Austin Paid Sick Time Ordinance Ruled Unconstitutional

By Robert G. Chadwick, Jr., Managing Member, Seltzer, Chadwick, Soefje & Ladik, PLLC.

As noted in an earlier blog post, Austin enacted a paid sick time ordinance on February 16, 2018 applicable to private employers. The ordinance had been scheduled to become effective on October 1, 2018, but had been temporarily enjoined from taking effect in an August 17, 2018 Order by the Third Court of Appeals.

The suit which preceded the August 17th Order was filed by five companies and six business organizations in Travis County District Court seeking a declaratory judgment that the Austin ordinance violated the Texas Constitution. The State of Texas also intervened. Temporary and permanent injunctions were sought prohibiting Austin from enforcing the ordinance. On June 26, 2018, the Travis County District Court denied the application for temporary injunction.

In a November 16, 2018 Opinion, the Third Court of Appeals reversed the Travis County District Court order and held that the paid sick time ordinance “violates the Texas Constitution because it is preempted by the Texas Minimum Wage Act.”

On What Basis Did The Third Court of Appeals Rule the Ordinance Unconstitutional? 

The Texas Constitution prohibits city ordinances from “contain[ing] any provision inconsistent with … the general laws enacted by the Legislature of the State.” Tex.Const. art XI, § 5(a).

In this regard, the Third Court of Appeals noted that the Texas Minimum Wage Act explicitly provides that “the minimum wage provided by [the Act] supersedes a wage established in an ordinance … governing wages in private employment.” Texas Labor Code § 62.0515(a)Texas Labor Code § 62.0515(a).  The Court found the Austin sick time ordinance to be superseded under this language, and therefore violative of the Texas Constitution, because “it establishes the payments a person receives for services rendered.”  The Court cited the following example:

A part-time hourly employee who makes $10 per hour and who works an average of 15 hours a week for 50 weeks (a total of 750 hours) earns $750 for that work. Under the Ordinance, that employee will have earned 25 hours of sick leave over the course of 50 weeks. If that employee uses all of that earned sick leave, she will have earned $250 for time she did not work, making her actual hourly wage $10.33 (total yearly pay with paid sick leave of $7,750 divided by 750 total hours worked). Stated differently, she will receive $250 more than she would have received without the Ordinance for the same hours of work.

Where Does the Case Go From Here?

For now, the case heads back to Travis County District Court for trial.  The Third Court of Appeals, however, has already determined that opponents of the Austin ordinance have “established a probable right to the relief sought on their preemption claim.”

Austin certainly has the right to request rehearing. After all, two of the justices issuing the Opinion, Scott Field and David Puryear, lost their bids for reelection on November 6th to Democratic challengers. Such a request, however, would likely be ruled upon before January 2019, and denied.

Austin may also file a petition for review with the Texas Supreme Court. Since the Texas Supreme Court has the discretion to deny a petition for review and is comprised entirely of Republican justices, this route is problematic for Austin.

What Does the Opinion Mean For the San Antonio Paid Sick Time Ordinance?  

As noted in another post on this blog, San Antonio enacted its own paid sick time ordinance on August 16, 2018. This ordinance has not yet been challenged in court. Moreover, the Third Court of Appeals Opinion is not necessarily binding in San Antonio, which falls within the jurisdiction of the Fourth Court of Appeals. Accordingly, it remains to be seen how the Third Court of Appeals Opinion will impact the San Antonio ordinance.


Predictive Scheduling: Yet Another Type of Law For Employers To Worry About

By Robert G. Chadwick, Jr., Seltzer, Chadwick, Soefje & Ladik, PLLC.

In recent years, the rights of applicants and employees have been expanded significantly through new state and local initiatives. These initiatives have included ban-the-box laws, which protect the rights of applicants with criminal conviction records, paid sick time laws, harassment training laws, and laws which ban inquiries about the salary history of job candidates.

