U.S. DOL Proposes Revisions to Some FLSA Exemptions' Minimum Salaries and More

The announcement is only 285 pages, and you can read the entire Notice of Proposed Rulemaking Here.   The actual regulations are about 9 pages beginning on page 286 of the PDF.

I know you're reading headlines focusing on the salary test for exempt workers under the FLSA.   Yes, indeed the DOL proposes to raise that salary threshold for the exempt executive, administrative and artistic / learned professional exemptions.  That proposal is a salary of $921 / week or a minimum salary of $47,892 per year (unless you're in Samoa).  Here's the proposed general provision, a revision to 29 CFR 541.600:

To qualify as an exempt executive, administrative or professional employee under section 13(a)(1) of the Act, an employee must be compensated on a salary basis as of [EFFECTIVE DATE OF FINAL RULE] at a rate per week of not less than $921 (or $774 per week, if employed in American Samoa by employers other than the Federal government), exclusive of board, lodging or other facilities. As of [DATE TBD] on each subsequent year, such employee must be compensated on a salary basis at a rate per week of not less than the updated salary rate published annually by the Secretary in the Federal Register at least 60 days earlier (with the rate for American Samoa to be calculated at 84 percent of the updated salary rate, provided that when the highest industry minimum wage for American Samoa equals the minimum wage under 29 U.S.C. 206(a)(1), exempt employees employed in all industries in American Samoa shall be paid the full salary rate), exclusive of board, lodging or other facilities.

The proposal includes a way to increase the base salary without passing new regulations or laws. Under the proposal, the minimum salary will go up each year based on an announcement by the Secretary of Labor, to occur 60 days before the change. The change will be based on a calculation the DOL has not decided upon yet.  It will either rely on the "CPI-U" inflation index, or by adjusting the salary basis to maintain pace with actual wages paid to salaried workers.

The proposal retains the "highly compensated" exemption standard, which relaxes the duties test. But the "highly compensated" salary will increase to $122,148, again indexed in future years.

There will also be an hourly "computer exemption" rate of $27.63 for those employees who can otherwise satisfy the "computer" exemption.

The proposed regulations include explanations of how the salary test may be met, as well as language stating that additional hourly pay, bonuses, commissions, etc. above the minimum salary will not defeat the exemptions.

But wait, there's more.  The proposed regulations are all about salary.  But the DOL in its Notice is also "seeking input" on whether to change the "duties" tests for the exemption.  That is, the DOL is actively considering adopting California's standards regarding the white-collar exemption duties test.  California law, as you know, measures time spent on exempt duties and discourages "working managers" who "pitch in."

You don't believe me?  Sure you do. But here's an excerpt of the DOL's announcement regarding the duties test:

While the Department is not proposing specific regulatory changes at this time, the Department is seeking additional information on the duties tests for consideration in the Final Rule. Specifically, the Department seeks comments on the following issues:

A. What, if any, changes should be made to the duties tests?

B. Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?

C. Should the Department look to the State of California’s law (requiring that 50 percent of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model? Is some other threshold that is less than 50 percent of an employee’s time worked a better indicator of the realities of the workplace today?

D. Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider our decision to eliminate the long/short duties tests structure?

E. Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lower-level executive employees performing nonexempt work?

If DOL follows through with this proposal, it will  - not hyperbole - drastically change wage hour law in states outside California. Those of you who know anything about California employment law, you know what will happen. For starters, there will have to be many, many conversions of now-exempt employees to non-exempt, resulting in huge overtime liability going forward, at the new, inflated wages caused by inflated minimum wage law. 

And second, for those employers that do not convert, FLSA collective actions will ensue like you have never seen before.  

