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....

Supreme Court Holds Tax Subsidies Available Under Affordable Care Act to Those Who Buy Insurance on Federal Exchange

Our blog is 9 years old!  Our Firm is, not coincidentally, celebrating its 9th anniversary as well. Thank you for reading!  

To celebrate, I will post about King v. Burwell, opinion here, the Supreme Court's latest ruling upholding the Affordable Care Act (aka Obamacare, PPACA, etc.).  The Court saved one of the key provisions of the Act, 6-3, in a statutory interpretation case.  Chief Justice Roberts authored the majority opinion, writing for himself, and Justices Kennedy, Sotomayor, Kagan, Ginsburg, and Breyer. 

Whatever you think of the ACA, this is a good opinion to read because it explains in simple terms how the law works, why it was designed the way it was, and what the dispute was in King v. Burwell.   

Here's the overview of the Act in the Court's words. I insert emphasis:

First, the Act adopts the guaranteed issue and community rating requirements. The Act provides that “each health insurance issuer that offers health insurance coverage in the individual . . . market in a State must accept every . . . individual in the State that applies for such coverage.” 42 U. S. C. §300gg–1(a). The Act also bars insurers from charging higher premiums on the basis of a person’s health. §300gg.

Second, the Act generally requires individuals to maintain health insurance coverage or make a payment to the IRS. 26 U. S. C. §5000A. Congress recognized that, without an incentive, “many individuals would wait to purchase health insurance until they needed care.” 42 U. S. C. §18091(2)(I). So Congress adopted a coverage requirement to “minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums.” Ibid. In Congress’s view, that coverage requirement was “essential to creating effective health insurance markets.” Ibid. Congress also provided an exemption from the coverage requirement for anyone who has to spend more than eight percent of his income on health insurance. 26 U. S. C. §§5000A(e)(1)(A), (e)(1)(B)(ii).

Third, the Act seeks to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 percent and 400 percent of the federal poverty line. §36B. Individuals who meet the Act’s requirements may purchase insurance with the tax credits, which are provided in advance directly to the individual’s insurer. 42 U. S. C. §§18081, 18082.

So, there are three principal components to the ACA that work closely together:

Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement. §18091(2)(I). And the coverage requirement would not work without the tax credits. The reason is that, without the tax credits, the cost of buying insurance would exceed eight percent of income for a large number of individuals, which would exempt them from the coverage requirement.

Next, the ACA created the system of "exchanges" where consumers could shop for and buy the insurance:

In addition to those three reforms, the Act requires the creation of an “Exchange” in each State where people can shop for insurance, usually online. 42 U. S. C. §18031(b)(1). An Exchange may be created in one of two ways. First, the Act provides that “[e]ach State shall . . . establish an American Health Benefit Exchange . . . for the State.” Ibid. Second, if a State nonetheless chooses not to establish its own Exchange, the Act provides that the Secretary of Health and Human Services “shall . . . establish and operate such Exchange within the State.” §18041(c)(1).

Now you know just about everything you might want to know about the 2000 page law.  The Supreme Court already upheld the law a couple of years ago.  So, what was the issue in King v. Burwell?  Glad you asked:

The issue in this case is whether the Act’s tax credits are available in States that have a Federal Exchange rather than a State Exchange. The Act initially provides that tax credits “shall be allowed” for any “applicable taxpayer.” 26 U. S. C. §36B(a). The Act then provides that the amount of the tax credit depends in part on whether the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act [hereinafter 42 U. S. C. §18031].” 26 U. S. C. §§36B(b)–(c) (emphasis added).

So, some states have their own exchanges for insurance shoppers, such as "Covered California" here in the Golden State.  Other states rely on the federal exchange.   The ACA's tax credit language, though, says that the law's tax credits depend on the taxpayer's membership in an "Exchange established by the state."  Does that include the federal exchange?

Yes, said the IRS.  The IRS issued a regulation in which it said that an "Exchange established by the State" would include the federal exchange (presumably because the state decided to rely on the federal exchange as its "established" Exchange.)

