Employment Law

Future of DOL's White Collar Overtime Rule Remains Unclear

Why it matters

The uncertainty surrounding the Department of Labor's (DOL) white collar overtime rule continues, with the agency requesting more time to continue its appeal of an injunction halting implementation of the rule. Last year, the agency published a final rule that established a salary floor below which executive, administrative and professional (EAP) employees must be paid overtime. The result: an increase from $455 per week (or $23,660 annually) to $913 per week (or $47,476 annually), with automatic updates every three years. A coalition of 21 states challenged the rule, which was set to take effect in December 2016. A district court judge granted a preliminary injunction in November, holding that "Congress intended the EAP exemption to depend on an employee's duties rather than an employee's salary." The DOL appealed to the U.S. Court of Appeals for the Fifth Circuit and sought an expedited review. But with the switch in administration, the agency has now requested a second extension to file its reply brief, seeking until May 1 to "allow incoming leadership personnel adequate time to consider the issues."

Detailed discussion

Last May, the DOL published the final regulations updating the so-called white collar exemptions to the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).

Pursuant to the final rule, the agency increased the minimum salary threshold from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year), equal to the 40th percentile of weekly earnings for full-time salaried workers working in the lowest-wage Census region.

The rule also provided an increase to the total annual compensation level for Highly Compensated Employees (who must meet a minimal duties test) from $100,000 per year to $134,000 and created a mechanism to automatically update the salary and compensation levels every three years, starting January 1, 2020.

Before the final rule could take effect as scheduled on December 1, 2016, a coalition of 21 states filed suit, seeking a preliminary injunction. After reviewing the history of the FLSA and the white collar or EAP exemption, U.S. District Court Judge Amos L. Mazzant granted the motion.

Congress spoke clearly and unambiguously about the type of employees that must be exempt from overtime and the considerations to evaluate such employees, the court said, intending "the EAP exemption to apply to employees doing actual executive, administrative, and professional duties. In other words, Congress defined the EAP exemption with regard to duties, which does not include a minimum salary level."

The court was not persuaded that the exemption carries a status as well as a function component and found the DOL's delegation to define and delimit the EAP classification was limited by the plain meaning of the statute.

"Directly in conflict with Congress's intent, the Final Rule states that '[w]hite collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities," Judge Mazzant wrote. "With the Final Rule, the Department exceeds its delegated authority and ignores Congress's intent by raising the minimum salary level such that it supplants the duties test. … The Department's role is to carry out Congress's intent. If Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change."

Although the DOL admitted that it cannot create an evaluation based on salary alone, the significant increase to the salary level created by the final rule was 'essentially a de facto salary-only test," the court added, with an estimated 4.2 million workers becoming eligible for overtime without a change in their duties.

The DOL filed an appeal with the U.S. Court of Appeals for the Fifth Circuit and requested an expedited review. Although the court approved the fast track, the January change in administration slowed down the process. The agency first sought an extension to file its reply brief—originally due January 31—until March 3. The federal appellate panel granted the unopposed motion.

But when President Donald Trump's initial nominee for Secretary of Labor, Andrew Puzder, withdrew his nomination, the DOL sought a second extension until May 1 "[t]o allow incoming leadership personnel adequate time to consider the issues." The federal panel granted the unopposed motion on February 22.

While employers wait to see what happens with the rule—and what stance the new nominee for Labor Secretary, Alexander Acosta, takes on the issue—a group of labor organizations filed a motion with the court to take over the case if the DOL drops its defense.

"With the recent presidential election, and particularly as more information becomes available regarding the incoming Administration's plans, policy, and appointments, the Texas AFL-CIL has grave concerns as to whether its interests in the Final Rule will be represented by the DOL," the group argued.

The court has yet to rule on the motion.

To read the opinion and order in Nevada v. DOL, click here.

To read the DOL's second request for an extension, click here.

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Criminal Immigration Enforcement vs. Employers: The New Normal?