These regulations are just a first step and may be revised, particularly based on comments the DOL receives. If you'd like to leave comments, the linked Notice provides instructions:

ADDRESSES: You may submit comments, identified by Regulatory Information Number (RIN) 1235-AA11, by either of the following methods: Electronic Comments: Submit comments through the Federal eRulemaking Portal http://www.regulations.gov. Follow the instructions for submitting comments. Mail: Address written submissions to Mary Ziegler, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, D.C. 20210. Instructions: Please submit only one copy of your comments by only one method. All submissions must include the agency name and RIN, identified above, for this rulemaking. Please be advised that comments received will become a matter of public record and will be posted without change to http://www.regulations.gov, including any personal information provided. All comments must be received by 11:59 p.m. on the date indicated for consideration in this rulemaking. Commenters should transmit comments early to ensure timely receipt prior to the close of the comment period as the Department continues to experience delays in the receipt of mail in our area. For additional information on submitting comments and the rulemaking process, see the “Public Participation” section of this document. For questions concerning the interpretation and enforcement of labor standards related to the FLSA, individuals may contact the Wage and Hour Division (WHD) local district offices (see contact information below). Docket: For access to the docket to read background documents or comments, go to the Federal eRulemaking Portal at http://www.regulations.gov.

It will be interesting to see if the DOL can issued these regulations before the November 2016 election. If they can't, it will be interesting to see what the new president / DOL secretary says about this issue. 

Stay tuned....

Court of Appeal Finds Way to Certify Exempt / Overtime Class Action

In recent months, some California courts of appeal appear to have changed their analysis of how to analyze the class certification question.  In the most recent example, the court reversed an order denying certification of a proposed class of restaurant managers.

This case involved all salaried employees of Joe's Crab Shack, including the general managers and assistant managers.  The plaintiffs submitted evidence that class members performed non-exempt work, and that they lacked sufficient discretion and independent judgment.  They relied on corporate policies, as well as declarations from 27 of the management employees.  However, named plaintiffs could not testify how much time they spent on exempt or non-exempt tasks, and admitted that their time spent on different tasks varied from day to day.  The employer put on evidence showing that management employees uniformly spent more than 50% on exempt duties.

The way class certification has appeared to work in the past is that courts certify a class if common questions predominate over individual ones.  In an exemption classification, if the proof shows that a common issue does not determine the liability to the entire class, then individual issues predominate over common ones.  Thus, it may be that an employer classifies all managers as exempt.  That uniform policy and a uniform job description are some evidence of commonality.  If that job description said "all managers are exempt and earn less than 2X minimum wage" then that would be a predominant common question.  Why?  Because the salary is too low to qualify for exempt treatment.  Similarly, if a job description requires employees to perform non-exempt work > 50% of the time, that's an issue that potentially could lead to liability in favor of everyone covered by the job description.

In a case like this one, though, the evidence before the trial court seemed to demonstrate that there would be too many individual issues pertaining to how the managers spent their time, such that it would be impossible to say that all managers in the class were mis-classified as non-exempt.   Only mis-classification is illegal.  Uniform classification is not.

I wasn't on the panel, though.  The court of appeal appeared to reject this analysis.  The court did not cite to the case law that says a common issue must decide liability for the entire class, or that common questions must predominate in a way that affects liability.

In fact, the court seems to say that it is appropriate to certify a class action even if there are putative class members who were properly, lawfully deemed exempt:

even if there were individual managerial employees whose work remained more than 50 percent managerial in nature, if CAI’s and Landry’s policies as implemented across California resulted in managerial employees being undercompensated for performing exempt work, class relief is appropriate.

Well, that just doesn't make any sense.  The lawsuit asserts the company unlawfully classified a class of managers as exempt.  The class, therefore, should not include people who were lawfully classified.  If you cannot discern the lawful from the unlawful, you do not have a liability issue that is common to the entire class.  As the court noted,  “‘As a general rule if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.’”

