REFRESHER ON FLSA AND MINIMUM WAGE ISSUES. MASBO Annual Conference May 9, Nathan B. Shepherd

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1 Ratwik, Roszak & Maloney, P.A. 730 Second Avenue South, Suite 300 Minneapolis, Minnesota (612) Fax (612) REFRESHER ON FLSA AND MINIMUM WAGE ISSUES I. GENERAL LEGAL FRAMEWORK MASBO Annual Conference May 9, 2018 Nathan B. Shepherd A. The Fair Labor Standards Act ( FLSA ), 29 U.S.C. 201, et seq., is the federal law of most general application concerning wages and hours of work. The FLSA sets minimum wage, overtime, equal pay, child labor, and record-keeping requirements for covered employees. It is enforced by the United States Department of Labor or by individual plaintiffs filing suit in federal court. B. For purposes of the FLSA, an employee is defined as: 1. Any individual employed by a State, political subdivision of a State including school districts, or an interstate governmental agency, excluding such individuals who are: a. elective office holders; 29 U.S.C. 203(e)(2)(C)(ii)(I); b. elected officials personal staff; 29 U.S.C. 203(e)(2)(C)(ii)(II); NOTE: The purpose of this presentation, and the accompanying materials, is to inform you of interesting and important legal developments. While current as of the date of presentation, the information given today may be superseded by court decisions and legislative amendments. We cannot render legal advice without an awareness and analysis of the facts of a particular situation. If you have questions about the application of concepts discussed in the presentation or addressed in this outline, you should consult your legal counsel Ratwik, Roszak & Maloney, P.A.

2 c. volunteers to perform services for a public agency, if 1) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered; and 2) such services are not the same type of services which the individual is employed to perform for such public agency. 29 U.S.C. 203(e)(4). 2. Independent contractors who pass the economic reality test. Doty v. Elias d/b/a Eddy s Steakhouse, 733 F.2d 720 (10th Cir. 1984). C. Neither employees nor employers in a written agreement can waive rights under the FLSA, nor can the union bargain away FLSA rights for some other benefit. Barrentine v. Arkansas Best-Freight System, 450 U.S. 728 (1981). D. The Minnesota Fair Labor Standards Act, Minn. Stat , et seq., likewise sets minimum wage, overtime, meal and rest break, record-keeping, and prevailing wage standards. It is enforced by the Labor Standards Division, Minnesota Department of Labor and Industry, or by individuals bringing suit in state district court. The federal FLSA and its regulations govern unless the state or local standard is more favorable to the employee. 29 U.S.C III. EXEMPTIONS AND EXCLUSIONS FROM COVERAGE A. Exclusions The following positions/persons are excluded from FLSA coverage: 1. Elected officials. 29 U.S.C. 203(e)(2)(C)(ii)(I); 29 C.F.R ; 2. Volunteers. 29 U.S.C. 203(e)(4); 29 C.F.R ; 3. Independent contractors. Doty v. Elias, 773 F.2d 720 (10th Cir. 1984); 4. Legal advisors. 29 C.F.R (d); 5. Trainees (if they are engaged in bona fide exempt work). 29 C.F.R ; 6. Policy-making appointees. 29 C.F.R (a). B. The FLSA does not cover or control the following items: 2

3 1. Vacation, holiday, or sick pay; 2. Premium pay for weekends; 3. Pay raises; 4. Double pay; or 5. The total number of hours an employee may work. 29 C.F.R C. Exemptions To be exempt from overtime provisions, the employee must perform a certain type of work and be paid on a salary or fee basis. 1. The Salary Basis Test: a. An employee is paid on a salary basis if, under his or her employment arrangement, he or she regularly receives each pay period a predetermined amount constituting all or part of his compensation. This amount is not subject to reduction because of variations of the quantity or quality of the work performed. 29 C.F.R (a). b. The salary basis test is not met if an actual practice of taking disciplinary or other deductions exists or the employer s personnel policy creates a significant likelihood of such deductions. Auer v. Robbins, 519 U.S. 452 (1997). c. However, deductions from pay of exempt employees may be made for unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules. Such suspensions must be imposed pursuant to a written policy applicable to all employees. 29 C.F.R (b)(5). d. An exempt employee s earnings may be computed on an hourly, daily, or a shift basis without losing the exemption if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days, or shifts work and a reasonable relationship exists between the guaranteed amount and the amount actually earned. 29 C.F.R (b). 3

