Falk v. Brennan: Law of Employment and Control

In Falk v. Brennan, 414 U.S. 190 (1973), the Supreme Court held that an entity is an “employer” under the Fair Labor Standards Act when it exercises substantial control over the terms and conditions of the work of the employees at issue.

Background

The Fair Labor Standards Act generally requires a covered “employer” to pay its covered nonexempt employees minimum wages for each hour worked and overtime wages for all hours worked in excess of 40 hours per workweek. 29 U.S.C. §§ 206(a) & 207(a). The FLSA defines “employer” as “includ[ing] any person acting directly or indirectly in the interest of an employer in relation to an employee[.]” 29 U.S.C. § 203(d). With some exceptions, the FLSA generally defines “employee” as “any individual employed by an employer.” 29 U.S.C. § 203(e)(1). The FLSA defines “employ” as including “to suffer or permit to work.” 29 U.S.C. § 203(g).

The FLSA also provides that for an employer to be covered under the Act’s dollar-volume “enterprise” coverage provision, the employer must receive “annual gross volume of sales made or business done [] not less than $500,000[.]” 29 U.S.C. § 203(s)(1)(A)(ii).

Facts

D&F operated a property management company in Virginia. It rendered management services for the owners of several apartment complexes. Under its contracts with the apartment owners, D&F agreed to perform, on behalf of each owner and under his “nominal” supervision, “virtually all management functions that are ordinarily required for the proper functioning of an apartment complex.” 414 U.S. at 192. Those functions included advertising the apartments; signing, renewing, and canceling leases; collecting rents; instituting and settling all legal proceedings for eviction, possession of the premises, and unpaid rent; making necessary repairs and alterations; negotiating contracts for essential utilities and other services; purchasing supplies; paying bills; preparing operating budgets for the property owners’ review and approval; submitting periodic reports to the owners; and “hiring and supervising all employees required for the operation and maintenance of the buildings and grounds.” Id. at n4.

As compensation, D&F received a fixed percentage of the gross rents collected from each project. D&F deposited the rents it collected in local bank accounts. From these accounts it paid all expenses incurred in operating and maintaining the buildings. After deducting its compensation, as well as other expenses, D&F periodically transmitted payments to the various apartment owners. If disbursements for any apartment complex exceeded the gross rental receipts, the owner was required to reimburse D&F. 414 U.S. at 192-93. D&F collected about $8 million dollars per year in rents for all the buildings it managed. Id. at n6. However, its gross commissions received on those rentals were less than $500,000 per year. Id. at n10.

The Secretary of Labor filed suit against D&F on behalf of the maintenance workers, alleging that D&F violated the minimum wage, overtime, and recordkeeping requirements of the FLSA with respect to those workers. Id. Significantly, these employees worked under the supervision of D&F and were paid from the rents received at the apartment complexes where they worked. Under the contracts between the apartment owners and D&F, the maintenance workers were considered to be “employees of the project owners.” Id.

A central question for the Court was whether the maintenance workers were also employees of D&F, such that D&F was responsible for complying with the FLSA’s minimum wage, overtime, and recordkeeping requirements with respect to those workers.

A secondary question was which figure should be considered in determining whether D&F met the $500,000 threshold for enterprise coverage: D&F’s gross rentals collected ($8M annually), or D&F’s gross commissions on those rentals (less than $500,000).

The Court’s Decision

The Court held that in addition to the apartment owners, D&F was also an FLSA “employer” of the maintenance workers — even though the owners and D&F had agreed that the workers were employees only of the owners. The Court reached this decision by interpreting the operative provisions of the FLSA as speaking to the extent of control a potential “employer” exercises over a worker.

First, the Court observed that Section 203(d) of the FLSA defines “employer” as ‘any person acting directly or indirectly in the interest of an employer in relation to an employee.’ 29 U.S.C. § 203(d). It further noted that Section 3(e) defines ‘employee’ to include ‘any individual employed by an employer.’ 29 U.S.C. s 203(e). Significantly, the Court interpreted these two provisions as providing an “expansive[]” definition of “employer” — meaning that whether an entity was an FLSA employer, with the attendant minimum wage, overtime, and recordkeeping responsibilities, could not be controlled by an agreement between entities that only one of them would be the “employer.”

The Court further indicated that the relevant inquiry, in answering the “employer” question, was whether the potential employer had “substantial control of the terms and conditions of the work” the employees performed. Id. at 195. D&F, for example, appears to have had supervisory powers with respect to the maintenance workers at the buildings it managed. See id. at 193 (“These employees work under the supervision of D&F”). The Court therefore determined that “in view of the expansiveness of [the FLSA’s] definition of ‘employer’ and the extent of D&F’s managerial responsibilities at each of the buildings, which gave it substantial control of the terms and conditions of the work of these employees,” D&F was pursuant to the FLSA an ‘employer’ of the maintenance workers Id.

With respect to the dollar-volume limitation question, the Court observed that D&F “sells” only professional management services, and therefore the gross rentals it collected as part of rendering those services to building owners did not represent sales attributable to D&F. Id. at 197-201. Based on this reasoning, the Court concluded D&F’s commissions were the relevant measure of its gross sales made or business done for purposes of the dollar-volume limitation in Section 203(s)(1). Thus, even though D&F was an “employer” under the the terms of the FLSA, and an “enterprise” under Section 203(r), the FLSA did not apply to D&F because its gross sales were below the Section 203(s)(1) dollar-volume threshold. Id. at 201.

Analysis

In sum, Falk v. Brennan held that an entity is an “employer” under the FLSA when it exercises substantial control over the terms and conditions of the work of employees at issue. This decision later became relevant to the Department of Labor’s development of regulations guiding the analysis of FLSA “joint employment” situations. In those situations, where more than one entity benefits from the work of employees, the extent to which each entity exercises control over the terms and conditions of the workers’ employment is an important consideration in determining the entities’ respective or joint responsibilities under the FLSA. For the DOL’s analysis of its most recent changes to the rule (29 C.F.R. § 791) regarding joint employment, effective March 2020, go here.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was also published to TimCoffieldAttorney.com.

Wage Law for Fire Protection and Law Enforcement Personnel

The Fair Labor Standards Act requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. The rights afforded by the FLSA apply to covered employees of public agencies, including most employees working fire protection or law enforcement jobs for state or local governments. However, the FLSA contains some unique provisions that apply only to fire protection and law enforcement personnel. This post summarizes some of those provisions. The US Department of Labor is also an excellent resource for information about the FLSA rights of state and local government employees.

CHARACTERISTICS OF FIRE PROTECTIONS AND LAW ENFORCEMENT PERSONNEL

Under the FLSA, fire protection personnel include firefighters, paramedics, emergency medical technicians, rescue workers, ambulance personnel, or hazardous materials workers who: (1) are trained in fire suppression, have the legal authority and responsibility to engage in fire suppression, and are employed by a fire department of a municipality, county, fire district, or state, and (2) are engaged in the prevention, control, and extinguishment of fires or response to emergency situations where life, property, or the environment is at risk. 29 U.S.C. § 203(y).

Notably, the FLSA does not place a limit on how much nonexempt work a worker employed in fire protection activities may perform. As long as the employee satisfies the criteria in Section 203(y), she is “employed in fire protection activities” as far as the FLSA is concerned.

Under the FLSA, law enforcement personnel are employees who are (1) empowered by state or local ordinance to enforce laws designed to maintain peace and order, protect life and property, and to prevent and detect crimes; (2) who have the power to arrest; and (3) who have undergone training in law enforcement. 29 C.F.R. § 553.211(a).

Law enforcement personnel may perform some nonexempt work that is not performed as an incident to or in conjunction with their law enforcement activities. But a worker who spends more than 20 percent of the workweek or applicable work period in nonexempt activities is not considered to be an “employee engaged in law enforcement activities” for the purposes of the FLSA. 29 C.F.R. ¶ § 553.212.