The court of appeal seemed to say that Brinker v. Superior Court requires courts to "prefer" class treatment for nearly all wage-hour issues:

We have not ignored the substantial case authority, including our own, upholding trial court decisions not to certify class actions for claims similar to those raised here (see, e.g., Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974; Mora v. Big Lots Stores, Inc., supra, 194 Cal.App.4th 496; Arenas v. El Torito Restaurants, Inc. (2010) 183 Cal.App.4th 723); nor do we express any disagreement with the outcome of those cases. However, we understand from Brinker, supra, 53 Cal.4th 1004, a renewed direction that class-wide relief remains the preferred method of resolving wage and hour claims, even those in which the facts appear to present difficult issues of proof.

So, despite the evidence that there is no common proof of liability, the Court sent the case back to superior court.

Perhaps the Supreme Court will once again review class certification standards.  Brinker does not require certification of a class action if there are "any" common questions.  In every case involving one employer, there are common issues - whether all employees worked for the same corporation, whether they all wore the company logo, whether they worked at a restaurant.   The key issue is whether the plaintiff presents a common issue that is dispositive of liability.  And that's not the analysis that the court of appeal has presented in this case.

If this trend continues, there will be many more class actions certified. Employers will have to try their cases as class actions or settle.  Settlements of class actions often occur because of fear of class wide liability.  Settlement of a class action like this means paying managers who were not mis-classified.  Therefore, making it easy to certify class actions simply encourages payouts to undeserving putative class members.  At least for now, the courts do not seem to be losing sleep over this injustice.  Have a nice day!

This decision is Martinez v. Joe's Crab Shack Holdings and the opinion is here.

Court of Appeal - Managers Supervising While Performing Non-Exempt Tasks Are Non-Exempt

Safeway stores employ assistant managers who supervise many employees and have responsibility for hiring, supervising, budget compliance, etc.  But the stores' "operating budgets" and other policies allegedly require assistant managers to work the cash register and perform bookkeeping duties at times.  The assistant managers can supervise associates while "multi-tasking" / working the checkout line.

The plaintiff, Linda Heyen, was an assistant manager. The trial court found she worked about 54 hours a week, and spent a great deal of time at the check stand and performing bookkeeping tasks, even though she was able to supervise the store simultaneously.  An advisory jury concluded that Safeway did not prove Heyen was exempt.  The trial court instructed the jury that it should consider the primary purpose for "mixed" activities - those that involved both non-exempt work and supervision.

Safeway argued this:

So long as the manager is still actively functioning in his/her managerial capacity, and addressing his/her attention to managerial tasks such as observing how the store is running and considering how to make the store perform more efficiently and profitably, how to best model and train the store's employees in proper service activities, how to resolve any employee or operational problems that have arisen or are arising, and instructing employees in that regard, etc., all that time should be considered to fall on the 'exempt' side of the ledger—even if the manager is helping customers or handling product at the same time.

The court engaged in a detailed analysis of federal regulations, the wage order, and California case law, which you can read in the opinion. The punch line is this:

the federal regulations cited in Wage Order 7 expressly recognize that managers sometimes engage in tasks that do not involve the "actual management of the department [or] the supervision of the employees therein." (§ 541.108(a).) In those circumstances, the regulations do not say, as Safeway would have us hold, that those tasks should be considered "exempt" so long as the manager continues to supervise while performing them. Instead, the regulations look to the supervisor‟s reason or purpose for undertaking the task. If a task is performed because it is "helpful in supervising the employees or contribute[s] to the smooth functioning of the department for which [the supervisors] are responsible" (§ 541.108(a), (c)), the work is exempt; if not, it is nonexempt.

The court also found that when the company's expectations regarding the budgeted non-exempt hours, production standards, etc. virtually or expressly require the exempt manager to take on non-exempt tasks, the employer cannot argue that the employee did not live up to its expectations by performing non-exempt work.

So, employers, "working" / floor management, leads, etc. are more likely to be classified as "non-exempt" after this opinion, particularly when these managers are performing duties that non-exempt workers are simultaneously performing.   I predict the price of cheesy-poofs will be increasing or the checkout lines are going to be a little longer.

The case is Heyen v. Safeway and the opinion is here.