In 2014, San Francisco became the first jurisdiction to adopt another new type of employment law. The Formula Retail Employee Rights Ordinances addressed predictive scheduling for employees in the retail industry. As with most new initiatives, other jurisdictions, including Seattle and New York City, quickly followed suit. On July 1, 2018, Oregon became the first state with a predictive scheduling law.

So, what are predictive scheduling laws?

Predictive scheduling laws vary from jurisdiction to jurisdiction. Common components, however, include:

* Advance written notice to an employee before the employee’s work shift.

* Rest periods between work shifts.

* The right of an employee to decline any work shift not included on the employee’s written schedule or which encroaches on a rest period.

San Francisco, Seattle and Oregon allow for variances, but subject to compensation schedules favorable to employees. New York City has completely banned the practice of on-call scheduling.

Which employers are subject to predictive scheduling laws?

For now, predictive scheduling laws apply only to employees of retail, hospitality and food services establishments. Some legal scholars, however, are predicting the laws could expand to other industries.

Where else are predictive scheduling laws under consideration?

In New York, a proposed new State Labor Department predictive scheduling regulation was published for comment on November 22, 2017. A predictive scheduling ordinance is currently under consideration in Chicago. Proposed legislation has also been introduced in Connecticut, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, North Carolina and Rhode Island.

What should employers take away from these developments?

As noted in a previous article on this blog, states and municipalities are increasingly the new frontier in employment law. For multi-state employers, this reality presents multiple challenges, including (1) understanding new types of laws for which guidance is sparse or nonexistent, (2) keeping up with fast-changing laws in multiple jurisdictions, and (3) compliance with laws which vary from state-to-state and municipality-to-municipality and which frequently have location-specific mandates. Although these challenges are more daunting with the passage of each new law, the price for not facing the challenges can be fines, damages, or worse.


Supreme Court Rejects Narrow Interpretation of FLSA Exemption

By Robert G. Chadwick, Jr., Managing Member, Seltzer Chadwick Soefje & Ladik, PLLC.

Federal jurisprudence under the Fair Labor Standards Act (“FLSA”), which requires employers to pay overtime compensation to covered employers, has historically mandated that exemptions to this requirement be narrowly construed against the employer.  A 5-4 opinion this week from the U.S. Supreme Court, however, may indicate a shift to a more employer-friendly treatment of FLSA exemptions.

The FLSA exempts from its overtime-pay requirement “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a non-manufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.”  The issue in Encino Motorcars, LLC v. Navarro was whether service advisors at a Mercedes-Benz dealership in Los Angeles qualified for this exemption.

The service advisors argued they did not fit within the exemption because they did not sell or service automobiles; instead, they sold repair services. In rejecting this argument, the majority stated: “A service advisor is obviously a ‘salesman.'”

Perhaps more significantly, the majority opinion cited and then rejected the historic axiom that “exemptions to the FLSA should be construed narrowly.”  The opinion elaborated: “Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”

To be sure, Encino Motorcars analyzed one of the lesser-used FLSA exemptions.  Considerably more employers rely upon the exemptions applicable to executive, administrative, professional, outside sales and computer employees. Still, if the mandate going forward is that these exemptions be give a fair (rather than a narrow) interpretation, close cases which may have been decided in favor of employees may now be decided in favor of employers.

How Would Your Overtime Exemptions Fare in Court?

By Robert G. Chadwick, Jr., Managing Member, Seltzer Chadwick Soefje & Ladik, PLLC.

On May 30, 2017, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit, in Dewan, et al. v. M-I, LLC, said a jury should decide whether two oil field workers were entitled to overtime pay under the Fair Labor Standards Act (“FLSA”).  Accordingly, the Court reversed a summary judgment ruling by the District Court which found the workers were exempt from the FLSA’s overtime requirements because they worked “in a bona fide … administrative capacity.”  Absent a settlement, the fate of the exemption for the two old field workers is now in the hands of a federal jury.

