Congress Amends FLSA to Bar Employers from Keeping Workers’ Tips

Congress Amends FLSA to Bar Employers from Keeping Workers’ Tips

When the US Department of Labor proposed a new rule in December concerning the treatment of tips under the Fair Labor Standards Act, the proposal drew fire from critics who said it effectively permitted employers such as restaurants to withhold their employees tips. The regulation, which would only apply to employers who pay a full minimum wage and do not take a tip credit, would allow these employers to require that tips be pooled and shared with back-of-house staff who do not traditionally receive direct tips, such as restaurant cooks and dishwashers—a practice banned by the Obama administration.

A stipulation in the regulation that managers could use pooled tip money to make structural improvements, like expanding the dining area, or to lower menu prices, led employee advocates to argue that it would result in many tips not accruing to employees at all. The Labor Department publicly contended that these fears were baseless, but last month, an internal analysis of the proposal’s impact came to light, showing that employees could indeed lose out on billions of dollars in tips. Senior officials in the department shelved the analysis and ordered staff to revise their methodology to produce a more favorable result. The revelation cast doubt on the future of the rule and led to calls from members of Congress to discard it and warnings from state attorneys general that the department may have broken the law in rolling out the proposal.

The rule is still pending, but now, if it does come into effect, it will do so with its critics’ main objection addressed.

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US Labor Department Adopts New, Flexible Standard for Regulating Internships

US Labor Department Adopts New, Flexible Standard for Regulating Internships

Earlier this month the US Department of Labor announced that it was revising its test for determining whether interns count as employees entitled to protections under the Fair Labor Standards Act, citing recent federal court rulings that rejected the previous test:

The Department of Labor today clarified that going forward, the Department will conform to these appellate court rulings by using the same “primary beneficiary” test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.

The department has issued a fact sheet explaining the standard it will enforce going forward, which is more flexible than the previous test and is based on the rubric the courts have used to judge who is the “primary beneficiary” of the internship and the “economic reality” on which it is based:

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Labor Department Proposes New Tip Pooling Rule

Labor Department Proposes New Tip Pooling Rule

The US Department of Labor this week announced a proposed change to regulations under the Fair Labor Standards Act concerning tipped employees and employers’ right to demand that they pool their tips. The proposed new rule, according to the department’s press release, “applies where employers pay a full minimum wage and do not take a tip credit and allows sharing tips through a tip pool with employees who do not traditionally receive direct tips–such as restaurant cooks and dish washers.”

Notice of the proposed rule was published in the Federal Register on Tuesday, and will be available for public comment for 30 days. If enacted, the rule change would benefit restaurants, which have come under increasing pressure to pay their tipped employees the standard minimum wage and thus forego the tip credit, making more of them subject to these regulations, Lisa Nagele-Piazza explains at SHRM:

“Restaurants and other food service providers should welcome these proposed changes,” said Kathleen Anderson, an attorney with Barnes & Thornburg in Fort Wayne, Ind., and Columbus, Ohio. “Think about it. The restaurant experience is created by the combined efforts of the front and back of the house. Tip sharing allows those in the back of the house to be rewarded for good service.” …

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Fate of Overtime Rule Still up in the Air as Government Appeals Injunction

Fate of Overtime Rule Still up in the Air as Government Appeals Injunction

As expected, the US Labor Department is appealing the injunction issued last week against the department’s controversial rule change regarding overtime pay, in which a federal judge blocked the rule from coming into effect while a lawsuit filed by several states and business groups to overturn it makes its way through the legal system. The case will likely not be concluded before president-elect Donald Trump takes office in late January, and the new administration may choose to drop the appeal and decline to defend the controversial regulation in court, letting it die before it ever goes into effect.