Additionally, fire protection and law enforcement employees may at their own option perform special duty work in fire protection and law enforcement for a separate and independent employer without including those wages and hours in regular rate or overtime determinations for the primary public employer. 29 U.S.C. § 207(p)(1).

COMPENSATORY TIME IN LIEU OF CASH OVERTIME

Like other employees of other public agencies, firefighters and police officers may receive a certain amount of “compensatory time” in lieu of cash overtime wages. Compensatory time is paid time off. Under certain circumstances, the FLSA allows public fire departments and police departments to give nonexempt employees who work overtime hours compensatory time off, instead of cash overtime pay. The amount of compensatory time off the employer gives should correspond to the overtime rate — that is, firefighters and police officers must receive at least one and one-half hours of paid time off for each overtime hour worked. 29 U.S.C. § 207(o). The FLSA further provides that fire departments and police departments, like other public agencies, must allow employees to use their compensatory time with a “reasonable period” of time after they make a request, unless doing so would “unduly disrupt” the operations of the agency. 29 U.S.C. §§ 207(o)(5). Generally, this means fire departments and police departments in normal circumstances should allow employees to use compensatory time on the dates they request.

SPECIAL LIMITS ON ACCRUED COMPENSATORY TIME FOR FIREFIGHTERS AND POLICE

Compensatory time can accumulate, similar to vacation time. Importantly, as with other public employees, if firefighters and police officers do not use their accumulated compensatory time, under certain circumstances the FLSA entitles them to receive cash compensation. 29 U.S.C. § 207(o)(3)-(4). The FLSA also places special limits, different from the limits for other public employees, on the amount of compensatory time that fire protection and law enforcement personnel may receive in lieu of cash overtime wages. Law enforcement, fire protection, and emergency response personnel and employees engaged in seasonal activities may accrue up to 480 hours of comp time (representing 320 overtime hours worked). 29 U.S.C. § 207(o)(3)(A). This is different from other public employees, who may accrue up to 240 hours of compensatory time (representing 160 hours of overtime worked). Once a fire protection or law enforcement employee accrues the maximum amount of unused compensatory time hours — 480 — she must be paid cash overtime wages for all additional overtime hours. 29 U.S.C. § 207(o)(3)(A).

Significantly, the Supreme Court has held that the Fair Labor Standards Act does not prohibit public employers from compelling employees to use compensatory time. Christensen v. Harris County, 529 U.S. 576 (2000).

SPECIAL OVERTIME CALCULATION RULES FOR FIREFIGHTERS AND POLICE

The FLSA provides that covered nonexempt employees in most lines of work are entitled to overtime pay (or compensatory time in lieu of overtime pay) for all hours worked in excess of 40 in a 7-day workweek. That is not necessarily the case for firefighters and police officers. Because the work schedules of firefighters and police officers traditionally differ from a standard 40-hour per seven-day workweek, the FLSA provides some special rules for calculating overtime compensation (or compensatory time) for fire protection and law enforcement personnel.

Specifically, fire departments or police departments may establish a work period ranging from 7 to 28 days in which overtime need be paid only after a specified number of hours in each work period. 29 U.S.C. § 207(k). In the case of a 28-day work period, fire protection employees are entitled to overtime pay (or compensatory time) for hours worked in excess of 212 hours during the period, while law enforcement personnel are entitled to overtime pay (or compensatory time) for hours worked in excess of 171 hours during the period. 29 C.F.R. § 553.230(a)-(b).

In the case of fire protection or law enforcement employees who have a work period of at least 7 but less than 28 consecutive days, overtime compensation is required when the ratio of the number of hours worked to the number of days in the work period exceeds the ratio of 212 (or 171) hours to 28 days. 29 C.F.R. § § 553.20129 C.F.R. § 553.230 (conversion table for ratios). For fire protection personnel, that ratio works out to 7.57 hours per day (rounded); for law enforcement personnel, that ratio works out to 6.11 hours per day (rounded).  29 C.F.R. § 553.230(c).

MAXIMUM HOURS BY WORK PERIOD FOR FIRE PROTECTION AND LAW ENFORCEMENT PERSONNEL 

Here is a copy of the maximum hours conversion table, showing the amount of hours fire protection or law enforcement may work during a work period, depending on the length of the work period, above which overtime pay or compensatory time is required:

Work Period (Days) Maximum Hour Standards:
Fire Protection
Maximum Hour Standards:
Law Enforcement
28 212 171
27 204 165
26 197 159
25 189 153
24 182 147
23 174 141
22 167 134
21 159 128
20 151 122
19 144 116
18 136 110
17 129 104
16 121 98
15 114 92
14 106 86
13 98 79
12 91 73
11 83 67
10 76 61
9 68 55
8 61 49
7 53 43

29 C.F.R. § 553.230.

PAYMENT OF ACCRUED COMPENSATORY TIME AT TERMINATION

At the end of a fire protection or law enforcement employee’s employment, she is generally entitled to receive a cash payment for any unused compensatory time. Because rates of pay may vary over the course of employment, the FLSA provides specific instructions for calculating the cash value of unused compensatory time. Specifically, like other public agency employees, at the time of termination, a fire protection or law enforcement employee must be paid the higher of

(A) the average regular rate during her last three years of employment, or

(B) her final regular rate of pay,

for any unused accrued compensatory time remaining when the termination occurs. 29 U.S.C. § 207(o)(4).

EXEMPTION FOR SMALL FIRE AND POLICE DEPARTMENTS

The FLSA also provides an overtime exemption for very small fire departments and police departments. Specifically, any employee who in any workweek is employed by an agency employing fewer than 5 employees in fire protection or law enforcement may be exempt from overtime. 29 U.S.C. § 213(b)(20).

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was also published to TimCoffieldAttorney.net.

Christensen v. Harris County: Compelled Use of FLSA Compensatory Time

In Christensen v. Harris County, 529 U.S. 576 (2000), the Supreme Court held that the Fair Labor Standards Act does not prohibit public employers from compelling employees to use compensatory time.

Background

The Fair Labor Standards Act allows public employers (including states and their political subdivisions) to compensate employees for overtime work by granting them compensatory time instead of paying them a cash overtime wage. 29 U.S.C. § 207(o). Compensatory time is paid time off. To comply with this part of the FLSA, the public employer must provide the compensatory time at a rate not less than one and one-half hours for each hour of overtime worked. Id. Compensatory time can accumulate, like vacation time. Importantly, if employees do not use their accumulated compensatory time, under certain circumstances the FLSA requires the public employer to pay the employees cash compensation. 29 U.S.C. §§ 207(o)(3)-(4).

Facts

Employees in Harris County accumulated a great volume of unused compensatory time. This caused Harris County to worry that a budget crisis would result if it had to pay its employees for their accrued unused compensatory time. In an effort to avoid that situation, the county adopted a policy requiring its employees to schedule time off. The county’s reasoning was that requiring time off would reduce the amount of accrued compensatory time among its workers, thereby reducing the likelihood of a budget crisis from having to pay for unused compensatory time.

Ed Christensen was a Harris County deputy sheriff. He and a group of fellow deputy sheriffs sued the county, claiming the policy of requiring employees to use their compensatory time violated the FLSA. Christensen argued that the FLSA does not permit an employer to compel an employee to use compensatory time in the absence of an agreement allowing the employer to do so. The District Court ruled for Christensen and entered a declaratory judgment that the county’s policy violated the FLSA. The Fifth Circuit reversed. It held that the FLSA did not address the issue of compelling the use of compensatory time and therefore did not prohibit the county from implementing its policy.

The Court’s Decision

The Supreme Court affirmed, holding that neither the text of the FLSA nor its implementing regulations prohibits a public employer from compelling its employees to use their compensatory time.