By Jacqueline C. Wolff and John F. Libby, Partners and Co-Chairs, Corporate Investigations and White Collar Defense

On the 2016 website for then-Senator Jefferson Beauregard Sessions III, he announced that he was "committed to immigration reform that…curbs the unprecedented flow of immigration that is sapping the wages and job prospects of those living and working here today [and] an immigration policy that prioritizes the jobs, wages, and security of the American people." On February 9, 2017, Senator Sessions became the Attorney General of the United States, charged with enforcement of federal criminal laws, including those laws that make the knowing hiring or harboring of undocumented workers a crime.

If you are an employer in an industry with a historically higher risk of undocumented or unauthorized workers being in your workforce—construction, hospitality, commercial cleaning, agriprocessing and farming—or you are in the hi-tech outsourcing industry routinely bringing in non-U.S. employees into the United States, your risk of being a target of a criminal enforcement action would appear to have increased exponentially. It is important, therefore, to understand that risk.

To read our full client alert on the subject, click here.

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New York's Payroll Debit Card Regs Struck Down

Why it matters

Just prior to the March 7 effective date, the New York State Industrial Board of Appeals (IBA) revoked the New York State Department of Labor (NYSDOL) regulations on the use of payroll debit cards, declaring the regs invalid. The NYSDOL adopted final regulations last year regarding permissible methods of payment for most non-exempt employees. The regs required employers to obtain written, informed consent from employees for the use of any method of payment except cash or check (such as direct deposit and payroll debit cards) and to ensure that employees are not charged fees for access to their payments. But the IBA said the agency overstepped its authority by extending its reach into the realm of banking law. In addition, the decision noted that at least eight bills on payroll debit cards were introduced in the state legislature in recent years, with none enacted. "The legislature's failure to amend the statute demonstrates their satisfaction with the current statutory language or their inability to reach consensus on the manner in which payroll debit cards should be regulated under the Labor Law, if at all," the IBA wrote.

Detailed discussion

Last September, the NYSDOL adopted final regulations regarding the permissible methods of payment for most non-exempt employees. Scheduled to take effect March 7, the regs mandated that employers obtain written, informed consent from employees for the use of any method of payment except cash or check (such as direct deposit and payroll debit cards) and ensure that employees are not charged fees for accessing payments.

The new regs defined a "payroll debit card" and provided detailed instructions regarding payments by this method, from the notice that must be provided to obtain an employee's consent to be paid by payroll debit card (including a statement that accepting wages by this method is not required) to ensuring local access to one or more automated teller machines at no cost for employees.

In addition, the regulations prohibited employers and their agents from charging (directly or indirectly) specific fees to employees, including fees for opening or closing an account; account inactivity or overdraft, shortage or low balance status; certain declined transactions; and access to account or balance information and customer service.

In response, payroll debit card vendor Global Cash Card filed a petition with the state's IBA for review of the regs, alleging they were invalid or unreasonable because they exceeded the NYSDOL's authority and violated separation of powers between the executive and state legislature and because they were preempted by federal banking law.

The IBA agreed, striking down the new regulations as invalid.

While state labor law provides the Commissioner of Labor with the power to "issue such regulations governing any provision of [the Labor Law] as he finds necessary and proper," the regulations at issue overstepped the bounds by regulating banking services and "placing restrictions on financial institutions," the IBA wrote.

Existing law does not prohibit payment of wages by payroll debit card with an employee's consent because the statute allows for payment by direct deposit of wages into a bank or other financial institution, which includes a payroll debit card to which wages may be directly deposited legally, the agency said. Prior opinion letters from the NYSDOL permitted payment by payroll debit card as long as certain conditions were met.

But the new regulations went too far. "The regulations, by prohibiting all fees associated with use of a payroll debit card, depart significantly from the plain language of the statute and respondent's prior position on the subject," according to the decision, and the "prohibitions against fees charged by and other activities of debit payroll card vendors and issuers is not within her purview."

The New York Department of Financial Services regulates banks and financial institutions in the state and the fees they may charge for banking services, including fees related to checking accounts to which employers may directly deposit wages legally, the IBA said.

