The Fifth Circuit Court of Appeals issued a ruling on Thursday vacating the controversial “fiduciary rule” enacted by the Labor Department during the Obama administration, which would have required financial advisors to act in their clients’ best interests when advising them about retirement. The ruling overturned a February 2017 district court decision upholding the regulation, with a three-judge panel ruling 2–1 that its implementation had violated the Administrative Procedure Act. Politico’s Morning Shift newsletter called Thursday’s decision “a victory for the financial services industry,” whereas labor activists were dismayed:
A range of business associations — including the U.S. Chamber of Commerce, a plaintiff in the case — said in a joint statement that the court “ruled on the side of America’s retirement savers.” The groups have thrown their weight behind an effort by the Securities and Exchange Commission to draft a separate standard for advisers, which they say should “not limit choice for investors.” On the other hand, Christine Owens, executive director of the National Employment Law Project, said the ruling “threatens the Labor Department’s very ability to protect retirement investors now and in the future” — and encouraged an appeal.
Thursday’s decision was handed down just two days after another federal court, the Tenth Circuit, issued a ruling in a separate case concerning the treatment of fixed indexed annuities under the rule. That court found that the Labor Department had satisfied its obligations under the Administrative Procedure Act in amending the rule to make sales of such annuities ineligible for Prohibited Transaction Exemption 84-24 (Proskauer attorneys outline the particulars of the ruling in more detail at JD Supra).
In agreeing with the department’s decision to amend one facet of the fiduciary rule, the Tenth Circuit’s ruling could be interpreted to implicitly uphold the regulation as a whole, although that was not at issue in the case. Yet another fiduciary rule case is still pending in federal court as well, so industry experts are advising retirement plan sponsors to remain compliant with the rule for the time being, Paula Aven Gladych notes at Employee Benefit News:
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The US Department of Labor’s Wage and Hour division announced last week that it would soon begin a six-month pilot of the Payroll Audit Independent Determination (PAID) program, which will give employers an avenue for resolving potential overtime and minimum wage violations under the Fair Labor Standards Act by self-auditing and voluntarily reporting these violations to the division:
This program will ensure that more employees receive back wages they are owed—faster. Employees will receive 100% of the back wages paid, without having to pay any litigation expenses or attorneys’ fees. The program requires employers to review WHD’s compliance assistance materials, carefully audit their pay practices, and agree to correct the pay practices at issue going forward. These requirements improve the employers’ compliance with their minimum wage and overtime obligations and further protect the rights of workers. …
It is purely the employee’s choice whether to accept the payment of back wages due, and employers are prohibited from retaliating against the employee for his or her choice. If the employee chooses to not accept the payment, the employee will not release any private right of action. Additionally, if the employee chooses to accept the payment, the employee will not grant a broad release of all potential claims under the FLSA. Rather, the releases are tailored to only the identified violations and time period for which the employer is paying the back wages.
Wage and hour disputes already being litigated or investigated by the Labor Department will not be eligible for resolution through the PAID program. Employers also cannot use the program to repeatedly resolve the same violation. The six-month pilot is expected to launch in April; once it concludes, the department will assess its effectiveness and decide whether to maintain it going forward.
A recent wave of state laws legalizing medical or recreational marijuana use has created a new compliance quandary for employers in these states, who don’t always know whether their own drug policies are compliant with state law. While marijuana remains outlawed at the federal level, its legalization in 30 states plus Washington DC means many employers are unsure of what they can and can’t do to police employees’ use of marijuana, such as whether medical users are protected under the Americans with Disabilities Act or how marijuana use affects employees’ eligibility for workers’ compensation.
Now, some business associations are urging the Trump administration to issue some guidance or rules to clarify how employers should handle this sticky situation, the Washington Examiner reports:
“We’d like to see [the Department of Labor] issue something just for clarity’s sake,” said a source for one major Washington trade association speaking on background, adding that they aren’t pushing for any particular direction. They just want the administration to say where the lines are drawn.
Federal, state, and local minimum wages are a perennial point of contention in American politics, with conservative politicians and employers saying they suppress employment and hurt small businesses, while unions and labor activists say higher pay floors are necessary to ensure that low-wage employees are able to meet their needs. Less discussed is the matter of how strictly minimum wage laws are enforced in the first place. The answer? Not well, according to a recently concluded investigation by Politico, which found that “workers are so lightly protected that six states have no investigators to handle minimum-wage violations, while 26 additional states have fewer than 10 investigators,” Marianne LeVine writes:
Given the widespread nature of wage theft and the dearth of resources to combat it, most cases go unreported. Thus, an estimated $15 billion in desperately needed income for workers with lowest wages goes instead into the pockets of shady bosses.
But even those workers who are able to brave the system and win — to get states to order their bosses to pay them what they’re owed — confront a further barrier: Fully 41 percent of the wages that employers are ordered to pay back to their workers aren’t recovered, according to a POLITICO survey of 15 states.
In December, the US Department of Labor proposed a change to regulations under the Fair Labor Standards Act that would permit employers of tipped workers who pay the minimum wage and do not claim a tip credit to require these workers to “shar[e] tips through a tip pool with employees who do not traditionally receive direct tips–such as restaurant cooks and dish washers.” Critics of the proposed rule say it would hurt employees by allowing restaurant managers to skim tips or even conceivably not distribute the tip pool to workers at all.
New revelations have handed ammunition to these critics and thrown the future of the tip-pooling rule into doubt. Last week, Bloomberg Law‘s Ben Penn reported that the Labor Department had shelved an internal analysis of the proposal’s impact that found employees would lose billions of dollars in tips. Senior officials in the department ordered staff to revise the methodology of their analysis to produce a more favorable result, Penn adds, and later calculations showed smaller losses. Ultimately, the White House allowed the Labor Department to publish the proposal without including any estimate of its economic transfer effects.
Opponents of the rule change have leapt on this story as a reason to scuttle the proposal. Massachusetts Senator Elizabeth Warren sent a sternly-worded letter to Secretary of Labor Alexander Acosta requesting copies of all analyses the department conducted on the rule and correspondence pertaining to them, as well as urging the secretary to delay the end of a public notice-and-comment period that was to end Monday, February 5 (he did not). In addition, 17 state attorneys general wrote to the Labor Department, pushing for the proposal to be withdrawn, the Hill reported:
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:
Peter Robb, who was confirmed as the new general counsel of the National Labor Relations Board last month, advised the board’s regional directors in a recent memo to submit any cases based on the Obama administration’s controversial expansion of the “joint employer” standard for liability to the Board’s Advice Division in Washington for analysis, the Washington Examiner reported late last week:
Robb cautioned the directors against issuing complaints based on the controversial standard adopted during the Obama administration and instead told them to seek advice from the Washington headquarters.
“Examples of board decisions that might support issuance of complaint but where we also might want to provide them with an alternative analysis include … Finding joint employer status based on evidence of indirect or potential control over the working conditions of an employer’s employees,” Robb said in a memorandum dated Dec. 1 to all regional directors.
In order to avoid delays, Robb also wrote in the memo that his office would not be offering new views on cases already pending in courts.
The NLRB’s Browning-Ferris decision in 2015 established a precedent for “joint employer” to include entities with which a business has indirect control, or a horizontal relationship, making them responsible for franchisees’ or contractors’ compliance with the Fair Labor Standards Act and other employee protection laws. Previously, a company was only liable for those under its direct control.