the dealership, and that the service advisors were entitled to overtime.  Following a close vote (5-4), the Supreme Court overruled that decision reasoning:

[S]ervice advisors are ‘salesm[e]n . . . primarily engaged in . . . servicing automobiles,’ [and are therefore] exempt from the FLSA’s overtime-pay requirement…Service advisors are also ‘primarily engaged in . . . servicing automobiles.’ ‘Servicing’ can mean either ‘the action of maintaining or repairing a motor vehicle’ or ‘[t]he action of providing a service.’ Service advisors satisfy both definitions because they are integral to the servicing process.

Of import, the impact of the Supreme Court’s decision is limited to the FLSA, which is the federal wage and hour law.  For those jurisdictions with state overtime laws that do not adopt or mirror the FLSA, employees may remain eligible for overtime even where they are exempt under the FLSA.  In jurisdictions that do not include the 10A exemption (or similar language) within their overtime law, for example Massachusetts, service advisors remain eligible for overtime compensation under state wage and hour laws.

State wage and hour laws and exempt classification do not always follow federal law, and can result in costly damages in the event of an audit or lawsuit.  We recommend that employers review their employee job descriptions and applicable law to determine whether their employees are properly classified.

Our recent blog entry regarding the new PAID law (https://conta.cc/2GO4VPN) presents another example of a federal regulation that employers would be wise to know and understand, while also comparing that law to the laws of their state.  Please also check out www.foleylawpractice.com for more information on the services we provide. We are here to help.