First, the Court rejected Christensen’s argument that § 207(o)(5) of the FLSA implicitly prohibits compelled use of compensatory time in the absence of an agreement. That section provides that an employer must grant an employee’s request to use her compensatory time unless doing so would unduly disrupt the employer’s operations. 29 U.S.C. § 207(o)(5). Citing Raleigh & Gaston R. Co. v. Reid, 13 Wall. 269, 270 (1872) for the proposition that when a statute limits a thing to be done in a particular mode, it implicitly disallows any other mode, Christensen argued that because § 207(o)(5) allowed only an employee to require the use of compensatory time, that section implicitly prohibited an employer from requiring the use of compensatory time. Id. at 583-84. The Court disagreed with that conclusion. Instead, it found that the only “negative inference” to be drawn from § 207(o)(5) was that an employer may not deny a request for any reason other than that provided in § 207(o)(5). Id. Thus, the section did not prohibit employers from compelling the use of compensatory time.

The Court went on to explain that the purpose of § 207(o)(5) was to ensure that an employee receive “some timely benefit for overtime work.” Id. at 584. The FLSA’s nearby provisions reflect a similar concern. For example, § 207(o)(3)(A) provides that workers may not accrue more than 240 or 480 hours of compensatory time, depending upon the nature of the job. This provision “helps guarantee that employees only accrue amounts of compensatory time that they can reasonably use.” Christensen at 584. Similarly, the Court observed that § 207(o)(2)(B) conditions an employer’s ability to provide compensatory time (in lieu of paying cash overtime wages) upon the employee not accruing compensatory time in excess of the § 207(o)(3)(A) limits. Thus, these provisions, like § 207(o)(5), reflect a legislative concern that employees receive “some timely benefit in exchange for overtime work.” Christensen at 584.

The Court therefore concluded that the best reading of the FLSA is that it ensures liquidation of compensatory time. The law places restrictions on an employer’s ability to prohibit employees from using their compensatory time. But it says nothing about restricting an employer’s efforts to require employees to use the time. Id. at 585. Because the FLSA text is silent on this issue and because the county’s policy was compatible with § 207(o)(5), the Court held that Christensen could not, as § 216(b) of the FLSA requires, prove that the county violated the FLSA’s overtime provisions.

The Court further noted that two other features of the FLSA supported its reading that the FLSA did not prohibit employers from compelling the use of compensatory time. First, the FLSA allows employers to decrease the number of hours that employees work. Id. at 585 (citing Barrentine v. Arkansas—Best Freight System, Inc., 450 U.S. 728, 739 (1981) (“[T]he FLSA was designed … to ensure that each employee covered by the Act … would be protected from the evil of overwork …”). And second, the FLSA expressly allows employers to cash out accumulated compensatory time by paying the employee her regular hourly wage for each hour accrued. Id. at 585 (citing 29 U.S.C. § 207(o)(3)(B) & 29 CFR § 553.27(a)(1999). Thus, the FLSA allows an employer to require an employee to take time off work, and to use the money it would have paid in wages to cash out accrued compensatory time. Id. at 585. The Court concluded that Harris County’s policy of compelling the use of compensatory time “merely involves doing both of these steps at once.” Id. at 586.

Christensen also argued, unsuccessfully, that employers were prohibited from compelling the use of compensatory time pursuant a Department of Labor opinion letter. In that letter, the DOL concluded that an employer may compel the use of compensatory time only if the employee has agreed in advance to such a practice. Id. at 586-87. The Court observed that the opinion letter was not entitled to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), because interpretations contained in opinion letters — similar to policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law — do not warrant Chevron deference. While “persuasive” interpretations in opinion letters are “entitled to respect” under Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) the Court concluded DOL’s interpretation was not persuasive. Id. at 587.

While Chevron deference does apply to an agency interpretation contained in a regulation, the regulation at issue, 29 CFR § 553.23(a)(2), provided only that “[t]he agreement or understanding [between the employer and employee] may include other provisions governing the preservation, use, or cashing out of compensatory time so long as these provisions are consistent with [§ 207(o)].” Id.; Christensen at 587-88. The Court concluded that nothing in 29 CFR § 553.23(a)(2) “even arguably” requires that an employer’s compelled use policy must be included in an agreement. Id. 588. Thus, Chevron deference did not apply. Lastly, deference to an agency’s interpretation of its regulation is warranted under Auer v. Robbins, 519 U.S. 452, 461 (1997), only when the regulation’s language is ambiguous. The Court held that the DOL’s regulation was not ambiguous, and therefore the DOL’s interpretation of that regulation was not entitled to Auer deference. Id. at 588.

Analysis

In sum, Christensen held that the FLSA does not prohibit public employers from compelling their employees to use their accrued compensatory time. While this issue is not specifically addressed in the text of the FLSA, the law does not explicitly prohibit this practice, and the conclusion that public employers may compel the use of compensatory time is consistent with other aspects of the FLSA that allow an employer to require employees to take time off from work and to use the money it would have paid in wages to cash out accrued compensatory time.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was also published to TimCoffieldAttorney.com.

Wage Law Basics for Public Employees

The Fair Labor Standards Act requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. The rights afforded by the FLSA apply to employees in the private sector as well as employees of state and local governments. However, the FLSA contains some unique provisions that apply only to state and local government employers and their employees. This post summarizes some of those provisions. The US Department of Labor is also an excellent resource for information about the FLSA rights of state and local government employees.

STATE AND LOCAL GOVERNMENT EMPLOYER COVERAGE 

The FLSA defines a covered “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee and includes a public agency[.]” 29 U.S.C. §§ 203(d). It goes on to define “public agency” as “the Government of the United States; the government of a State or political subdivision thereof; any agency of the United States … a State, or a political subdivision of a State; or any interstate governmental agency. 29 U.S.C. §§ 203(x). The FLSA therefore applies to state and local government employers. Notably, the definition of “public agency” does not extend to private companies that engage in activities often performed by public employees, such as government contractors.

COVERAGE OF STATE AND LOCAL GOVERNMENT EMPLOYEES

The FLSA also makes clear that its rights apply to public agency employees under the law’s “enterprise” coverage provision. 29 U.S.C. § 203(s)(1)(C).

GENERAL REQUIREMENTS 

As with private employers, the FLSA generally requires public agency employers to pay all covered nonexempt employees at least the federal minimum wage, which is currently $7.25 per hour. 29 U.S.C. § 206(a). The FLSA also requires public agency employers to comply with the law’s youth employment standards and recordkeeping requirements. 29 U.S.C. § 206(g) (youth employment standards ) &  29 C.F.R. § 516 (recordkeeping requirements). And as with private employers, the FLSA generally requires public agency employers pay covered nonexempt employees overtime compensation — that is, wages equal to at least one and one-half times the employees’ regular rates of pay for all hours worked over 40 in the workweek. 29 U.S.C. § 207(a).

COMPENSATORY TIME FOR PUBLIC AGENCY EMPLOYEES

Unlike private employers, however, public agencies may have the option of offering covered employees a certain amount of “compensatory time” in lieu of paying them cash overtime wages. Compensatory time is paid time off. Under certain circumstances, the FLSA allows state and local government agencies to give nonexempt employees who work overtime hours compensatory time off, instead of cash overtime pay. The amount of compensatory time off the employer gives should correspond to the overtime rate — that is, public employees must receive at least one and one-half hours of paid time off for each overtime hour worked. 29 U.S.C. § 207(o). The FLSA further provides that a public agency must allow employees to use their compensatory time with a “reasonable period” of time after they make a request, unless doing so would “unduly disrupt” the operations of the agency. 29 U.S.C. §§ 207(o)(5). Generally, this means public agencies in normal circumstances should allow employees to use compensatory time on the dates they request.

ACCRUAL OF COMPENSATORY TIME AND LIMITS

Much like vacation time voluntarily offered by some employers, compensatory time can accumulate. Importantly, if employees do not use their accumulated compensatory time, under certain circumstances the FLSA requires the public agency employer to pay the employees cash compensation. 29 U.S.C. § 207(o)(3)-(4). The FLSA also places limits on the amount of compensatory time that a public agency may give an employee in lieu of paying cash overtime wages. Law enforcement, fire protection, and emergency response personnel and employees engaged in seasonal activities may accrue up to 480 hours of compensatory time (representing 320 overtime hours worked). 29 U.S.C. § 207(o)(3)(A). All other state and local government employees may accrue up to 240 hours (representing 160 overtime hours worked). Id. Once an employee accrues the maximum amount of unused compensatory time hours — either 480 or 240, as the case may be — the public agency employer must pay that employee cash overtime wages for all additional overtime hours. 29 U.S.C. § 207(o)(3)(A).