4 e. An employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis. For example, an employee paid on a salary basis can receive additional compensation based on hours worked for work beyond the normal workweek. The employee can be paid on any basis including a flat sum, bonus payment, PTO, or time and onehalf. 29 C.F.R (a). 2. The Executive Exemption Test a. the employee is paid on a salary basis; 29 C.F.R (a)(1); b. the employee makes not less than $455 per week; 29 C.F.R (a)(1); c. the employee s primary duty is the management of the enterprise or a recognized department/subdivision of it; 29 C.F.R (a)(2); d. the employee directs the work of 2 or more other employees. 29 C.F.R (a)(3); and e. the employee has authority to hire and fire or whose recommendations on hiring and firing are given particular weight. 29 C.F.R (a)(4). 1) Examples include superintendents and principals. See 29 C.F.R The Administrative Exemption Test a. the employee is paid on a salary basis; 29 C.F.R (a)(1); b. the employee makes not less than $455 per week; Id.; c. the employee's primary duty consists of office or non-manual work directly related to management policies or general business operations; 29 C.F.R (a)(2); and 4

5 d. the employee's work requires the exercise of discretion and independent judgment with regard to matters of significance. 29 C.F.R (a)(3). 1) Examples include: business managers, directors of human resources and technology. 29 C.F.R (b). 4. Professional Exemption Test a. the employee is paid on a salary basis; 29 C.F.R (a)(1); b. the employee makes not less than $455 per week; Id.; and c. the employee s primary duties require knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study; 29 C.F.R (a)(2)(i), or; d. the employee s primary duties require invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. 29 C.F.R (a)(2)(ii). 5. Teachers 1) Examples include: counselors, psychologists, nurses, and attorneys. 29 C.F.R , , a. Teachers are specifically exempted under the professional exemption if their primary duty is teaching, tutoring, instructing or lecturing in the activity of imparting knowledge, and if they are employed and engaged in this activity as a teacher in an educational establishment. 29 C.F.R b. Exempt teachers include regular academic teachers; teachers of kindergarten or nursery school pupils; teachers of gifted or disabled children; teachers of skilled and semi-skilled trades and occupations; teachers engaged in automobile driving instruction; aircraft flight instructors; home economics teachers; and vocal or instrumental music instructors. Id. c. The salary and salary basis requirements do not apply to bona fide teachers. Id. 5

6 6. Minnesota Law Exemption a. Minnesota Law contains generally similar exemptions for executives, administrators, and professionals (including teachers). See Minn. Stat , subd. 7(6); Minn. R Recent Regulatory Developments a. Exemption Generally. The FLSA generally requires that employers pay overtime for every hour an employee works in excess of 40 hours in a single workweek. The FLSA and its regulations exempt certain employees from receiving overtime pay. One of these exempt groups includes the executive, administrative, or professional employees. 29 U.S.C This exemption is known as the white collar exemption. In order for these employees to remain exempt from overtime pay, they must perform executive, administrative, or professional duties and collect a minimum weekly salary. b. Proposed Change. Prior to the proposed rule change in 2016, the minimum weekly salary for an employee to maintain a white collar exemption was $455 per week, or $23,660 per year. In late spring of 2016, Department of Labor ( DOL ) under the Obama administration proposed a change to that minimum, raising it to $913 per week, or $47,476 per year. That change was supposed to come into effect on December 1, c. Legal Proceeding. On November 22, 2016, a Federal District Court Judge in Texas preliminarily enjoined, or stopped, the change from coming into effect saying that the DOL exceeded the authority delegated to it under the FLSA. d. The DOL appealed the injunction to the Fifth Circuit Court of Appeals. While that appellate proceeding was pending, the District Court Judge granted Summary Judgment, which is the final determination at that level. The District Court left open the possibility that a lower amount could pass muster. The DOL, now under the Trump Administration, appealed that ruling but subsequently dismissed the appeal. e. New Guidance Coming? On July 26, 2017, the DOL issued a Request for Information that indicated that it was considering remaking the salary threshold amount, among other potential 6