For employers, however, many of whom have already adjusted salaries or schedules in preparation for complying with the new rule, its uncertain future presents a significant challenge. At Compensation Cafe, Jim Brennan posits that this state of affairs will make the US a “living laboratory” for compensation practices in the coming year:

If the rule change is cancelled, rolling back increases already announced and other changes already implemented may be impossible. Right there, another test group will emerge: those who continue with the suddenly stalled new pay mandate and those who instead re-adjust to return to the old system. Broad issues of morale, motivation, engagement, credibility and economic survival will play out before your eyes.

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Federal Judge Blocks US Overtime Rule; What’s Next for Employers?

Federal Judge Blocks US Overtime Rule; What’s Next for Employers?

Amid uncertainty over whether the rule would survive the end of the Obama administration, US District Judge Amos Mazzant in Sherman, Texas issued a preliminary injunction on Tuesday blocking the US Labor Department’s new overtime rule, which would raise the salary threshold at which employees are exempt from overtime pay from $23,660 to $47,476, from being enforced, just nine days before its effective date of December 1, Reuters reports:

Mazzant, who was appointed by President Barack Obama, ruled that the federal law governing overtime does not allow the Labor Department to decide which workers are eligible based on salary levels alone. The Fair Labor Standards Act says that employees can be exempt from overtime if they perform executive, administrative or professional duties, but the rule “creates essentially a de facto salary-only test,” Mazzant wrote in the 20-page ruling.

The states and business groups that challenged the rule applauded the decision. … The Labor Department… remains confident that the entire rule is legal, and it is currently considering its options, department spokesman Jason Surbey said.

Politico’s Marianne Levine discusses the ruling in more detail:

In his opinion, Mazzant said that in issuing the rule, the Labor Department “exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary threshold such that it supplants the duties test.” Under the duties test, an employee is exempt from overtime pay if he or she earns wages in excess of the salary threshold and has duties that are administrative, executive or professional.

Mazzant said that “if Congress intended the salary requirement to supplant the duties test, then Congress and not the Department, should make that change.”

Though the ruling may come as welcome news to many US employers, it comes so close to the deadline that most have already made changes to compensation and scheduling that, the Wall Street Journal observes, may be hard to reverse:

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SCOTUS: Meatpacking Workers Can Collect Overtime for Donning and Doffing Gear

SCOTUS: Meatpacking Workers Can Collect Overtime for Donning and Doffing Gear

On Tuesday, the US Supreme Court upheld a lower court’s decision allowing over 3,000 of employees at a Tyson pork processing plant in Iowa to recover overtime pay for the time they spent putting on and taking off protective gear. As the Washington Post’s Robert Barnes explains, the 6-2 decision

rejected Tyson’s contention that [the workers] should not have been able to use statistical averages to prove that they were not paid what they were due. The court did not rule on a second argument offered by Tyson, that some workers who had not been underpaid might benefit from the award. …

[Tyson had] claimed that the thousands of current and former plant workers who brought the suit did not have enough similarities in their duties to be able to use statistical averages. The workers sought to prove that they had not been compensated for overtime accumulated “donning and doffing” protective gear and doing other tasks necessary for their work.

Sachin Pandya at Workplace Prof Blog details how the plaintiffs made their case:

For [Fair Labor Standards Act] overtime claims, a plaintiff-employee has to prove that he or she had worked for over 40 hours in a work week. But, because Tyson hadn’t kept proper records of employee donning and doffing time, the plaintiffs had no individualized work time records to prove their total hours worked. So, at trial, the plaintiffs submitted “representative evidence”—key among which was study in which an expert observed a sample of 744 employees, counted donning and doffing times for each, and calculated averages by the sampled employees’ departments (cut and retrim departments: 18 minutes; kill department: 21.25 minutes). With these averages, along with individual work time records that Tyson had kept, another expert concluded that all but 212 employees in the Rule 23 certified class worked more than 40 hours, and thus might be owed overtime pay. Tyson argued against this evidence to the jury, but the jury awarded about $2.9 million in unpaid wages.

In SCOTUSblog court watcher Lyle Denniston’s opinion, the decision created a small opening for class action lawsuits after the Court spent five years building a “quite sturdy barrier” against them:

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