LEGAL UPDATES – APRIL 2019
Welcome to the first official installment of a new feature of our monthly newsletters. Each month, we hope to provide you with snapshot of noteworthy national and regional legal updates, such as major court rulings and new and proposed legislation, that may be of interest to private, public, and not-for-profit employers.
Department of Labor Issues Several Proposed Rule Changes and Opinion Letters
It was a busy month at the US Department of Labor. In the span of a few weeks, the DOL issued three proposed changes to the overtime regulations and three opinion letters on wage-related issues.
Increase to Minimum Salary Threshold for Exempt Employees
On March 7, the DOL announced plans to raise the minimum “salary basis” threshold to be exempt from overtime to $679 per week ($35,308 per year), up from the current $455 per week ($23,660 per year), as we covered in our March newsletter.
Designating FMLA Leave, Pay for Volunteering, Complying with State and Federal Laws
On March 14 the DOL released three new opinion letters, one relating to leave under the Family and Medical Leave Act (FMLA) and two on the Fair Labor Standards Act (FLSA). A quick note on opinion letters: An opinion letter is an official response to a specific question raised by an employer on how a particular law applies in a particular situation. Opinion letters are not laws, but they represent the DOL’s official position on certain issues, and other employers (and the courts) may rely on opinion letters for guidance when interpreting laws and regulations.
In the first opinion letter (FMLA2019-1-A), the DOL conveyed two noteworthy positions regarding FMLA leave. The opinion letter was in response to a question about whether it is permissible for an employer to voluntarily permit employees to exhaust some or all available paid sick (or other) leave prior to designating the leave as FMLA-qualifying even when the leave clearly qualifies as FMLA. The DOL said that said that employers may not delay designating leave as FMLA leave. Once an employer determines that the leave qualifies for FMLA leave, the employer must designate it as FMLA leave and count it towards the employee’s 12-week FMLA entitlement. Neither the employer nor the employee can decline designating it as FMLA leave. Employers may not hold off on designating the leave as FMLA leave until the employee has exhausted sick leave or PTO. In other words, if it qualifies for FMLA, then it’s FMLA. End of story. (The DOL acknowledged that this position contradicts controlling precedent in the Ninth Circuit.)
The DOL also said that the employers may not designate more than 12 weeks of leave as FMLA leave (or 26 weeks of military caregiver leave). Employers are free to provide additional leave beyond the FMLA’s 12-week entitlement, but they cannot expand the FMLA leave. If an employee chooses to substitute paid leave for unpaid FMLA leave, the paid leave must run concurrently and count towards the employee’s 12-week (or 26-week) entitlement of FMLA leave.
In the second opinion letter (FLSA2019-2), the DOL said that hourly employees do not have to be paid for time they spend participating employer-sponsored community service, provided certain conditions are met. The employer at issue had an optional volunteer program that employees could choose to participate in. At the end of year, the group of employees with “greatest community impact” received a bonus, which could be distributed based on how many hours each employee volunteered. The employer paid its employees for the time they spent volunteering during regular work hours or if they were required to be on the employer’s premises, but many of volunteer hours were outside of regular working hours.
The DOL said that volunteering time conducted outside of regular working hours was not compensable working time under the FLSA because it was truly voluntary, employees were not unduly pressured to volunteer, the volunteer work was not directed by the employer, end-of-year bonuses for volunteer work were not guaranteed, and the employees did not suffer any adverse consequences for not volunteering (such as being disqualified for the end-of-year bonus).
The third opinion letter (FLSA2019-1) reiterated the longstanding principle that “[w]hen a federal, state, or local minimum wage or overtime law differs from the FLSA, the employer must comply with both laws and meet the standard of whichever law gives the employee the greatest protection.” The question here was whether residential janitors who were exempt from state overtime and minimum wage rules under a specific New York state law, were also exempt under the FLSA (even though the FLSA does not have a similar exemption). The DOL noted that “[c]ompliance with state law does not excuse noncompliance with the FLSA.” The DOL also wrote its position was that relying on a state law exemption is not a good faith defense to violating the FLSA for purposes of avoiding liquidated damages and determining willfulness.
Calculating the Regular Rate for Overtime Pay
On March 28, the DOL announced proposed changes to the rules on how to calculate an employee’s “regular rate” under the FLSA. The FLSA generally requires employers to pay an employee 1.5 times her “regular rate” of pay for all time she hours she works over 40 hours in a week. An employee’s “regular rate” is more than just her hourly wage. It includes things like commissions, non-discretionary bonuses, certain lodging expenses, and more. Certain other things are specifically excluded from the regular rate calculation, like discretionary bonuses, holiday bonuses, and certain types of “premium pay.” The rules about what is and is not included in the regular rate are described in federal regulations (the Code of Federal Regulations, Title 29, Part 778, to be exact).
The most notable aspect of the DOL’s proposal is that it would amend the regulations to clarify certain items that employers may exclude from an employee’s regular rate of pay, such as:
- the cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services;
- payments for unused paid leave, including paid sick leave;
- reimbursed expenses, even if not incurred “solely” for the employer’s benefit;
- reimbursed travel expenses that do not exceed the maximum travel reimbursement permitted under the Federal Travel Regulation System regulations and that satisfy other regulatory requirements;
- discretionary bonuses;
- benefit plans, including accident, unemployment, and legal services; and
- tuition programs, such as reimbursement programs or repayment of educational debt.
The official Notice of Proposed Rulemaking is published and the DOL is accepting comments from the public until May 28, 2019.
Determining Joint Employers under the FLSA
On April 1, the DOL rounded out its busy spring by announcing proposed changes to the federal regulations that provide guidance on determining joint employer status under the FLSA. Under the FLSA, multiple employers can be deemed “joint employers” of an employee and are jointly and severally liable for the employee’s minimum wage and overtime obligations. (The current rules are in the Code of Federal Regulations, Title 29, Part 791.)
The DOL’s proposed new rule would create a four-factor test to determine whether a company is a joint employer under the FLSA. The test will consider whether the potential joint employer exercised the the power to:
- Hire or fire the employee;
- Supervise and control the employee’s work schedules or conditions of employment;
- Determine the employee’s rate and method of payment; and
- Maintain the employee’s employment records.
The proposed rule also includes a few hypothetical examples of how this test would apply in different situations.
The proposed rule also mentions several factors that will not be considered in the new joint employer analysis: (1) the authority to alter an employee’s terms and conditions of employment—merely having the contractual ability to do so is irrelevant; only exercised authority matters; (2) economic dependence on the potential joint employer—e.g., special skills; the opportunity for profit or loss; and employee investment in equipment to do the job; and (3) contractual obligations (such as requiring a sexual harassment policy) and business models (such as franchisor-franchisee relationships) are facially irrelevant.
The official Notice of Proposed Rule-making has not yet been published, but it is expected later this week. Afterwards, it will be open for a 60-day comment period.
Paid Family Leave Bill Introduced in Colorado Senate
Closer to home, on March 7, Colorado Senate Democrats introduced a bill that would require paid leave for Colorado employees. Eligible employees would be eligible to take up to 12 weeks of partially-paid leave under the following circumstances: to care for a new child; if the employee is unable due to a serious health condition or because he or she is a victim of domestic abuse; to care for a family member with a serious health condition or who was a victim of domestic abuse; or to help with certain things related to a family member’s active duty military service.
The law would apply to all Colorado employers and employees, both full-time and part-time. Employers and employees would each pay half of the cost of the premium, totaling 0.64% of the employee’s annual income, to a family and medical leave insurance (FAMLI) system administered by the Colorado department of labor and employment.
The bill, number SB19-188, is currently under consideration by the Senate Finance Committee. The full text of the bill is available on the Colorado General Assembly’s website (here). We will keep you updated on any relevant developments. You can also track the bill’s progress yourself on the Colorado General Assembly’s website (here).