7 D. Child workers changes. This suggests that there may be a Notice of Proposed Rule Making later this year, with a possible effective date in There is no requirement for such action, however. f. Implications. Much ado about nothing, for the time being: the salary threshold from before the proposed change ($455/week) remains in effect. 1. The FLSA sets a general 16-year minimum age which applies to all employment in any occupation other than in agriculture but allows the Secretary of Labor to establish rules or an order allowing the employment of minors ages 14 to C.F.R The Secretary has provided a list of jobs 14 and 15 year-olds may have; the list includes office/clerical work, cooking, lifeguarding, and cashiering and other retail jobs. Available at IV. OVERTIME PROVISIONS The FLSA requires that all covered and nonexempt employees be paid not less than one and one-half times their regular rate of pay for all hours worked over forty in a work week. 29 U.S.C. 207(a)(2); 29 C.F.R ; 29 C.F.R The FLSA does not require overtime pay for hours worked in excess of eight hours per day. 29 C.F.R A. Application of the Overtime Provisions 1. Overtime requirements cannot be waived. Therefore, an employer cannot refuse to pay overtime based upon a policy or practice, and an employee may not offer to work for less than time and one-half. 29 C.F.R The United States Supreme Court has defined "work" to be all time spent in "physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business. IBP, Inc. v. Alvarez, 546 U.S. 21, 25 (2005) (citing Tenn. Coal, Iron, & R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 598 (1944)). The work week ordinarily includes all time during which an employee is necessarily required to be on the employer's premises, on duty, or at a prescribed work place. 29 C.F.R If the employer knows that the employee is working, whether at home or at work, the work is compensable. 29 C.F.R

8 a. Time spent by an employee waiting for and receiving medical attention on the employer s premises or at the direction of the employer during the employee s normal working hours on days when he is working constitutes hours worked. 29 C.F.R b. Meal periods are generally not considered hours of work, except for on-duty meal periods for people who receive compensation for overtime hours of work. 29 C.F.R By agreement, however, on-duty meal periods may be excluded from hours of work for employees who are on duty for 24 hours or more. 29 C.F.R Applying these principles, the Department of Labor takes the position that any work "suffered or permitted" is work time even if it is not requested by the employer. 29 C.F.R This requires employers to be mindful of those employees who are doing more than is asked of them, or may be working when you do not expect them to. If the employer is receiving the benefit of the employee s energy, that employee is entitled to overtime payments. 29 C.F.R Training Programs a. General rule: attendance at lectures, training programs, and other similar activities is not working time if: 1) Attendance is outside of the employee's regular working hours; 2) Attendance is voluntary; 3) The program or lecture is not directly related to the employee's job; and 4) The employee does not perform any productive work during the session. 29 C.F.R a) More often than not, training time will be compensable. It must meet all of the above requirements before it is not compensable. 8

9 5. Travel Time a. General rule: the time an employee spends traveling to work in the morning and away from work in the evening is not compensable. 29 C.F.R (Unless provided by contract or past practice; see 29 C.F.R ). 6. Volunteer time 1) This is true whether the employee works at a fixed location or at different job sites. 29 C.F.R ) Employees are entitled to compensation for travel time that is a principal activity of the employee. Principal activities are those activities which your employees are employed to perform, any work of consequence, and all activities which are an integral part of his or her principal activities. 29 C.F.R ) Employees who arrive at a work site and then spend their day traveling from one site to another must be compensated for their travel time. Id. 4) Travel time away from the community overnight is considered work time when the travel occurs during the employee's ordinary hours of work. 29 C.F.R ) Wait time is treated similarly to travel time. a) When an employee is unable to use the time effectively for his own purposes, it belongs to and is controlled by the employer. The employee is being engaged to wait and thus the time counts as hours worked. See 29 C.F.R b) Both travel time and waiting time are issues that can be addressed by a collective bargaining agreement or other employment contract. If addressed by a contract, those provisions are binding on the parties. a. If the employee volunteers and performs the same type of services as in his/her regular job, the time is compensable. 29 C.F.R (d). 9

10 b. If the employee volunteers to perform a different job for which he or she is paid, the time is NOT compensable so long as the employer did not coerce or pressure the employee to volunteer his/her time. 29 C.F.R (c). c. If an employee volunteers to work overtime, the employee must be paid for that time (or earn compensatory time) because he or she is working for the benefit of the employer. See 29 C.F.R Volunteers may be paid a nominal stipend for their time and still be considered volunteers 7. On-call time V. COMPENSATORY TIME a. On-call or standby time is not compensable if: 1) the employee is free to use his/her time as he/she pleases, and 2) the employee is not required to remain on work premises or close by. 29 C.F.R b. A pager requirement or leaving a number to reach an employee is not FLSA compensable time. Id. A. For Non-Exempt Employees. 1. The FLSA provides that public agencies, including states and political subdivisions of states may provide employees compensatory time off in lieu of overtime pay that would otherwise be required. 29 C.F.R Compensatory time off must be calculated at a rate of not less than one and one half hours of compensatory time off for each hour of overtime work. Id. 2. Certain restrictions apply to compensatory time, as follows: a. There must be an agreement to award compensatory time instead of overtime pay. 29 C.F.R (2)(A); If there is no agreement, overtime must be paid. The agreement must be reached before the performance of work. 29 C.F.R