The employer’s experience in Dewan underscores five realities of a suit alleging improper reliance on a FLSA overtime exemption. First, FLSA litigation is often prolonged, costly and unpredictable. The suit in Dewan was initially filed on December 14, 2012. Nearly 4½ years later, the dispute is now going back to the District Court and to an uncertain timetable for resolution.

Second, most FLSA suits are filed by former employees, not current employees. While he was still employed, the named plaintiff in Dewan may have regarded exempt status a badge of pride. After his employment ended, the exempt status became the basis for a monetary claim. The absence of complaints by current employees is thus not a barometer for determining the viability of an exemption. Such a complaint may still be filed after separation and reach back two or three years, depending upon the applicable statute of limitations.

Third, it is not the burden of an employee to disprove a FLSA exemption; rather, it is the employer’s burden to prove such an exemption. Dewan shows this burden can be a formidable one, especially if the goal is to avoid an uncertain jury trial. Meeting this burden requires conclusive evidence. If the evidence to support the exemption is lacking or inadequate, the burden may not be met.

Fourth, “it is the actual day-to-day activities of … employees that determine whether the employee is exempt, not the labels the employer or employee place on those duties.”  Even though each of the oil field workers in Dewan held the title of “mud engineer”, it was their actual work in the field which determined whether they were properly classified as exempt.

Finally, employers are not the final arbiters of who is exempt and who is not exempt under the FLSA.  The Act leaves that final determination to judges and juries.  Whether an employer is comfortable with its employee classifications, therefore, is not the most pertinent question in managing the risk of suit. Until the May 30th ruling by the Fifth Circuit, M-I, LLC was likely comfortable that its oil field workers were classified properly. Rather, the most pertinent question is whether the employer can prove (and/or sell) the exemption to a judge and jury.

Dewan provides a wake-up call to employers who have not conducted any review of their employee classifications, or who have not conducted such a review recently.  Periodic reviews and adjustments provide the type of evidence needed to effectively manage the risk of scrutiny by a federal court or the U.S. Department of Labor.  The alternative can be that experienced by M-I, LLC, the meter for whom is still running as to legal fees.

Are States & Municipalities the New Frontier in Employment Law?

By Robert G. Chadwick, Jr., Managing Member, Seltzer Chadwick Soefje & Ladik, PLLC.

For decades, federal employment laws largely defined the obligations of private employers to their employees. Today, the U.S. Department of Labor (“DOL”) administers and enforces more than 180 federal laws. The Equal Employment Opportunity Commission enforces seven federal laws.

Recently, the pace of new federal employment legislation has slowed significantly. It’s been nearly a decade since the enactments of (1) the Genetic Information Non-Discrimination Act of 2008, (2) the Fair Minimum Wage Act of 2007 (which raised the federal minimum wage to $7.25 per hour), (3) the Americans with Disabilities Amendments Act of 2008, and (4) the 2009 amendments to the Family & Medical Leave Act (“FMLA”) regarding military caregiver leave and qualifying exigency leave. Since that time the Affordable Care Act was passed, but legislative efforts to increase the minimum wage, expand employment discrimination laws to new protected classes and enact paid sick leave have failed. The prospect that such legislation will be any more successful with Republicans currently controlling both Congress and the White House is slim.

To be sure, federal labor agencies have promulgated new administrative regulations in the past decade. These regulations, however, have met with mixed results in the courts. Most recently, a federal court blocked DOL regulations which would have significantly increased the salary threshold for overtime pay exemptions under the Fair Labor Standards Act. Legislation is also already before Congress to roll back some of these regulations. Even the implementation of DOL’s “fiduciary rule” has been delayed. Accordingly, contraction, not expansion, of administrative regulations is the prediction for the foreseeable future.

In sharp contrast to the federal government, states and municipalities have successfully expanded, in recent years, the legal rights of employees in the private sector. In many locations, employees now enjoy greater rights under state and municipal laws than they do under federal law.

MINIMUM WAGES: As of January 1, 2017, 29 states have higher minimum wages than $7.25 per hour. In many states, municipalities have ordinances with higher minimum wages than those prescribed by federal or even state law. For instance, Seattle’s minimum wage is currently $15.00 per hour, which is higher than the Washington State prescribed minimum wage of $11.00 per hour.