The Court, though, did not defer to the IRS's interpretation. Rather, the Court held that the statute itself authorized the tax credits regardless of whether the taxpayer purchased insurance on a state or federal exchange.  To do so, the Court's majority engages in a lengthy analysis and explanation of why a federal exchange counts as a state exchange.  It's in the opinion, and you may almost be convinced.  So much for calling balls and strikes, CJ.    Anyway:

The upshot of all this is the phrase “an Exchange established by the State under [42 U. S. C. §18031]” is properly viewed as ambiguous. The phrase may be limited in its reach to State Exchanges. But it is also possible that the phrase refers to all Exchanges—both State and Federal—at least for purposes of the tax credits. If a State chooses not to follow the directive in Section 18031 that it establish an Exchange, the Act tells the Secretary to establish “such Exchange.” §18041. And by using the words “such Exchange,” the Act indicates that State and Federal Exchanges should be the same. But State and Federal Exchanges would differ in a fundamental way if tax credits were available only on State Exchanges—one type of Exchange would help make insurance more afford- able by providing billions of dollars to the States’ citizens; the other type of Exchange would not.

By the way, if you think I'm cynical, you're right. But the Court sort of acknowledged that it was doing some gymnastics to save the law:

Petitioners’ arguments about the plain meaning of Section 36B are strong. But while the meaning of the phrase “an Exchange established by the State under [42 U. S. C. §18031]” may seem plain “when viewed in isolation,” such a reading turns out to be “untenable in light of [the statute] as a whole.” Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332, 343 (1994). In this instance, the context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.

And (emphasis mine):

Reliance on context and structure in statutory interpretation is a “subtle business, calling for great wariness lest what professes to be mere rendering becomes creation and attempted interpretation of legislation becomes legislation itself.” Palmer v. Massachusetts, 308 U. S. 79, 83 (1939). For the reasons we have given, however, such reliance is appropriate in this case, and leads us to conclude that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.

***

In a democracy, the power to make the law rests with those chosen by the people. Our role is more confined—“to say what the law is.” Marbury v. Madison, 1 Cranch 137, 177 (1803). That is easier in some cases than in others. But in every case we must respect the role of the Legislature, and take care not to undo what it has done. A fair reading of legislation demands a fair understanding of the legislative plan.

Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.

Justices Scalia, Thomas and Alito dissented.  Justice Scalia explains that this decision has little to do with statutory construction or the Court's role:

This case requires us to decide whether someone who buys insurance on a [federal exchange] gets tax credits. You would think the answer would be obvious—so obvious there would hardly be a need for the Supreme Court to hear a case about it. In order to receive any money under §36B, an individual must enroll in an insurance plan through an “Exchange established by the State.” The Secretary of Health and Human Services is not a State. So an Exchange established by the Secretary is not an Exchange established by the State—which means people who buy health insurance through such an Exchange get no money under §36B.

* * *

Words no longer have meaning if an Exchange that is not established by a State is “established by the State.” It is hard to come up with a clearer way to limit tax credits to state Exchanges than to use the words “established by the State.” And it is hard to come up with a reason to include the words “by the State” other than the purpose of limiting credits to state Exchanges.  * * * *  

Under all the usual rules of interpretation, in short, the Government should lose this case. But normal rules of interpretation seem always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved. 

And it was, 6-3.

Court of Appeal: Claimed Inability to Work With Particular Supervisor Need Not Be Accommodated

An employee clashes with her manager, takes a medical leave of absence for "stress," receives repeated extensions, and her doctor says she can come back to work, but only under a new manager.  Heard that one before?   That's what Higgins-Williams v. Sutter Medical Foundation is about.

The plaintiff-employee took CFRA/FMLA leave initially. Then she exhausted it and returned to work. Her manager immediately gave her a negative evaluation. The regional manager, Perry, began to single plaintiff out for negative treatment, such as being curt with plaintiff while being friendly with others. Then plaintiff's boss accused the plaintiff of being irresponsible with her badge and Perry allegedly grabbed her arm.  The plaintiff had a "panic attack," and did not return to work again.