11 1) Organized: Grant of compensatory time off must be pursuant to the terms of a collective bargaining agreement, memorandum of understanding, or other written agreement between the employer and representative of the employees. 29 C.F.R (2)(A)(i). 2) Unorganized: There must be a written agreement or understanding between the employee and employer before the work is performed. 29 C.F.R (2)(A)(ii). b. Agreements may provide for part compensatory time and part cash. For example, for every hour of OT, the employer could grant one hour of compensatory time and one ½ hour of pay---this type of agreement will be valid as long as the combination of cash received and the compensatory time off, when taken together, equal time and one-half for every hour of OT worked. 29 C.F.R c. A school district employee may accrue a maximum of 240 hours of compensatory time in this manner. Any overtime work performed by an employee who has accumulated 240 compensatory time hours must be paid in overtime compensation. 29 C.F.R (3)(A). Note that because compensatory time is accumulated at time and one-half, 240 hours of compensatory time is earned upon 160 hours of actual overtime work. d. An employee must not be coerced into accepting more compensatory time than an employer can realistically, and in good faith, expect to be able to grant. 29 C.F.R (b). e. An employee who requests to use compensatory time off which he or she has accrued must be permitted to use the time off within a reasonable period of time after making the request, if the time off would not unduly disrupt the operations of the employer. 29 C.F.R (a). A determination as to whether a request to use compensatory time off has been granted within a reasonable period of time is based upon the circumstances of a particular case after considering: 1) the normal schedule of work, 11

12 2) anticipated peak workloads based on past performance, 3) emergency requirements for staff and services, and 4) the availability of qualified substitute staff. 29 C.F.R (c) In order to deny an employee s use of compensatory time off because it would unduly disrupt the operations of the employer, the employer must reasonably and in good faith anticipate that the employee s absence would impose an unreasonable burden on the employer s ability to provide services of an acceptable quality and quantity. An undue disruption must be to the employer s operations, not its finances. Additionally, mere inconvenience to the employer is not a sufficient basis for denying the request. 29 C.F.R (d). f. Accrued compensatory time may not be made subject to a use it or lose it policy, nor may it be converted to sick or vacation leave. g. Upon termination of employment, the employee must be paid out for the unused accrued compensatory time based on either their average rate of pay for the last three years or their final regular rate of pay, whichever is higher. 29 C.F.R ; B. For Exempt Employees. 1. There is no requirement that exempt employees be paid overtime or compensatory time under FLSA. See 29 C.F.R If the employer voluntarily chooses to pay overtime or compensatory time to an exempt employee, it may be at any rate of pay and need not be calculated at time and one-half. 29 C.F.R Voluntarily paying overtime or compensatory time may be viewed by a court as evidence that the employee is non-exempt under the salary basis test. 12

13 VII. FLSA ISSUES A. Multiple Jobs/Same School District. 1. Even if the jobs held are different occupations, or at different sites, if the work is non-exempt, the two jobs hours count as if they were one job for overtime purposes. 29 C.F.R ; 29 C.F.R The school district must ensure that all hours are properly documented. 3. The overtime rate must be based on either a. The weighted hourly rate; 29 C.F.R ; or b. The employee and employer can agree which rate will be used for calculating overtime. The employee and employer must agree in advance what rate the overtime will be used, or the weighted rate will be used. 29 C.F.R A weighted hourly rate is mathematical calculation that blends the two rates. As an example, if an employee works 60% of his time at a rate of $20 per hour, and 40% of his time at a rate of $10 per hour, the blended rate if $16 per hour. ((60% x 20) + (40% x 10)). If the employee then works five hours of overtime, he or she must be paid $24 ($16 x 1.5) an hour for those five hours absent an agreement. See 29 C.F.R B. Dual Employment: Athletics and other Extracurricular Activities. 1. A non-exempt district employee who also works as coach or otherwise with extracurricular activities is likely not entitled to overtime pay for his or her time as a coach, even if that coach receives a small fee for that coaching. This matter was before the Fourth Circuit Court of Appeals, where a school security guard also worked as a golf coach. The employee claimed he was entitled to overtime pay for hours per year of coaching in Purdham v. Fairfax County School Board, 637 F.3d 421 (4th Cir. 2011). The court held that he was a volunteer for purposes of the FLSA, and thus not entitled to any overtime for his time coaching. This decision was consistent with opinion letters from the Department of Labor. 13