"We find the fees associated with use of a payroll debit card are similar to fees associated with checking accounts and licensed check cashers, and, therefore, are not subject to regulation by respondent," the agency wrote. "Because the statute already allows employers to pay wages by payroll debit card with an employee's consent, the regulations are invalid to the extent they prohibit otherwise lawful conduct by financial institutions for providing banking services. Restrictions or requirements placed on the employer that are consistent with the statute are, of course, valid, but these regulations go beyond regulation of the employment relationship and into the area of banking law, which is outside respondent's competence and expertise in the regulation of employment and occupational safety and health."

The IBA found its conclusion strengthened by the fact that at least eight pieces of legislation on subject matter identical to the regulations have been considered by state lawmakers since 2007, demonstrating the legislature's "satisfaction with the current statutory language or their inability to reach consensus on the manner in which payroll debit cards should be regulated under the Labor Law, if at all."

Recognizing that the NYSDOL "has a well-founded concern that low-wage workers without access to traditional bank accounts will be coerced by their employers to receive their wages by payroll debit card at a significantly lower payroll cost to the employer, and that employees paid by payroll debit card may be subject to excessive or hidden fees when accessing their wages," the agency said it still had to revoke the regulations. "While these fees may be excessive in respondent's view and disproportionally impact the most vulnerable workers in the state, [the Commissioner] does not have authority to act in this area."

To read the resolution of decision in Global Cash Card v. Commissioner, click here.

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Insurer on Hook for Employee's Drunk Driving, $1M Verdict

Why it matters

According to the U.S. Court of Appeals for the Eleventh Circuit, an employee involved in a car accident while under the influence did not exceed the scope of his permission to use the vehicle, leaving the employer's insurer on the hook for approximately $1 million in damages. Brian Hensley was permitted to drive a company car for both work and personal purposes. One night, after consuming four beers, he drove home and was involved in an accident that seriously injured Ulysses Anderson. Anderson sued Hensley's employer, which tendered the claim to Great American Alliance Insurance Company. A jury found Hensley liable and awarded Anderson roughly $1 million. The insurer then sought a declaratory judgment that Hensley had exceeded the scope of the permissive use granted by the employer because he drove while intoxicated. Despite the company's policy banning the consumption of alcoholic beverages on company property and prohibiting employees under the influence from working, the court found Hensley remained within the scope of the employer's permission. Even though he was intoxicated, Hensley was using the vehicle for an approved purpose, the panel wrote, and he was therefore an insured under the terms of the policy.

Detailed discussion

In 1996, Looper Cabinet Company hired Brian Hensley to perform services auxiliary to cabinet installation. In the years that followed, the company allowed Hensley to drive its 2008 Chevrolet Silverado for both work and personal purposes. Under the general permission that was granted, Hensley was allowed to drive the vehicle to and from his father's lake house.

Exercising this privilege in June 2012, Hensley consumed four beers before driving the Silverado home from the lake house. During the drive, he encountered Ulysses Anderson on a motorcycle. While the parties dispute the facts, they agreed that when Anderson attempted to pass Hensley, an accident resulted that left Anderson severely injured.

Anderson sued both Hensley and Looper. A jury found Hensley liable and awarded Anderson approximately $1 million in damages. Looper tendered the award to Great American Alliance Insurance Company (GAAIC). The insurer balked. Pointing to the employer's policies banning alcoholic beverages on company property and prohibiting employees under the influence of alcohol from working, GAAIC argued that the verdict was not covered by the policy because Hensley exceeded the scope of the permissive use granted by Looper at the time of the accident due to his intoxication.

A district court agreed with the insurer that it owed no duty to cover the damages awarded at the trial of the underlying action. Anderson appealed and the U.S. Court of Appeals for the Eleventh Circuit reversed.

Applying Georgia law, the federal appellate panel said the state's highest court established a bright-line permissive use standard in Strickland v. Georgia Casualty & Surety Co. (1968). In that decision, the court held that, where a vehicle is used for an approved purpose, an employee's violations of explicit company policies do not foreclose status as a permissive user.

Pursuant to Strickland, it was irrelevant that Hensley was intoxicated, the court said. Because he was using the Silverado for an approved purpose—to drive home from his father's lake house—his use was within the scope of Looper's permission and therefore covered by the GAAIC policy, the panel explained.

"Under the objective standard employed for determining permissive use, the undisputed record shows that Hensley was permitted to drive the Looper vehicle for the purpose it was used on the day of the accident—to drive home from his father's lake house," the court wrote. "As such, we find that Hensley is an insured for purposes of the underlying action."

The district court erred by relying on a state appellate court decision that broke with Strickland in 1997, the court said, calling GAAIC's attempts to distinguish Strickland "nonstarters."

Reversing, the panel remanded the case for consideration of the insurer's argument that the provisions of its policies precluded the punitive damages awarded to Anderson in the underlying trial.

To read the decision in Great American Alliance Insurance Company v. Anderson, click here.

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Ninth Circuit: Hugs From Supervisor Can Form Basis of Suit

Why it matters

Weighing in on hugs in the workplace, the U.S. Court of Appeals for the Ninth Circuit published an opinion reversing summary judgment in favor of an employer. County correctional officer Victoria Zetwick sued her employer for an allegedly sexually hostile work environment in violation of Title VII and the California Fair Employment and Housing Act. Specifically, she said the county sheriff greeted her with unwelcome hugs on more than 100 occasions over a 12-year period, along with at least one kiss. The sheriff frequently hugged female staffers but used a handshake with male officers, Zetwick claimed. A district court granted summary judgment for the sheriff and the county. But the Ninth Circuit reversed, holding that a reasonable juror could conclude that the differences in hugging of men and women were not simply "genuine but innocuous differences in the ways men and women routinely interact with members of the same sex and opposite sex." The panel remanded the case for consideration of the totality of the circumstances, particularly whether a reasonable juror would find that hugs—in the kind, number, frequency and persistence alleged by Zetwick—created a hostile work environment.

Detailed discussion

Victoria Zetwick began working as a Yolo County, California correctional officer in 1988. In 1999, Edward G. Prieto was elected as the county sheriff, in charge of roughly 250 employees, including correctional officers. Prieto introduced himself to the corrections staff and hugged all the female officers present, including Zetwick.

According to her Title VII and California Fair Housing and Employment Act lawsuit, Prieto then subjected her to numerous unwanted hugs over more than a decade, until her departure in 2012. On one occasion, Prieto kissed Zetwick, ostensibly to congratulate her on her recent marriage. Because Zetwick turned her head, the kiss landed partially on her lips.

Prieto also hugged and kissed several dozens of other female employees, Zetwick alleged, but did not hug or kiss male employees. Taken as a whole, the hugs (and kisses) created a sexually hostile work environment, she claimed.

The county and the sheriff acknowledged that Prieto was a hugger, but disputed the number and frequency of the hugs and argued that, even if Zetwick missed it, he also hugged male employees on occasion. A district court judge granted the defendants' motion for summary judgment.

The U.S. Court of Appeals for the Ninth Circuit reversed, finding that the plaintiff generated genuine issues of material fact that Prieto's conduct was sufficiently severe or pervasive to alter the conditions of Zetwick's employment and create an objectively abusive working environment.

"[A] reasonable juror could conclude that the differences in hugging of men and women were not, as the defendants argue, just 'genuine but innocuous differences in the ways men and women routinely interact with members of the same sex and of the opposite sex,'" the court wrote.

The panel said the district court applied an incorrect legal standard when it held that hugs and kisses on the cheek are not outside the realm of common workplace behavior and conducted an improper analysis of the record. "[W]e cannot accept the conclusion that Zetwick did not state an actionable claim of a sexually hostile work environment," the court said.