Sutter granted a series of extended absences as temporary accommodations.  Plaintiff's doctor continued to insist that she could return to work under a new supervisor and perform her duties without restriction.  The doctor then certified that plaintiff could return to work in her original department, but on light duty.  The doctor would not commit to a return to work date when the plaintiff could perform her essential functions with or without an accommodation (that did not include a new supervisor).

Sutter then drew the line:

On January 24, 2011, Sutter informed plaintiff (1) that Dr. Chen had stated on January 6, 2011, that plaintiff could not return to work then, but that plaintiff wanted to return on March 1, 2011, on light duty in the Connecting to Work Program; (2) that Dr. Chen did not provide any information as to if or when plaintiff would be able to return to her clinical assistant position; (3) that there was no information to support a conclusion that additional leave as an accommodation would effectuate plaintiff‟s return as a clinical assistant; and (4) that if plaintiff did not provide such information by January 31, 2011, her employment would be terminated February 1, 2011.

Plaintiff and her doctor apparently did not get the gist of this communication.

On January 28, 2011, Dr. Chen informed Sutter that plaintiff was not medically cleared to return to work at that point, and that plaintiff would continue her regimen of psychotherapy and medications. In her deposition, plaintiff testified she did not feel she could have returned to work in the Shared Services Department with regional manager Perry or supervisor Prince on February 1, 2011. Plaintiff also testified at her deposition
that at the time of her termination, she "was willing to try‟ to return to work on March 1, 2011, in the Shared Services Department under manager Perry.

Sutter then terminated the plaintiff's employment on February 1, 2011.

So, the plaintiff sued for disability discrimination, retaliation, failure to prevent, and denial of accommodation under the Fair Employment and Housing Act.  The Court of Appeal affirmed the trial court's grant of summary judgment.

The basis for the Court of Appeal's decision is significant.  The Court reaffirmed previous case law in which the court held that inability to work for a particular supervisor is not a covered disability:

An employee's inability to work under a particular supervisor because of anxiety and stress related to the supervisor‟s standard oversight of the employee‟s job performance does not constitute a disability under FEHA. (Hobson v. Raychem Corp. (1999) 73 Cal.App.4th 614, 628 (Hobson) [“the inability to perform one particular job, or to work under a particular supervisor, does not constitute a qualified disability” under FEHA (italics added)]; see Weiler v. Household Finance Corp. (7th Cir. 1996) 101 F.3d 519, 522, 524-525 [both Hobson and Weiler apply the narrower federal test of disability of “substantially limits” a major life activity, rather than the broader California test of simply “limits”; Hobson was disapproved on this point in Colmenares v. Braemar Country Club, Inc. (2003) 29 Cal.4th 1019, 1031, fn. 6] (Colmenares).)

As stated above, the Court of Appeal acknowledged that the Hobson decision applied a less employee-friendly definition of disability. But the Court then held that even under the current formulation, inability to work for the current supervisor is not a disability, because it does not "limit" the major life activity of working.

The Court then held that because the plaintiff did not have a disability, she could not succeed under her claims for common law wrongful termination, denial of accommodation or failure to engage in the interactive process.

Of note, the Court of Appeal remanded the case to the trial court regarding its award of costs to Sutter.  Costs no longer are awarded to prevailing defendants as a matter of right in FEHA cases, following the California Supreme Court's decision in Williams v. Chino Valley Independent Fire Dist. (2015) 61 Cal.4th 97 (discussed here). 

This case is Higgins-Williams v. Sutter Med. Foundation, and the opinion is here.

U.S. Supreme Court: Employer's Motivation Rather than Knowledge Is Key to Liability Under Title VII

Samantha Elauf applied to work for Abercrombie & Fitch.  She wore a headscarf during the application process.  A&F has in place a no-headgear "look" policy.   The hiring managers determined that her head scarf would violate that policy.

At least one hiring manager suspected that Elauf wore the headscarf as a religious practice.  She so informed the district manager, who decided that the scarf would violate the "look" policy and that she would not be hired.