14 C. Unpaid Breaks. 1. Meal breaks of 30 minutes or more may be unpaid. However, if the meal break is cut short, or is only scheduled for less than 30 minutes, the employee must be paid. 29 C.F.R Rest breaks of 20 minutes or more may be unpaid. See 29 C.F.R (requiring rest breaks of 5 to about 20 minutes to be paid). D. Occasional and Sporadic Means Just That. Under 29 C.F.R , state and local government employees, solely at their option, may work occasionally and sporadically for the same public agency in a different capacity from their regular job and those hours worked occasionally and sporadically are not combined with hours worked in the regular job to determine overtime compensation. This does not mean regular part-time work, and performing the work cannot be a condition of employment. Further, the work performed cannot be the same kind of work the employee normally does. Examples of what it does not mean include: 1. Bookkeeper collecting tickets for all football games because this work would not be sufficiently occasional or sporadic and may be in the same capacity as the employee s regular duties; 2. Food service employee providing a cookies and coffee service for parentteacher conference night because the work is in the same capacity as the employee s regular duties. E. Inaccurate Time Records. It is important to ensure that your time records are accurate. Employers may not direct their employees to record designated start and stop times on their timecards regardless of when the employees actually work. F. Long/Holiday/Weekend Hours The FLSA does not require overtime payments until an employee works more than 40 hours in a week. 29 C.F.R The FLSA also does not require overtime for weekend or holiday work. 29 C.F.R This means an employee could work four ten-hour days, including over a holiday, and still not be entitled to overtime. An employer should still be mindful of any collective bargaining agreements to the contrary. 14

15 G. Non-requested Work A non-exempt employee doing work at his or her own choosing is entitled to overtime, even if the employer does not request it. See 29 C.F.R If the employee is working through lunch breaks, or putting in extra time before or after his or her normal shift when things are busy, the employer must pay for that extra time. It may seem counterintuitive to tell an employee to not work as hard or help out, but that must be done if the employer wants to avoid paying overtime. This also includes an employee working more than 40 hours to rectify a mistake he or she previously made. H. Volunteers 1. As explained above, employees volunteering are generally not entitled to payment of overtime. However, the person must actually be volunteering and cannot be coerced by the employer to work. Also, the employee must not be doing the same type of work as he or she normally would do. For instance, a school security guard who provides security services at a weekend school carnival is entitled to overtime pay for that carnival, even if it is on the weekend and he or she chooses to be there. See 29 C.F.R Volunteers may be paid a nominal stipend for their time and still be considered volunteers. There is no specific definition of nominal stipend in the statute, or regulations, though it is not a substitute for compensation and must not be tied to productivity. 29 C.F.R (e). Rather, there is a suggestion of several factors that will be examined in determining whether a given amount is nominal: The distance traveled and the time and effort expended by the volunteer; whether the volunteer has agreed to be available around-the-clock or only during certain specified time periods; and whether the volunteer provides services as needed or throughout the year. Id. 3. In addition, in guidance, the DOL has adopted the standard for occasional and incidental to define nominal. This standard, as interpreted by the DOL, indicates that [i]f the stipend is no more than 20 percent of what the district would otherwise pay to hire a coach or advisor for the same services, it would appear to be a permissible nominal fee. FLSA Op. Ltr Other factors suggested by as supporting the stipend being nominal include the presence of unreimbursed expenses for travel or supplies, and 15

16 the absence of performance-based pay or incentives (e.g. no additional pay for a winning season or participating in the playoffs). Id. VIII. PENALTIES FOR FLSA VIOLATIONS A. Back wages 1. Overtime violations result in the following: a. Back pay; b. An equal amount as liquidated damages; c. Penalties; d. Possible civil and criminal liability; and e. Possible injunctive relief. 29 U.S.C B. Criminal sanctions for willful violation: $10,000 fine or six months in prison or both. 29 U.S.C. 216(a). C. Civil penalties for overtime violation: $1,100 per willful and repeated violation. 29 U.S.C. 216(e)(2). D. Civil penalties for child labor violations: $11,000 per employee. 29 U.S.C. 216(e)(1)(A)(i). RRM: