DOL Unshackles Overtime Exemption For “Retail or Service Establishments”

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

Section 207(i) of the Fair Labor Standards Act provides a limited overtime pay exemption to relieve employers in ‘”retail or service establishments” from the obligation of paying overtime compensation to certain employees paid primarily on the basis of commissions.

The U.S. Department of Labor (“DOL”) has interpreted “retail or service establishment” as requiring the establishment have a “retail concept.” 29 C.F.R. 779.316.  Such an establishment typically “sells goods or services to the general public”, “serves the everyday needs of the community”,  disposes its products and skills “in small quantities”, and “does not take part in the manufacturing process.” 29 C.F.R. 779.318(a).

The DOL also previously had a lengthy but non-exhaustive list of 134 types of establishments described as lacking the “retail concept.” The list included travel agencies, tax services,  and dry cleaners. The DOL also had a lengthy but non-exhaustive list of 77 types of establishment that “may be recognized as retail.”

Effective May 19, 2020, the DOL has deleted these lists from its regulations. 8 FR 29867  In eliminating lists, the DOL explained some courts had questioned whether the lists had any rational basis.

The upshot of the agency’s action is that an establishment who had previously been on the non-retail list may now assert it has a retail concept. As long as the establishment meets the DOL requirements, it may qualify for the exemption.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor & employment issues. To contact him for a speaking engagement please e-mail him at

New DOL Rules Regarding Tips and Joint Employment Face Uncertainty In Courts

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

The Fair Labor Standards Act (“FLSA”), which governs minimum wage, overtime pay, equal pay and child labor, expressly authorizes the Secretary of Labor to promulgate rules interpreting the Act. Historically, such rules have received deference in court if the statutory language is ambiguous and the interpretation is reasonable.

In 2016, however, the U.S. Supreme Court determined in Encino Motorcars, LLC v. Navarro that a rule recently promulgated by the U.S. Department of Labor (“DOL”) was not entitled to deference. At issue was a 2011 rule interpreting an FLSA exemption from the overtime  pay requirement for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership. In justifying its decision, the Court explained the DOL had not given adequate reasons for the new rule which was a substantial departure from an earlier rule.


On October 8, 2019, the DOL published a Notice of Proposed Rulemaking. regarding the FLSA’s tip credit. 29 U.S.C. 203(m). Under the proposed rule, the 20% limitation on non-tip producing work, which has historically been followed by the agency in determining the availability of the tip credit, will be replaced by a task-based limitation. The proposed rule follows a 2018 opinion letter from the Wage & Hour Administrator offering a similar interpretation.

So, will this new rule, if implemented, be afforded deference by the courts or suffer the same fate as the 2011 rule at issue in Navarro? Recent court cases indicate a brewing battle regarding this question.

Several courts have already rejected the interpretation offered by the 2018 opinion letter, instead opting to enforce the 20% limitation. See Cope v. Let’s Eat Out, Inc.354 F.Supp.3d 976 (W.D.Mo. 2019); Esry v. P.F. Chang’s China Bistro, 373 F.Supp.3d 1205 (E.D.Ark. 2019); Spencer v. Macado’s, Inc., 399 F.Supp.3d 545 (W.D.Va. 2019); Belt v. P.F. Chang’s China Bistro, Inc., 401 F.Supp.3d 512 (E.D.Pa. 2019); Flores v. HMS Host Corp., 2019 WL 5454647 (D.Md. Oct. 23, 2019); Berger v. Perry’s Steakhouse of Illinois, LLC, 2019 WL 7049925 (N.D.Ill. Dec. 23, 2019).

Other courts have already accepted the interpretation offered by the 2018 opinion letter. See Matusky v. Avalon Holdings Corp., 379 F.Supp.3d 657 (N.D.Ohio March 29, 2019); Shaffer v. Perry’s Restaurants, Ltd., 2019 WL 2117639 (W.D.Tex. April 3, 2019).

To be sure, an opinion letter is entitled to less deference than a DOL rule.  Still, the proposed rule is a substantial departure from the 20% limitation historically used by the DOL and courts. Employers should thus expect the cases above to be a precursor of the challenges to the proposed rule, if implemented.

Joint Employment

On January 16, 2020, the DOL published a new rule purporting to update and revise the agency’s interpretation of joint employer status under the FLSA; the rule is scheduled to be effective March 16, 2020. In the rule, the DOL provides a four-factor balancing test for determining FLSA joint employer status.

Many courts, however, have already developed their own tests in determining joint employer status under the FLSA. Indeed, there is a notable split amongst circuit courts after the Fourth Circuit in Hall v. DirecTV, LLC, 846 F.3d 757 (4th Cir. 2017) set a low bar for establishing joint employment.

Many courts, therefore, will be faced with the choice of following their own precedent regarding joint employment or deferring to the new DOL rule.  Only time will tell which choice courts will make.

Takeaway For Employers

DOL rules often provide reliable guidance to employers for compliance with the FLSA. As to the issues of tip credits and joint employment, however, it is advised employers consult legal counsel rather than the DOL rules. As to these two issues, following DOL rules may actually be a risky option.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor and employment law issues. To contact him for a speaking engagement please e-mail him at


What Dallas Employers Need To Know About New Paid Sick Time Ordinance

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

[Update: On July 30, 2019 a lawsuit was filed in the U.S. District Court for the Eastern District of Texas to stop the Dallas ordinance from taking effect].

Earlier this year, Dallas became the third Texas municipality (after Austin and San Antonio) to enact a paid sick time ordinance applicable to private employers. Unlike the ordinances in Austin and San Antonio, this ordinance is now effective as of August 1, 2019. There is no corresponding Texas state law which mandates paid sick time in the private sector.

In July, the City of Dallas published rules for the administration of the ordinance.

What Employers Are Covered By The Ordinance?

The ordinance applies to any “person, company, corporation, firm, partnership, labor organization, non-profit organization or association that pays an employee to perform work for an employer and exercises control over the employee’s wages, hours and working conditions.”  The ordinance does not limit its coverage to employers with a minimum number of employees.

The ordinance does not apply to (1) the United States, (2) a corporation wholly owned by the United States, (2) the state or a state agency, (3) the City of Dallas, or (4) any other agency that cannot be regulated by city ordinance.

What Employees Are Covered By The Ordinance?

The ordinance covers any “individual who performs at least 80 hours of work for pay within the City of Dallas, Texas in a year for an employer, including work performed through the services of a temporary or employment agency.” The ordinance does not apply to independent contractors or unpaid interns.

How Much Earned Paid Sick Time Is Mandated By The Ordinance?

An employer must grant one hour of earned paid sick time for every 30 hours worked for the employer within the geographic boundaries of the City of Dallas. Earned paid sick time is accrued starting at the later of the employee’s start date or the effective date of the ordinance. Earned paid sick time accrues only in hourly increments, unless the employer has written policies establishing the accrual of earned paid sick time in fraction of an hour increments.

An employee who is rehired by an employer within six (6) months following separation from employment may use any earned paid sick time available to the employee  at the time of the separation.

An employee does not lose earned paid sick time upon transfer to a work site outside the geographic boundaries of the City of Dallas.

Are There Any Caps To Earned Paid Sick Time Mandated By The Ordinance?

An employee of an employer with 15 or fewer employees, excluding family members, can only accrue up to 48 hours of earned paid sick time in a year, unless the employer chooses a higher limit. An employee of a larger employer can only accrue up to 64 hours of earned paid sick time in a year, unless the employer chooses a higher limit. All available earned paid sick time up to the applicable limit shall be carried over to the following year.

An employer is not required to allow use of earned paid sick time by an employee for more than eight (8) days in a year.

For What Absences Can Earned Paid Sick Time Be Used By An Employee?

An employee is entitled to available earned paid sick time if the employee makes a timely request for the use of earned paid sick time before the employee’s scheduled work time. There is an exception for unforeseen circumstances.

Available earned paid sick time can be requested by an employee for an absence caused by:

  1. the “employee’s physical or mental illness, physical injury, preventative medical or heath care or health condition”;
  2. the “employee’s need to care for their family member’s physical or mental illness, physical injury, preventative medical or health care or health condition”; or
  3. the “employee’s or their family member’s need to seek medical attention, seek relocation, obtain services of a victim services organization, or participate in legal or court ordered action related to an incident of victimization from domestic abuse, sexual assault, or stalking involving the employee’s family member.”

The term “family member” is defined as an employee’s “spouse, child, parent, any other individual related by blood, or any other individual whose close association with an employee is the equivalent of a family relationship.”  Family members include “step parents, step-sibling, step-children, step-grandparents, step-grandchildren, anyone who can be claimed as a dependent, and anyone who can claim someone as a dependent.”

Can An Employer Require Verification Before Paying For Sick Time?

An employer may adopt reasonable verification procedures to establish that an employee’s request for earned paid sick time for more than three (3) consecutive work days is a qualifying absence. An employer may not adopt verification procedures that would require an employee to explain the nature of domestic abuse, sexual assault, stalking, illness, injury, health condition, or other health need when making a request for earned paid sick time.

How Is Earned Paid Sick Time Calculated?

The employer shall pay earned paid sick time in an amount equal to what the employee would have earned if the employee had worked the scheduled work time, exclusive of overtime premium, tips or commissions, but no less than the state minimum wage.

Rules published by the City of Dallas address the calculation of paid sick time for piece rate employees, salaried employees, employees whose hourly rate of pay fluctuates and employees who are scheduled to work shifts of indeterminate length.

What Does The Ordinance Proscribe?

An employer may not:

  1.  require “an employee to find a replacement to cover the hours of earned paid sick time as a condition of using earned paid sick time”;
  2.  erase earned paid sick time upon “an employee’s transfer to a different facility, location, division, or job position with the same employer”; or
  3.  “transfer, demote, discharge, suspend, reduce hours, or directly threaten such actions against an employee because that employee requests or uses earned sick time, reports or attempts to report a violation of [the ordinance], participates or attempts to participate in an investigation or proceeding under [the ordinance]; or otherwise exercises any rights afforded by [the ordinance].

Unlawful retaliation may include the following: “considering use of paid sick time in performance reviews or setting wages … reporting or threatening to report an employee or employee’s family member to law enforcement in connection with the use of paid sick time, or discouraging … employees from using their accrued paid sick leave.”

What Employment Policies Are Unaffected By The Ordinance?

The ordinance does not affect employer policies which allow an employee to donate available earned paid sick time to another employee.

The ordinance does not prohibit an employer from allowing an employee to voluntarily exchange hours or voluntarily trade shifts with another employee or prohibit an employer from establishing incentives for employees to voluntarily exchange hours or voluntarily trade shifts.

What Records Are Mandated Of Employers By The Ordinance?

On at least a monthly basis, an employer must provide electronically or in writing to each employee a statement showing the amount of the employee’s available earned paid sick time.

An employer that provides an employee handbook to its employees must include therein a notice of employee rights and remedies under the ordinance.

Each employer must display a poster in a conspicuous place or places where employee notices are customarily posted. The prescribed poster can be found here.

An employer which, as a matter of company policy, uses a 12-consecutive-month period other than a calendar year for purposes of determining an employee’s eligibility for and accrual of earned paid sick time must provide its employees with written notice of such policy.

Does The Ordinance Provide Employees With A Private Of Action?

No. For violations, the ordinance only provides for a civil penalty assessed by the City.

How Is The Ordinance Enforced?

The ordinance is enforced by the director of the department designated by the city manager for its implementation, administration and enforcement. A complaint alleging a violation must be filed with the director by or on behalf of an aggrieved employee with two years from the date of the violation.

What Is The Civil Penalty For Violation Of The Ordinance?

No civil penalty for a substantive violation may be assessed prior to April 1, 2020. Thereafter, an employer which fails to cease a violation by the end of the 10th business day after the employer receives notice of the violation by the director is liable to the City for a civil penalty of up to $500 for that violation.

Civil penalties of $500 per violation for retaliation, however, can be assessed on and after the applicable effective date.

Are Any Affirmative Defenses Available To Employers Under The Ordinance?

The ordinance does not expressly provide any affirmative defense for a failure to pay an employee earned paid sick time. Presumably, the City will consider any lawful reason for an adverse employment action taken against an employee who has (1) requested or used earned paid sick time, (2) reported a violation of the ordinance, or (3) participated in an administrative proceeding under the ordinance.

What Is The Effective Date Of The Ordinance?

The ordinance is effective August 1, 2019.  For employers with five (5) or less employees, however, the ordinance is not effective until August 1, 2021.

When Is The Time for Dallas Employers To Implement Earned Paid Sick Leave Policies?

For Dallas employers with more than five (5) employees, the time is now.  There is presently no legislation being considered in Austin, nor litigation pending in Dallas, which will forestall the ordinance from taking effect on August 1, 2019.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor and employment issues. To contact him for a speaking engagement please e-mail him at

Non-Compete Agreements For Low-Wage Workers Under Fire

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

According to a University of Michigan Law & Economic Research Paper last revised on January 19, 2019, post-termination non-compete agreements “are more likely to be found in high-skill, high-paying jobs, but they are also common in low-skill, low-paying jobs.”

California is famous for outlawing virtually all covenants not to compete for employees. Historically, most other states have required only that such covenants have reasonable limitations as to time, geographical area and scope of activity to be restrained.

Increasingly, however, states are also limiting the types of jobs that may subject to a non-compete agreement. A Massachusetts law which became effective on October 1, 2018 provides that non-compete agreements cannot be enforced against an employee who is classified as non-exempt under the FLSA. An Illinois law which became effective on January 1, 2017 bans covenants not to compete for low-wage employees whose “earnings do not exceed the greater of (1) … the minimum wage required by … law or (3) $13 per hour.”

Other states, including New Hampshire and New Jersey, are considering similar legislation making non-compete agreements unenforceable against low-wage workers.

At the federal level, legislation limiting jobs subject to a non-compete agreement was first proposed by Democratic Senator Christopher Murphy in 2015. Earlier this month, Marco Rubio became the first Republican Senator to propose such legislation with the introduction of the Freedom to Compete Act. In a January 15, 2019 press release, he proclaimed: ““Non-compete agreements that arbitrarily restrict entry-level, low-wage workers from pursuing better employment opportunities are egregious and outdated in the twenty-first century American economy.”

Senator Rubio’s bill seeks to amend the Fair Labor Standards Act (“FLSA”) to (1) void any non-compete agreement with an employee entered into before enactment, and (2) prohibit any non-compete agreement with an employee after enactment.  The term “non-compete” agreement is broadly defined as an agreement “that restricts [an] employee from performing, after the employment relationship … terminates “[a]ny work for another work for another employer for a specified period of time”, “[a]ny work in a specified geographical area”, or “[a]ny work for another employer that is similar to such employee’s work for the employer that is a party to such agreement.”

As with other provisions of the FLSA, Senator Rubio’s bill states that any employee employed in a bona fide executive, administrative or professional capacity, or in the capacity of outside salesman, would not be protected by the proposed amendment. Also, the proposed legislation clarifies that it does not “preclude an employer from entering into an agreement with an employee to not share any information (including after the employee is not longer employed by the employer) regarding the employer or the employment that is a trade secret, as defined in section 1839 of title 18, United States Code.”

The genesis of the movement to ban non-compete agreements for low-wage workers appears to be an October 15, 2014 Huffington Post article which ridiculed Jimmy Johns for including non-compete agreements in hiring packets for low-wage employees.  The practice ultimately prompted (1) a class action suit, (2) investigations by, and settlements with, the States of Illinois and New York, and (3) legislative initiatives to curb such practices by other employers.

Non-compete agreements for low-wage workers have rarely been a good idea for employers. Non-compete agreements are generally justified as necessary to protect an employer’s good will, trade secrets or specialized training. Typically, only management and sales employees are privy to such information.  Asking low-wage employees to sign non-compete agreements can thus strain the credibility of a claim that their enforcement is necessary as to management and sales employees. That such agreements are now the target of legislative efforts is simply another reason to avoid them.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor & employment issues. To contact him for a speaking engagement please e-mail him at

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.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor & employment issues. To contact him for a speaking engagement please e-mail him at

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.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor & employment issues. To contact him for a speaking engagement please e-mail him at


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.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor & employment issues. To contact him for a speaking engagement please e-mail him at

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.