PAYMENT FOR ACCRUED COMPENSATORY TIME AT TERMINATION

At the end of a public agency employee’s employment, she is generally entitled to receive a cash payment for any unused compensatory time. Because rates of pay may vary over the course of employment, the FLSA provides specific instructions for calculating the cash value of unused compensatory time. Specifically, at the time of termination a public agency employee must be paid the higher of (A) the average regular rate during her last three years of employment, or (B) her final regular rate of pay, for any unused accrued compensatory time remaining when the termination occurs. 29 U.S.C. § 207(o)(4).

POSSIBLE DIFFERENCES IN CALCULATION OF OVERTIME PAY – SPECIAL CASES

For certain categories of public agency employees, the calculation of overtime pay may differ from the general requirements of the FLSA. For example:

  • For employees who solely at their option occasionally or sporadically work on a part-time basis for the same public agency in a different capacity than the one in which they are normally employed, the hours worked in the different employment may be excluded by the public agency in calculating hours for which the employee is entitled to overtime compensation. 29 U.S.C. § 207(p)(2) & 29 CFR § 553.30;
  • For employees who at their option with approval of the agency substitute for another during scheduled work hours in the same work capacity, the hours the employee worked as a substitute may be excluded by the public agency in calculating hours for which the employee is entitled to overtime compensation. 29 U.S.C. § 207(p)(3);
  • Employees who meet exemption requirements for Executive, Administrative, Professional or Outside Sales occupations may be exempt from overtime pay. 29 U.S.C. § 213(a)(1);
  • Hospital or residential care establishments may, with agreement or understanding of employees, adopt a fixed work period of 14 consecutive days and pay overtime after 8 hours in a day or 80 in the work period, whichever is greater. 29 U.S.C. § 207(j);
  • For mass transit employees who spend some time engaged in charter activities, under certain circumstances the employer, in calculating the overtime rate, may exclude the hours the employee was employed in charter activities if (1) the employee’s employment in such activities was pursuant to an agreement or understanding with his employer arrived at before engaging in such employment, and (2) if employment in such activities is not part of such employee’s regular employment. 29 U.S.C. § 207(n)
  • Employees working in separate seasonal amusement or recreational establishments such as swimming pools, parks, etc., may be exempt from overtime pay. 29 U.S.C. § 213(a)(3).

Importantly, some states with concurrent wage laws may not recognize or allow some or all of the above exemptions. Because employers must comply with the most stringent of the state or federal provisions, it is imperative that employers review applicable state laws before applying any of these exclusions or exemptions.

SPECIAL RULES FOR FIREFIGHTERS AND LAW ENFORCEMENT PERSONNEL

The FLSA also provides some special rules for fire protection and law enforcement personnel — public employees whose work schedules traditionally differ from a 40-hour per seven-day workweek.

Under the FLSA, fire protection personnel include firefighters, paramedics, emergency medical technicians, rescue workers, ambulance personnel, or hazardous materials workers who: (1) are trained in fire suppression, have the legal authority and responsibility to engage in fire suppression, and are employed by a fire department of a municipality, county, fire district, or state, and (2) are engaged in the prevention, control, and extinguishment of fires or response to emergency situations where life, property, or the environment is at risk. 29 U.S.C. § 203(y).

Notably, the FLSA does not place a limit on how much nonexempt work a worker employed in fire protection activities may perform. As long as the employee satisfies the criteria in Section 203(y), she is “employed in fire protection activities” as far as the FLSA is concerned.

Under the FLSA, law enforcement personnel are employees who are (1) empowered by state or local ordinance to enforce laws designed to maintain peace and order, protect life and property, and to prevent and detect crimes; (2) who have the power to arrest; and (3) who have undergone training in law enforcement. 29 C.F.R. § 553.211(a).

Law enforcement personnel may perform some nonexempt work that is not performed as an incident to or in conjunction with their law enforcement activities. But a worker who spends more than 20 percent of the workweek or applicable work period in nonexempt activities is not considered to be an “employee engaged in law enforcement activities” for the purposes of the FLSA. 29 C.F.R. § 553.212.

Additionally, fire protection and law enforcement employees may at their own option perform special duty work in fire protection and law enforcement for a separate and independent employer without including the wages and hours in regular rate or overtime determinations for the primary public employer. 29 U.S.C. § 207(p)(1).

For the purposes of calculating overtime worked, the FLSA also allows fire departments and police departments to establish special work periods that differ from the traditional 7-day workweek. Specifically, fire departments or police departments may establish a work period ranging from 7 to 28 days in which overtime need be paid only after a specified number of hours in each work period. 29 U.S.C. § 207(k). In the case of a 28-day work period, fire protection employees are entitled to overtime pay (or compensatory time) for hours worked in excess of 212 hours during the period, while law enforcement personnel are entitled to overtime pay (or compensatory time) for hours worked in excess of 171 hours during the period. 29 C.F.R. § 553.230(a)-(b).

In the case of fire protection or law enforcement employees who have a work period of at least 7 but less than 28 consecutive days, overtime compensation is required when the ratio of the number of hours worked to the number of days in the work period exceeds the ratio of 212 (or 171) hours to 28 days. 29 C.F.R. § § 553.20129 C.F.R. § 553.230 (conversion table for ratios). For fire protection personnel, that ratio works out to 7.57 hours per day (rounded); for law enforcement personnel, that ratio works out to 6.11 hours per day (rounded).  29 C.F.R. § 553.230(c).

The FLSA also provides an overtime exemption for very small fire departments and police departments. Specifically, any employee who in any workweek is employed by an agency employing fewer than 5 employees in fire protection or law enforcement may be exempt from overtime. 29 U.S.C. § 213(b)(20).

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was also published to TimCoffieldAttorney.net.

Tip Credit Law Basics

The Fair Labor Standards Act requires employers to pay minimum hourly wages to covered employees. In some workplaces, like restaurants and hotels, the employer’s customers may leave tips directly for the workers. This aspect of American culture raises several questions about employee rights and  employer responsibilities under the FLSA. How does this form of payment impact the employer’s responsibility to pay a minimum wage? Can the employer take the tips from the worker? Can the worker who receives tips be required to give some to other employees? And if an employer improperly keeps tips, can the worker sue to recover the tips?

The 3(m) Tip Credit

The federal Department of Labor maintains excellent resources, such as Fact Sheet No. 15, for learning more about the FLSA’s requirements as they relate to tipped employees. Under the FLSA, an employer must pay employees a minimum hourly wage (currently $7.25). Also under the FLSA, tips left by customers are the property of the employee who receives them. “Tipped employees,” for purposes of the FLSA’s tip credit provisions, are employees who customarily and regularly receive tips. Only tips actually received by the employee may be counted in determining whether the employee is a tipped employee and in applying the tip credit.

The FLSA’s tip credit provision (Section 3(m)) allows an employer to take a “credit” toward its minimum wage obligation for tipped employees in an amount equal to the difference between the mandatory minimum cash wage for tipped employees (currently $2.13) and the federal minimum wage (currently $7.25). The maximum 3(m) tip credit that an employer can claim is therefore currently $5.12 per hour ($7.25 minimum wage minus the required tipped employee cash wage of $2.13). An employer may sometimes be able to claim an additional tip credit against its overtime obligations.

Tip Pooling

Section 3(m) also provides that an employer “may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” 29 U.S.C. § 203(m)(2)(B).