A reasonable juror could credit the plaintiff's testimony about the sheriff's behavior "where her testimony is that Prieto hugged her more than one hundred times over the period from 1999 to 2012, that he hugged female employees much more often than male employees and, indeed, from Zetwick's observations, he hugged female employees exclusively," the panel wrote.

Even though it appeared that Prieto's hugs were "common" and that others in the workplace hugged, "neither of those things demonstrates beyond dispute that Prieto's hugging was within the scope of 'ordinary workplace socializing,'" the court explained. "A reasonable juror could find, for example, from the frequency of the hugs, that Prieto's conduct was out of proportion to 'ordinary workplace socializing' and had, instead, become abusive."

The Ninth Circuit emphasized that district courts must consider "the cumulative effect of the conduct at issue" to determine whether it was sufficiently severe or pervasive to alter the conditions of the workplace, concluding that the lower court failed to consider the totality of the circumstances in Zetwick's case.

"For example, the district court failed to consider whether a reasonable juror would find that hugs, in the kind, number, frequency, and persistence described by Zetwick, create a hostile environment," the panel said. "The district court also completely overlooked legal recognition of the potentially greater impact of harassment from a supervisor and, indeed, the highest ranking officer in the department." Prieto's position as Zetwick's supervisor was "significant" to whether or not a reasonable juror could find the hugs and the kiss alleged by the plaintiff created an abusive environment, the court added.

In addition, it was "improper for the district court to disregard Zetwick's evidence that Prieto hugged and kissed other women," the panel wrote, as evidence of the harassment of others "is relevant and probative of [a defendant's] general attitude of disrespect toward his female employees, and his sexual objectification of them."

The court reversed the grant of summary judgment in favor of the defendants and remanded the case for a trial on the merits of Zetwick's claims.

To read the opinion in Zetwick v. County of Yolo, click here.

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New California Single-User Restroom Law in Effect

Why it matters

California employers, take note: the state's single-user restroom law took effect on March 1, 2017. The new law requires all single-user toilet facilities in any business establishment, place of public accommodation or government agency to be identified as available to all genders. Approved signage for such a restroom should feature an equilateral triangle superimposed onto a circle and acceptable designation sign text includes: "All-Gender Restroom," "Restroom" and "Unisex Restroom." The law also authorizes inspectors, building officials or other local officials responsible for code enforcement to inspect restrooms for compliance.

Detailed discussion

After passing the State Senate by a vote of 28 to 7 and the Assembly in a vote of 57 to 18, California Governor Edmund G. Brown signed AB 1732 into law last September. Pursuant to the law, which took effect March 1, all single-user toilet facilities in any business establishment, place of public accommodation, or state or local government agency must be identified as all-gender toilet facilities with signage that complies with state code, and designated for use by no more than one occupant at a time or for family or assisted use.

The law defined "single-user toilet facility" as one "with no more than one water closet and one urinal with a locking mechanism controlled by the user." Authored by Assembly member Phil Ting (D-San Francisco), the measure was triggered by a study from the UCLA Williams Institute that found 70 percent of transgender and gender non-conforming individuals face serious threats when using gender-specific restrooms.

In a bulletin, the Division of the State Architect (DSA) provided guidance for covered entities to comply with the new state law requirements. For example, the bulletin notes that California Building Code Chapter 11B requires that a sanitary facility not specifically identified as for "men" or "women" should have a geometric symbol on the door in the form of an equilateral triangle superimposed onto a circle. If a designation sign is provided on the wall next to the facility, the bulletin offered three text examples: "All-Gender Restroom," "Restroom" and "Unisex Restroom."

If a wall-mounted designation sign will be provided, then it should feature raised text and corresponding braille, although the DSA recommended that no imagery or pictogram be included. "When changing identification symbols of existing single-user toilet facilities from gender specific to all-gender, DSA advises against providing a pictogram to represent an all-gender image on a designation sign or unisex symbol," according to the bulletin. "The pictogram might be perceived as inappropriate, and in fact, DSA reminds facility owners that a pictogram is not required."

To read the AB 1732, click here.

To read the DSA bulletin, click here.

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