OVERTIME PAY: Although DOL was unsuccessful in its efforts to raise the salary thresholds for overtime pay exemptions, California and New York have successfully raised such thresholds under their respective state wage laws. California law provides for daily overtime pay for work in excess of 8 hours.

MEAL AND REST PERIODS: 19 states direct employers to provide, under certain circumstances, a minimum meal period. A handful of states require paid rest periods during the work day.

PROTECTED CLASSES: Many states and municipalities have also enacted legislation barring discrimination against protected classes not otherwise expressly protected by federal law, including:

* Sexual orientation
* Gender identity and expression
* Familial or marital status
* Arrest and conviction records
* Credit history
* Off-duty lawful conduct
* Hepatitis C
* Domestic violence victims
* Height or weight
* Any age
* Political activities or affiliations

HARASSMENT AND DISCRIMINATION POLICIES AND TRAINING: California regulations specify the information which must be included in an employer’s harassment and discrimination policies, the methods by which the policies must be distributed, and the circumstances under which multilingual policies are required. California law also mandates supervisory training for employers with 50 or more employees.

LEAVE FROM WORK: Many states have enacted leave legislation which is more generous or inclusive than the Family & Medical Leave Act. A few states mandate leave for parents to attend school-related events and activities for their children. Some states have paid family leave and/or sick leave requirements.

UNIONIZATION: In 2015, Seattle passed an ordinance which gives Uber and Lyft drivers within the city the right to form a union.

For private employers, keeping up with fast-changing federal employment laws has historically been a challenge in and of itself. The onset of fast-changing state and municipal employment laws which are more restrictive than their federal counterparts, however, presents even greater challenges.

First, state and municipal developments do not necessarily receive the publicity afforded federal developments.  It is thus easier for a change at the state or local level to escape an employer’s notice, especially if the employer is headquartered elsewhere.

Second, the proliferation of employment laws at the state and municipal level presents a unique challenge not presented by federal laws for employers with establishments in multiple states or municipalities.  For such employers, compliance and risk strategies must account for the different legal obligations which may be applicable to each establishment.

So, are states and municipalities the new frontier in employment law? It appears that the answer to this question is yes.  For this reason, it is crucial that compliance and risk strategies, including employee handbooks, be reviewed annually to account for fast-changing state and municipal employment laws.  Otherwise, the price may be liability for fines, damages or worse.

Will New DOL Overtime Rules Result in a Spike in Collective Actions?

By Robert G. Chadwick, Jr., Managing Member, Seltzer Chadwick Soefje & Ladik, PLLC

The financial stakes in a collective action under the Fair Labor Standards Act (“FLSA”) dwarf many other types of employment litigation. These stakes entail personal liability for an employer’s leaders.  These stakes are predicted to skyrocket in 2017 when new overtime rules unveiled on May 16, 2016 by the U.S. Department of Labor  (“DOL”) become effective.  U.S. businesses, as well as their individual leaders, should thus be concerned about their vulnerability to a potential spike in FLSA collective actions in 2017.

For a multitude of reasons, collective actions under the FLSA, which governs minimum wages and overtime pay, have long held a unique appeal for plaintiff’s attorneys. First, the starting point for a collective action can be a suit brought by a single plaintiff brought on behalf of himself and “others similarly situated.” To join the suit, other potential claimants need only (1) show they are similarly situated to the plaintiff, and (2) file a written consent with the court. This procedure differentiates collective actions from class actions which generally have more complex procedural requirements.

Second, with only a minimal showing, a court will assist plaintiff’s counsel in notifying all potential claimants of the opportunity to join the collective action. This assistance generally includes an order directing the employer to provide the names and addresses of current and former employees who fit the definition of “similarly situated. This assistance also entails approval of a written notice to be mailed to potential claimants and/or posted on employee bulletin boards at the employer’s workplaces. An approved notice typically consists of a description of the suit, the right to join the suit, the procedure for joining the suit, and the rights against retaliation protected by the FLSA.

Third, the financial stakes of a FLSA collective action can be astronomical, especially if the number of plaintiffs is in the hundreds or thousands. The Act allows for the recovery of unpaid wages going back two years for all violations, and three years for willful violations. The Act also allows for the recovery of double (or liquidated) damages and attorney’s fees for successful claimants. An employer sued under the FLSA also bears the cost of defending the collective action.

Fourth, predicting the outcome of a FLSA collective action can often be elusive. The analysis of whether a claimant has been paid in accordance with the Act can be fact-intensive and/or dependent upon ambiguous standards. The burden of proof as to the primary issue in dispute, moreover, is not always be borne by the plaintiffs. Indeed, the burden of proving that a plaintiff is exempt from the minimum and overtime pay requirements of the Act is borne by the employer. The cost of meeting this burden can, itself, be astronomical.

Fifth, the FLSA allows for an employer’s agents to be named individually as defendants in a collective action. Naming an agent as an individual defendant in a FLSA collective action is perceived by many plaintiff’s attorney as a viable strategy for (1) obtaining, in return for a settlement, incriminating testimony by the agent regarding the employer, or (2) pressuring the agent to reach a settlement on behalf of the employer. Agents routinely named as defendants for these purposes include chief executive officers, chief financial officers, corporate counsel, human resources officials, and immediate supervisors.

Finally, a large settlement may be a bitter pill for an employer to swallow but may ultimately be a better alternative to costly and protracted litigation which the employer may lose. In February 2015, for instance, Publix Supermarkets, Inc. agreed to pay $30 million dollars to settle a collective action brought by 1,580 current and former department and assistant department managers seeking overtime pay under the FLSA. Apparently Publix determined a $30 million settlement was preferable to the cost of meeting and/or losing the burden to prove the department and assistant department managers were exempt from the overtime requirements of the Act.

Ultimately, therefore, the determination by a plaintiff’s attorney to file a FLSA collective may not be primarily based upon actual evidence of violations of the Act. Rather, the determination may be primarily based upon facts indicating the employer is vulnerable to a FLSA collective action. Such facts may entail inadequate time-keeping procedures, or inadequate proof that employees are actually performing exempt duties under the Act.

Lest there be any doubt about the appeal of FLSA collective actions, statistics released in March 2016 by the Administrative Office of the U.S. Courts (“AOUSC”) confirm that more federal suits claiming FLSA violations –8,781 – were filed during the 12-month period from September 30, 2014 through September 30, 2015, than any comparable 12-month period in recorded history. It is anticipated even more FLSA suits will be filed during the 12-month period from September 30, 2015 through September 30, 2016.

So why may there be a spike in FLSA suits in 2017 when the new overtime rules unveiled this week by the DOL become effective? The answer is that the new rules will significantly tighten the overtime pay exemptions currently in place for administrative, executive, professional, computer and outside sales employees. The projected impact of the new rules is that approximately 4.2 million workers will no longer qualify for these exemptions. History shows the last time the DOL modified the rules governing these overtime pay exemptions in 2004, the affect on FLSA suits was swift and dramatic. According to AOUSC statistics, FLSA suits rose 31.5% during the 12-month period from September 30, 2003 through September 30, 2004, and another 12% during the 12-month period from September 30, 2004 through September 30, 2005. Apparently, the uncertainty provided by untested rules supplies yet another appealing reason for a plaintiff’s attorney to file suit.

So what does a potential spike in FLSA suits mean for employers? The stakes of being vulnerable to collective actions will rise even higher. For such employers, it may no longer be adequate to conduct audits of compensation procedures through human resources professionals, measured against the requirements of the FLSA. Rather, it may be necessary to conduct audits of compensation procedures through legal counsel, measured against the requisite evidentiary burdens and stakes of a collective action. Otherwise, the only question which the employer may face in 2017 is as to the size of the settlement check to write to plaintiff’s counsel.