No one asked Elauf if the scarf was a religious practice, or investigated whether she would work without it.  No one sought to determine if allowing the scare would be an accommodation for a religious practice, or whether flexing the policy would be an undue hardship.  Apparently seeking to avoid these issues, they just turned her down for the job.

The EEOC sued on Elauf's behalf.   The dispute before the court boiled down to whether the Company could be liable for intentional discrimination when it did not know Ms. Elauf wore the scarf for religious reasons, but at least one manager surmised that there was a religious connection to her garb.  The district court had granted summary judgment in favor of the EEOC.  But the court of appeals reversed and granted summary judgment in favor of A&F.

Justice Scalia, writing for a majority of 7, decided that A&F could violate Title VII without actual knowledge that a religious practice was at issue.  Rather, for the Court, the issue was the motivation of the hiring managers.

First, the Court noted that under Title VII (as opposed to the ADA), the only claims available are disparate treatment or disparate impact. Therefore, "denial of religious accommodation" alone is not a claim under Title VII.   That being the case, the plaintiff can win only by proving that the company's failure to hire (or other adverse action) is motivated by an illegal criterion:

The disparate-treatment provision forbids employers to: (1) “fail . . . to hire” an applicant (2) “because of ” (3) “such individual’s . . . religion” (which includes his religious practice). Here, of course, Abercrombie (1) failed to hire Elauf. The parties concede that (if Elauf sincerely believes that her religion so requires) Elauf’s wearing of a head- scarf is (3) a “religious practice.” All that remains is whether she was not hired (2) “because of” her religious practice.

 *  *  *

the intentional discrimination provision prohibits certain motives, regardless of the state of the actor’s knowledge. Motive and knowledge are separate concepts. An employer who has actual knowledge of the need for an accommodation does not violate Title VII by refusing to hire an applicant if avoiding that accommodation is not his motive. Conversely, an employer who acts with the motive of avoiding accommodation may violate Title VII even if he has no more than an unsubstantiated suspicion that accommodation would be needed.

Thus, the rule for disparate-treatment claims based on a failure to accommodate a religious practice is straightforward: An employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in employment decisions. For example, suppose that an employer thinks (though he does not know for certain) that a job applicant may be an orthodox Jew who will observe the Sabbath, and thus be unable to work on Saturdays. If the applicant actually requires an accommodation of that religious practice, and the employer’s desire to avoid the prospective accommodation is a motivating factor in his decision, the employer violates Title VII.

Let us remember that this case involves a question of fact: did the company deny employment "because" she was Muslim and might seek a relaxing of the look rule?  There was evidence of that motivation in the record.  Therefore, the Court's only ruling was that the court of appeals should not have granted summary judgment. It remains to be seen if a jury would find that A&F denied employment motivated by the possibility of religious accommodation, or because they don't hire anyone with a headscarf.  Given the hiring manager's articulated suspicion, this one is not likely to go the employer's way.

This case opens up employers to claims that are based on "perceived" religious practice.  That is the employer can be wrong and still be held liable. Motivation is almost never provable before trial.  

This case also establishes that under Title VII, the employee would have to prove the motivation.  That is the employee has to prove the employer denied employment because it did not wish to accommodate the applicant. 

This case could have been avoided had management simply asked the applicant if she could abide by the look policy if hired.  That's a perfectly legal question. Then the applicant could have said "I need to wear a scarf as a religious practice."  At that point, the company would be faced with two options: accommodate, or claim undue burden. In most cases, a relaxation of a dress code can be a form of accommodation.  

Justice Thomas and Alito wrote separate concurrences in the judgment. Both believed the circuit court should not have granted summary judgment in favor of A&F, and correctly so.  But neither agreed with the majority opinion's rationale.  Justice Thomas felt that the case was one of disparate impact discrimination, seeming to ignore the evidence of unlawful bias by the hiring manager.  Justice Alito appears to claim that the case was one of reasonable accommodation law rather than intentional discrimination, i.e., failure to hire.  (Amateur Justice Valenza says they're both incorrect).

This case is EEOC v. Abercrombie & Fitch and the opinion is here.