In other words, tips are the property of the employee. This requirement, however, does not prohibit an employer from implementing a valid tip pool — i.e. requiring tipped employees to pool or share their tips with other employees who customarily and regularly receive tips, like servers, bellhops, counter personnel (who serve customers), and bussers. When the employer is taking a tip credit (and therefore, directly paying tipped employees less than the federal minimum wage), a valid tip pool may not include employees who do not customarily and regularly receive tips, like dishwashers, cooks, and janitors. However, in light of the Consolidated Appropriations Act of 2018, which amended parts of the FLSA tip requirements, when the employer is not taking a tip credit (and therefore tipped employees are directly paid at least full minimum wage) tipped employees may be required to pool their tips with non-supervisory employees who do not customarily and regularly receive tips, like cooks.

Under the FLSA, there is no maximum contribution amount or percentage on valid mandatory tip pools. The employer, however, must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.

Section 3(m) Prohibits Employers From Keeping Tips Regardless of Whether They Take a Tip Credit

The language of section 3(m)(2)(B) makes clear that managers and supervisors are not permitted to keep any portion of an employee’s tips, regardless of whether the employer takes a tip credit. In other words, because tips are the property of the employee, the FLSA prohibits any arrangement whereby any part of the tip received by a tipped employee becomes the property of the employer. This means that even when the employer pays a tipped employee at least $7.25 per hour in direct wages, the employee may not be required to turn over his or her tips to the employer.

An employer who violates this section, and keeps an employee’s tips, or allows managers or supervisors to keep an employee’s tips, may be subject to a civil penalty of $1,100 for each such violation, in addition to being liable to the employee for all tips unlawfully kept, and an additional equal amount as liquidated damages. 29 U.S.C. § 216(e)(2).

Requirements to Take a Tip Credit

To qualify to take a 3(m) tip credit, an employer must first provide the affected tipped employee(s) with the following information:

1) the amount of the cash wage the employer is paying the tipped employee (must be at least $2.13 per hour);

2) the additional amount claimed by the employer as a tip credit (cannot be more than $5.12 — the difference between the $2.13 minimum required cash wage for tipped employees and the current minimum wage of $7.25);

3) that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

See 29 U.S.C. § 203(m)(2)(A)(ii) & 29 C.F.R. § 531.59. An employer who fails to provide this required information cannot use the 3(m) tip credit. Therefore, an employer who fails to provide this information must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips received. Employers taking a tip credit must also be able to show that tipped employees receive at least the minimum wage when direct wages paid to the employee are added to the tip credit. If an employee’s tips plus direct wages do not equal at least the federal minimum wage, the employer must make up the difference.

Issues Raised by Dual Jobs

Sometimes, an employee will work in more than one position for the same employer, where one of the positions is tipped and the other is not. For example, an employee might work for a restaurant both as a server (tipped) and a cook (untipped). In this situation, the employee can take the tip credit only for the hours the employee works in the tipped position. Interestingly, however, the FLSA does allow an employer to take a tip credit for some time that the tipped employee spends performing duties related to the tipped position, even though those duties do not directly produce tips. For example, a server who spends some time setting up and cleaning tables, making coffee, and occasionally cleaning glasses or dishes, is considered to be engaged in a tipped occupation even though these duties do not produce tips. See the dual jobs regulation at 29 C.F.R. § 531.56(e).

Summary

In short, tips are the property of the employee. An employer may take a tip credit against its minimum wage obligations so long as it satisfies the notice requirements and the employee receives direct wages (at least $2.13 hourly) plus tips that together meet or exceed the federal minimum wage. An employer who takes a tip credit may only require tip pooling between customarily and regularly tipped employees. An employer who does not take a tip credit can require tip pooling between tipped and non-supervisory non-tipped employees. However, under no circumstances can an employer, including managers and supervisors, keep an employee’s tips for any purpose, regardless of whether the employer takes a tip credit.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Kasten v. Saint-Gobain: Scope of FLSA Protected Activity

In Kasten v. Saint-Gobain Performance Plastics Corp., 563 U.S. 1 (2011), the Supreme Court held that the anti-retaliation provision of the Fair Labor Standards Act protects employees who make oral (as well as written) complaints that their employer violated the FLSA.

Facts

Kasten worked for Saint-Gobain Performance Plastics. He complained orally to his superiors that the company located its timeclocks between the area where Kasten and his co-workers put on (and removed) their work-related protective gear and the area where they carried out their job duties. This location, Kasten complained, prevented workers from receiving credit for the time they spent putting on and taking off their work clothes — contrary to the requirements of the FLSA. Kasten complained only orally and did not make a written complaint. Saint-Gobain fired him. Id. at 5-6.

Kasten then sued his former employer, alleging that Saint-Gobain violated the FLSA’s anti-retaliation provision by terminating him for complaining orally about the legality of the location of the timeclocks. The trial court granted summary judgment for the employer, holding that the FLSA’s anti-retaliation provision covered only written complaints and did not cover oral complaints. The Seventh Circuit affirmed and Kasten appeals.

The Court’s Decision

The FLSA’s anti-retaliation provision makes it unlawful for employers “to discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the FLSA], or has testified or is about to testify in such proceeding, or has served or is about to serve on an industry committee.” 29 U.S.C. § 215(a)(3) (emphasis added).

The Court held that the scope of the statutory term “filed any complaint” includes oral, as well as written, complaints — and therefore the FLSA prohibits retaliation against employees who complain orally about violations of the wage and hour law.

As an initial matter, the Court cited its decision in Dolan v. Postal Service, 546 U.S. 481, 486 (2013) for the principle that proper interpretation “depends upon reading the whole statutory text, considering the [statute’s] purpose and context …, and consulting any precedents or authorities that inform the analysis.” The Court further explained that the text at issue — “filed any complaint” — taken alone, could not provide a conclusive answer as to whether it included oral complaints. Some dictionary definitions of “filed” contemplated a writing; others permitted using “file” in conjunction with oral material.

The Court noted that in addition to dictionary definitions, state statutes and federal regulations sometimes contemplate oral filings, and an analysis of contemporaneous judicial usage shows that when the FLSA was passed in 1938 oral filings were a known phenomenon. And even if “filed,” taken in isolation, might suggest a narrow interpretation limited to writings, the remainder of the phrase — “any complaint” — suggested a broad interpretation that would include an oral complaint. Thus, the Court concluded that the phrase “filed any complaint,” taken by itself, was not clear. Id. at 5-11.

Nor could the FLSA’s other references to “filed” resolve the question of whether oral complaints were included. Some parts of the FLSA involve filed material that is almost always written; others specifically require a writing, and others leave the oral/written question unresolved. Because the text at issue, taken alone, might, or might not, encompass oral complaints, the Court had to look to other methods of interpretation. Id. at 5-11.

The Court observed that several “functional considerations” indicated that Congress intended the anti-retaliation provision to cover both oral and written complaints. Id. at 11. First, looking to the FLSA’s purposes, the Court noted that a narrow interpretation excluding oral complaints would undermine the law’s basic objective: to prohibit “labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers,” 29 U.S.C. § 202(a). The Court had previously observed that the FLSA relies for enforcement of its substantive standards on “information and complaints received from employees,” Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 292 (1960), and its anti-retaliation provision makes the enforcement scheme effective by preventing “fear of economic retaliation” from inducing workers “quietly to accept substandard conditions[.]” Ibid. With that purpose in mind, the Court noted that limiting the provision’s scope to written complaints could have the undesirable result of preventing Government agencies from using hotlines, interviews, and other oral methods to receive complaints. 563 U.S. at 11-14.

Second, the Court determined that in light of the delegation of enforcement powers to federal agencies, the agencies’ views about the meaning of the phrase “filed any complaint” should be given weight. The Secretary of Labor, charged with enforcing the FLSA, has long interpreted “filed any complaint” as covering both oral and written complaints. Similarly, the Equal Employment Opportunity Commission, charged with enforcing other employment laws, has a similar view that oral complaints are protected complaints. The Court held that these views were reasonable and consistent with the FLSA. And the length of time the Secretary of Labor held its position suggested it was the result of careful consideration, not “post hoc rationalizatio[n].” Id. at 14-16 (quoting Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 50 (1983)).

Finally, Saint-Gobain made an alternative argument that the anti-retaliation provision only covered official complaints to government agencies or in court, and therefore did not protect internal complaints (written or oral) to employers. The Court declined to address this argument, however, because it was not properly raised in the certiorari briefs and did not need to be addressed to resolve the oral/written complaint issue. Id. at 17.

Scalia dissented on that point, arguing that the language of anti-retaliation provision, in light of the FLSA’s other references to “filing,” only protected official grievances filed with a court or an agency, not oral complaints — or even formal, written complaints — from an employee to an employer. Id. at 18-26.

Analysis

Kasten clarified that an oral complaint about an employer’s FLSA violation is protected activity under the FLSA. The law therefore prohibits employers from retaliating against employees who complaint about violations of the federal wage and hour law, regardless of whether the employee complains orally or in writing.

This blog was also posted to TimCoffieldAttorney.com.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Independent Contractor v. Employee: Law of Economic Realities

In cases under the Fair Labor Standards Act, a question sometimes arises as to whether a worker is an independent contractor or an employee. The answer can be important, as an employee may have rights to minimum wage and overtime compensation that an independent contractor performing the same basic job tasks does not.  

To determine whether a worker is an employee under the FLSA, courts in the Fourth Circuit look to the “economic realities” of the relationship between the worker and the putative employer.

McFeeley v. Jackson St. Entm’t, LLC, 825 F.3d 235, 241 (4th Cir. 2016) (quoting Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298, 304 (4th Cir. 2006)). The touchstone of the “economic realities” test is whether the worker is “economically dependent on the business to which he renders service or is, as a matter of economic [reality], in business for himself.” Id. If the practical economic reality is that the worker is “economically dependent” on the putative employer and not “in business for himself[,]” the worker will generally be considered an employee qualified for FLSA rights. Id

Economic Realities Test

In making this determination, courts applying the economic realities test consider six factors:

(1) [T]he degree of control that the putative employer has over the manner in which the work is performed;

(2) the worker’s opportunities for profit or loss dependent on his managerial skill;

(3) the worker’s investment in equipment or material, or his employment of other workers; 

(4) the degree of skill required for the work; 

(5) the permanence of the working relationship; and 

(6) the degree to which the services rendered are an integral part of the putative employer’s business. 

McFeeley, 825 F.3d at 241. These factors are often called the “Silk factors” in reference to United States v. Silk, 331 U.S. 704 (1947), the Supreme Court case from which they derive. See Schultz at 305.

Generally speaking, the greater the degree of control the putative employer has over the manner in which the work is performed, the greater the permanence of the working relationship, and the greater the degree to which the worker’s services are an integral part of the putative employer’s business, the more likely the worker is an “employee” under the economic realities test. Similarly, the fewer opportunities the worker has for profit or loss dependent on his managerial skill, the less the worker invests in equipment, material, or employment of other workers, and the lower degree of skill required for the work, the more likely the worker is an “employee” under the economic realities test. 

Application

For example, in Schultz, the plaintiff security workers worked jointly for a Saudi prince and a security firm. The Fourth Circuit found the prince and security firm exercised nearly complete control over how the workers did their jobs. Further, the workers had no opportunity for profit or loss dependent on their managerial skills, as they were paid a set rate per shift. Additionally, the firm and prince supplied the workers with all the necessary equipment, including cell phones, cars, firearms, and cameras. With respect to the fourth factor, although some security duties required special skills, others did not. As to the permanence of the relationship, the prince employed some workers for several years and preferred to hire workers who would stay with him over the long term. And the services rendered by the workers were integral to the security firm’s business, as the firm’s only function was to provide security for the prince, and workers were hired specifically to perform that task. Considering these facts under the economic realities test, the Fourth Circuit concluded the security workers “were not in business for themselves” and “thus were thus employees, not independent contractors.” Schultz, 466 F.3d at 309.

Similarly, in McFeeley, the plaintiff exotic dancers worked for dance clubs. The Fourth Circuit found that the clubs exercised significant control over how the dancers performed their work. That control included dictating dancers’ schedules, imposing written guidelines that all dancers had to obey during working hours, setting fees the dancers were supposed to charge patrons for private dances, and dictating how tips and fees were handled. Further, the dancers’ opportunities for profit or loss depended far more on the clubs’ management and decision-making than their own; the club owners’ investment in the clubs’ operation far exceeded the dancers’ investment; the job duty of dancing at the clubs required a relatively minimum degree of skill; and the dance clubs could not function without exotic dancers. Therefore, the dancers were employees of dance clubs under the FLSA, rather than independent contractors. McFeeley, 825 F.3d 235, 242-244.

And in Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017), the plaintiff drywall installers worked for a subcontractor of a larger company that offered general contracting and interior finishing services, including drywall installation, carpentry, framing, and hardware installation. The workers were economically dependent on the subcontractor alone, making them necessarily economically dependent on the contractor and subcontractor jointly. Due to the contractor’s daily supervision of these workers, it exercised greater control over their work than the subcontractor exercised alone. Further, the contractor provided all of the materials, supplies, tools, and equipment that workers used for their work. On these facts, the Fourth Circuit determined the drywall installers were employees covered by FLSA, rather than independent contractors, based on their entire employment for both the framing and drywall installation subcontractor and general contractor. Id. at 150-151.

Summary

In summary, Fourth Circuit courts determine whether a worker is an employee or an independent contractor by looking to the “economic realities” of the relationship between the worker and the putative employer. The outcome is important because an employee may have rights to minimum wage and overtime compensation under the FLSA that an independent contractor performing the same basic job tasks does not. The “economic realities” test turns on whether the worker is economically dependent on the business to which he renders service or is, as a matter of economic reality, in business for himself. If the practical economic reality is that the worker is economically dependent on the putative employer and not in business for himself, the worker will generally be considered an employee qualified for FLSA rights. 

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was also published to TimCoffieldAttorney.net.

The Fair Labor Standards Act requires employers to pay minimum hourly wages to covered employees. In some workplaces, like restaurants and hotels, the employer’s customers may leave tips directly for the workers. This aspect of American culture raises several questions about employee rights and  employer responsibilities under the FLSA. How does this form of payment impact the employer’s responsibility to pay a minimum wage? Can the employer take the tips from the worker? Can the worker who receives tips be required to give some to other employees? And if an employer improperly keeps tips, can the worker sue to recover the tips?

The 3(m) Tip Credit

The federal Department of Labor maintains excellent resources, such as Fact Sheet No. 15, for learning more about the FLSA’s requirements as they relate to tipped employees. Under the FLSA, an employer must pay employees a minimum hourly wage (currently $7.25). Also under the FLSA, tips left by customers are the property of the employee who receives them. “Tipped employees,” for purposes of the FLSA’s tip credit provisions, are employees who customarily and regularly receive tips. Only tips actually received by the employee may be counted in determining whether the employee is a tipped employee and in applying the tip credit.

The FLSA’s tip credit provision (Section 3(m)) allows an employer to take a “credit” toward its minimum wage obligation for tipped employees in an amount equal to the difference between the mandatory minimum cash wage for tipped employees (currently $2.13) and the federal minimum wage (currently $7.25). The maximum 3(m) tip credit that an employer can claim is therefore currently $5.12 per hour ($7.25 minimum wage minus the required tipped employee cash wage of $2.13). An employer may sometimes be able to claim an additional tip credit against its overtime obligations.

Tip Pooling

Section 3(m) also provides that an employer “may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” 29 U.S.C. § 203(m)(2)(B).

In other words, tips are the property of the employee. This requirement, however, does not prohibit an employer from implementing a valid tip pool — i.e. requiring tipped employees to pool or share their tips with other employees who customarily and regularly receive tips, like servers, bellhops, counter personnel (who serve customers), and bussers. When the employer is taking a tip credit (and therefore, directly paying tipped employees less than the federal minimum wage), a valid tip pool may not include employees who do not customarily and regularly receive tips, like dishwashers, cooks, and janitors. However, in light of the Consolidated Appropriations Act of 2018, which amended parts of the FLSA tip requirements, when the employer is not taking a tip credit (and therefore tipped employees are directly paid at least full minimum wage) tipped employees may be required to pool their tips with non-supervisory employees who do not customarily and regularly receive tips, like cooks.

Under the FLSA, there is no maximum contribution amount or percentage on valid mandatory tip pools. The employer, however, must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.

Section 3(m) Prohibits Employers From Keeping Tips Regardless of Whether They Take a Tip Credit

The language of section 3(m)(2)(B) makes clear that managers and supervisors are not permitted to keep any portion of an employee’s tips, regardless of whether the employer takes a tip credit. In other words, because tips are the property of the employee, the FLSA prohibits any arrangement whereby any part of the tip received by a tipped employee becomes the property of the employer. This means that even when the employer pays a tipped employee at least $7.25 per hour in direct wages, the employee may not be required to turn over his or her tips to the employer.

An employer who violates this section, and keeps an employee’s tips, or allows managers or supervisors to keep an employee’s tips, may be subject to a civil penalty of $1,100 for each such violation, in addition to being liable to the employee for all tips unlawfully kept, and an additional equal amount as liquidated damages. 29 U.S.C. § 216(e)(2).

Requirements to Take a Tip Credit

To qualify to take a 3(m) tip credit, an employer must first provide the affected tipped employee(s) with the following information:

1) the amount of the cash wage the employer is paying the tipped employee (must be at least $2.13 per hour);

2) the additional amount claimed by the employer as a tip credit (cannot be more than $5.12 — the difference between the $2.13 minimum required cash wage for tipped employees and the current minimum wage of $7.25);

3) that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

See 29 U.S.C. § 203(m)(2)(A)(ii) & 29 C.F.R. § 531.59. An employer who fails to provide this required information cannot use the 3(m) tip credit. Therefore, an employer who fails to provide this information must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips received. Employers taking a tip credit must also be able to show that tipped employees receive at least the minimum wage when direct wages paid to the employee are added to the tip credit. If an employee’s tips plus direct wages do not equal at least the federal minimum wage, the employer must make up the difference.

Issues Raised by Dual Jobs

Sometimes, an employee will work in more than one position for the same employer, where one of the positions is tipped and the other is not. For example, an employee might work for a restaurant both as a server (tipped) and a cook (untipped). In this situation, the employee can take the tip credit only for the hours the employee works in the tipped position. Interestingly, however, the FLSA does allow an employer to take a tip credit for some time that the tipped employee spends performing duties related to the tipped position, even though those duties do not directly produce tips. For example, a server who spends some time setting up and cleaning tables, making coffee, and occasionally cleaning glasses or dishes, is considered to be engaged in a tipped occupation even though these duties do not produce tips. See the dual jobs regulation at 29 C.F.R. § 531.56(e).

Summary

In short, tips are the property of the employee. An employer may take a tip credit against its minimum wage obligations so long as it satisfies the notice requirements and the employee receives direct wages (at least $2.13 hourly) plus tips that together meet or exceed the federal minimum wage. An employer who takes a tip credit may only require tip pooling between customarily and regularly tipped employees. An employer who does not take a tip credit can require tip pooling between tipped and non-supervisory non-tipped employees. However, under no circumstances can an employer, including managers and supervisors, keep an employee’s tips for any purpose, regardless of whether the employer takes a tip credit.

This blog was also posted to TimCoffieldAttorney.net.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Integrity Staffing v. Busk: Principal Activities Law

In Integrity Staffing Sols., Inc. v. Busk, 574 U.S. 27 (2014), the Supreme Court held that under the Fair Labor Standards Act, time warehouse workers spent waiting for and undergoing security screenings was not compensable time. More broadly, the decision clarified the proper analysis of “principal activities” verses preliminary and postliminary activities. Principal activities are compensable under the FLSA. Purely preliminary or postliminary activities (like a commute) are not, but some activities before or after a shift might still be compensable principal activities. The term “principal activities” includes all activities which are an “integral and indispensable part of the principal activities.” An activity is “integral and indispensable to the principal activities” if it is an “intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.” 574 U.S at 33.

Facts

Busk worked for Integrity Staffing Solutions as an hourly warehouse worker. Integrity Staffing provided warehouse staffing to Amazon. Integrity Staffing’s warehouse workers retrieved and packaged products for delivery to Amazon.com customers. Integrity Staffing required these employees to undergo a security screening before leaving the warehouse each day, but did not pay them for the time (roughly 25 minutes each day) they spent waiting for and undergoing the screening. Busk and his co-workers filed suit under the Fair Labor Standards Act. They asserted, inter alia, they were entitled to compensation for the time they spent waiting to undergo and undergoing the screenings. They also argued the screenings were compensable because the company could have reduced the time involved to a negligible de minimis amount by adding screeners or staggering shifts, and because the screenings were conducted to prevent employee theft and, thus, for the sole benefit of the employers and their customers.

The District Court dismissed this claim. It held the screenings were not integral and indispensable to the employees’ principal activities but were instead postliminary and noncompensable under the Portal–to–Portal Act. The Ninth Circuit reversed that decision in part, holding that the postshift screening would be compensable as integral and indispensable to the employees’ principal activities if the screenings were necessary to the principal work and performed for the employer’s benefit. Integrity Staffing appealed. 

The Court’s Decision

The Supreme Court reversed. It held the time the warehouse workers spent waiting to undergo and undergoing security screenings was not compensable under the FLSA. 

First, the Court explained Congress passed the Portal–to–Portal Act in response to the “unexpected liabilities” created by a broad judicial interpretation of the FLSA’s undefined terms “work” and “workweek.” See 29 U.S.C. § 251(a). The Portal–to–Portal Act therefore exempted employers from FLSA liability for claims based on “activities which are preliminary to or postliminary to” the principal activities that an employee is employed to perform. 29 U.S.C. § 254(a)(2)

The Court had long held that the term “principal activities” includes all activities which are an “integral and indispensable part of the principal activities.” Steiner v. Mitchell, 350 U.S. 247, 252–253 (1956). In Integrity Staffing, the Court further explained that an activity is “integral and indispensable to the principal activities” if it is an “intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.” 574 U.S at 33.

For example, in Steiner, the Court held the time battery-plant employees spent showering and changing clothes was compensable because the chemicals in the plant were “toxic to human beings” and the employer conceded that “the clothes-changing and showering activities of the employees [were] indispensable to the performance of their productive work and integrally related thereto.” Id. at 34 (quoting Steiner at 249, 251). Similarly, in Mitchell v. King Packing Co., 350 U.S. 260, 262 (1956), the Court held compensable the time meatpacker employees spent sharpening their knives because dull knives would “slow down production” on the assembly line, “affect the appearance of the meat as well as the quality of the hides,” “cause waste,” and lead to “accidents.” 574 U.S. at 34 (quoting Mitchell at 262). By contrast, in IBP, Inc. v. Alvarez, 546 U.S. 21 (2005), the Court held noncompensable the time poultry-plant employees spent waiting to don protective gear because such waiting was “two steps removed from the productive activity on the assembly line.” 574 U.S. at 34 (quoting IBP at 42). The Court further noted Department of Labor regulations were consistent with this approach. See 29 CFR § 790.8(b) (“The term ‘principal activities’ includes all activities which are an integral part of a principal activity.”); 29 CFR § 790.8(c) (“Among the activities included as an integral part of a principal activity are those closely related activities which are indispensable to its performance.”); 29 CFR 790.7(g) (examples of preliminary and postliminary activities). 574 U.S. at 30-35.

The Court then held the security screenings at issue in Integrity Staffing were noncompensable postliminary activities. First, the Court determined the screenings were not the principal activities the employees were employed to perform. The workers were not employed to undergo security screenings. They were employed to retrieve goods from the warehouse and package them for shipment. Nor were the security screenings “integral and indispensable” to those activities. In support of this conclusion, the Court cited a 1951 Department of Labor opinion letter, which found noncompensable under the Portal–to–Portal Act both a preshift screening conducted for employee safety and a postshift search conducted to prevent employee theft. 

The employees in Integrity Staffing, like the Ninth Circuit, essentially took the position that if an activity was required by an employer it was compensable under the FLSA. The Court disagreed with this approach, noting that it would sweep into “principal activities” the very activities that the Portal–to–Portal Act was designed to exclude from compensation (like the time waiting to don protective gear held noncompensable in IBP). Finally, the Court rejected the employees’ argument that the screenings were compensable because Integrity Staffing could have reduced the time to a de minimis amount. Whether an employer could conceivably reduce the time employees spent on a preliminary or postliminary activity did not change the nature of the activity or its relationship to the principal activities that an employee is employed to perform. Therefore, that concern was properly addressed through bargaining, rather than in a suit under the FLSA. 574 U.S. at 35-37.

Analysis

In sum, Integrity Staffing clarified the analysis of “principal activities” verses preliminary and postliminary activities. Principal activities are compensable. The term “principal activities” includes all activities which are an “integral and indispensable part of the principal activities.” An activity is “integral and indispensable to the principal activities” if it is an “intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.” 574 U.S at 33. More specifically, Integrity Staffing stands for the proposition that time spent waiting for and undergoing security screenings was not a principal activity and therefore not compensable under the Fair Labor Standards Act. 

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was also published to TimCoffieldAttorney.com.

ADA Job Restructuring Law

Can federal employment laws require an employer to change an employee’s job duties, as an accommodation for a disability? The answer is sometimes, depending on the circumstances. The analysis often turns on whether the duties at issue are “essential functions” of the employee’s job, and whether co-workers are available to take on the duties (in exchange for the disabled employee taking on some of their duties). 

Both Title I of Americans with Disabilities Act and Section 504(a) of Rehabilitation Act of 1973 (for employers receiving federal funds) require employers to “mak[e] reasonable accommodations to the known physical or mental limitations of an otherwise qualified individual with a disability.” 42 U.S.C. § 12112(b)(5)(A); Hooven-Lewis v. Caldera, 249 F.3d 259, 268 (4th Cir. 2001) (holding that discrimination under Rehabilitation Act includes failure to accommodate and applying same standard as that used for ADA failure-to-accommodate claims).

Reasonable Accommodation Defined 

A reasonable accommodation is one that “enables [a qualified] individual with a disability … to perform the essential functions of [a] position.” 29 C.F.R. § 1630.2(o)(1)(ii). The ADA expressly contemplates that a reasonable accommodation may require “job restructuring.” 42 U.S.C. § 12111(9)(B). The Fourth Circuit holds that job restructuring to shift a marginal, nonessential task to other employees can be a reasonable accommodation, especially where replacement tasks are shifted back to the disabled employee to avoid increasing the overall workload of other employees. Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 580-81 (4th Cir. 2015) (“Jacobs’s proposed accommodation was to work fewer days at the counter and more days microfilming or performing other deputy clerk tasks. This proposed accommodation did not require the AOC to increase the workload of Jacobs’s coworkers; Jacobs merely asked that her employer change which deputy clerk was assigned to which task … A reasonable jury could therefore conclude that Jacobs’s requested accommodation was reasonable.”)

To prevail on a failure to accommodate claim, an employee must show: “(1) that [he] was an individual who had a disability within the meaning of the statute; (2) that the employer had notice of [his] disability; (3) that with reasonable accommodation [he] could perform the essential functions of the position; and (4) that the employer refused to make such accommodations.” Jacobs, 780 F.3d at 579 (quoting Wilson v. Dollar Gen. Corp., 717 F.3d 337, 345 (4th Cir. 2013).)

The Essential Functions Questions

Job-restructuring implicates the third element, which asks whether the proposed restructuring accommodation would allow the employee to perform the “essential functions” of the position. Employers sometimes believe that if a duty is included in an employee’s job description, it is an “essential” function of the job, and therefore the ADA cannot require the employer to shift that duty to other employees. This is not necessarily true. While job descriptions may be relevant evidence in determining the essential functions of a job, they are not dispositive. As the Fourth Circuit holds:

Not all job requirements or functions are essential. A job function is essential when “the reason the position exists is to perform that function,” when there aren’t enough employees available to perform the function, or when the function is so specialized that someone is hired specifically because of his or her expertise in performing that function.

Jacobs, 780 F.3d at 579 (quoting 29 C.F.R. § 1630.2(n)(2)). “[I]f an employer has prepared a written description before advertising or interviewing applicants for the job, this description shall be considered evidence of the essential functions of the job.” Id. (quoting 42 U.S.C. § 12111(8) (emphasis added)). “Other relevant evidence can include ‘the employer’s judgment as to which functions are essential,’ ‘the amount of time spent on the job performing the function,’ ‘the consequences of not requiring the incumbent to perform the function,’ and the work experience of people who hold the same or similar job.” Id. (quoting 29 C.F.R. § 1630.2(n)(3)).

Jacobs involved a court clerk with social anxiety who sought to have her job restructured so she did not have to work at the counter in the clerk’s office, and would perform additional clerk’s duties instead. Jacobs at 580. The Fourth Circuit held that even though the clerk’s job description named “customer service” as a function, working at the counter was not necessarily an “essential function” of the clerk position because, inter alia, “many employees were available to perform that function.” Jacobs, 780 F.3d at 580.

Job-Restructuring Accommodations

If applying these factors indicate the job duty at issue is not an essential function, the employer may have an obligation to shift that duty to other employees as a disability accommodation, with the disabled employee taking on some replacement duties so her co-workers do not have to do more work overall. Federal appellate courts applying the ADA consistently hold that job restructuring to shift non-essential functions can be a reasonable accommodation. In addition to Jacobs, see Rorrer v. City of Stow, 743 F.3d 1025, 1044 (6th Cir. 2014) (“Shifting marginal duties to other employees who can easily perform them is a reasonable accommodation.”); Henschel v. Clare County Road Com’n, 737 F.3d 1017, 1023–24 (6th Cir. 2013) (The “ADA requires job restructuring of non-essential duties as a reasonable accommodation in appropriate circumstances”; hauling the excavator not necessarily an essential function of the excavator operator position, as there were a number of other employees who could perform this task); Benson v. Northwest Airlines, 62 F.3d 1108, 1112 (8th Cir. 1995) (stating that reasonable accommodation may “involv[e] reallocating the marginal functions of a job”); U.S. EEOC v. AIC Sec. Investigations, Ltd., 55 F.3d 1276, 1284 (7th Cir. 1995) (“The ADA defines ‘reasonable accommodation’ to include restructuring a job, such as by removing non-essential functions from the job.”) (citing 42 U.S.C. § 12111(9)(B) and 29 C.F.R. § 1630.2(o)); Davidson v. Am. Online, Inc., 337 F.3d 1179, 1192 (10th Cir. 2003) (“a restructuring of the non-essential requirements” of a job could be a reasonable accommodation); Hill v. Assocs. for Renewal in Educ., Inc., 897 F.3d 232, 240 (D.C. Cir. 2018), cert. denied, 139 S.Ct. 1201 (2019) (“an employer may be required to accommodate an employee’s disability by ‘reallocating or redistributing nonessential, marginal job functions,’ or by providing an aide to enable the employee to perform an essential function without replacing the employee in performing that function.” (quoting 29 C.F.R. Pt. 1630, App.) (emphasis in original)).

To recap, under the ADA or Rehab Act, a reasonable disability accommodation could therefore entail shifting certain “non-essential” tasks to other employees and shifting from those employees to the disabled employee additional work that she can perform independently. See Jacobs at 580-81. Because this kind of accommodation would shift additional tasks back to the disabled employee and therefore not increase the overall workload of other employees, cases like Crabill v. Charlotte Mecklenburg Bd. of Educ., 423 Fed.Appx. 314, 323 (4th Cir. 2011) (noting that “an accommodation that would require other employees to work harder is unreasonable”) would not apply.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call (434) 218-3133 or send an email to info@coffieldlaw.com.

This blog was also featured on TimCoffieldAttorney.net.