Last week, the Department of Labor (DOL) issued a news release stating that going forward, it will use the seven-factor “primary beneficiary” test — set forth by the 2nd Circuit and applied by other Circuits — to determine whether interns working at for-profit employers are employees under the Fair Labor Standards Act (FLSA), expressly rejecting its previous test from 2010.
The “primary beneficiary” test that will now be applied by the DOL analyses the following seven, non-exhaustive factors:
- The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
- The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands‐on training provided by educational institutions.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The DOL noted that this new test will be applied in a “flexible” manner, and that whether an intern qualifies as an employee under the FLSA depends on the unique circumstances of each case.
It is widely agreed that the primary beneficiary test is easier for companies to satisfy than the DOL’s prior test, but it’s too early to tell how much of an impact this change will be. If you do have an internship program, it’s a great time to review intern classifications and make sure that they are being treated properly under employment laws.
Tracking employee work time is a constant challenge for employers, especially when the employees are not physically working in one location. Unfortunately, at least one court has found that employers can’t use personal cell phone GPS data to establish employees’ hours of work.
A federal district court in Indiana recently held that an employer could not use sales representatives’ GPS data from their personal electronic devices — which were used for both work and personal purposes — to defend an FLSA overtime suit. In this case, the employer wanted to compel the sales representatives to disclose GPS and location data from their phones to show when they were and were not working. The court denied the employer’s request, expressing concern that disclosing GPS data from a personal device would result in tracking the employees’ movements well outside of their working time, which would violate personal privacy standards.
This case serves as a great reminder that employers need to find methods of accurately tracking employee work time without relying on data from personal devices.
This week, 21 states and over 50 business groups filed suit in the Eastern District of Texas challenging the Department of Labor’s new overtime regulations, arguing that the DOL overstepped its authority in establishing the new minimum salary level and the automatic increases to the minimum salary every 3 years.
The new regulations (which,as we have previously discussed
, more than double the minimum salary requirement for employees to be eligible for the administrative, professional and executive overtime exemptions) have been hotly contested — in Congress and now in the courts. But it is far from clear that any of the efforts to delay or stop the new standards will be effective.
We will continue to monitor these challenges and keep you apprised. However, unless and until a challenge is successful, employers should plan to be ready for the new regulations on December 1st.
Two recent developments are a good reminder that companies who have independent contractors are under increased scrutiny and face a high bar in establishing that independent contractors are properly classified as such — and not employees.
On July 15th, the Department of Labor issued a guidance saying that most workers qualify as employees under the Fair Labor Standards Act (FLSA) regardless of what the worker and the company may have agreed to. The guidance doesn’t announce a new test for independent contractor status. Instead, it starts with the “economic realities” test for independent contrator status that courts regularly use and a reads it together with a broad view of the FLSA’s definition of employ to reach a conclusion that most independent contractors are misclassified and should, instead, be treated as employees.
The DOL’s guidance was close on the heels of a decision by the Seventh Circuit Court of Appeals, which reversed the lower court and ruled that FedEx delivery drivers are employees under Kansas state law, not independent contractors. In making its decision, the 7th Circuit certified the question of whether the drivers were employees under the Kansas Wage Payment Act to the Kansas Supreme Court. The Kansas Supreme Court, applying a 20-factor test, found that the drivers were employees because FedEx, among other things, assigns drivers their routes; requires them to check in with FedEx managers at the start of their day; regulates their appearance; and decides whether to hire a driver after the driver submits resumes and references like any other employee.
So what are the consequences of misclassification? Companies that misclassify employees as independent contractors face penalties for failing to pay employment taxes, for failing to withhold taxes from pay, for failing to comply with wage and hour requirements (such as overtime), for failing to contribute to unemployment compensation, and for failing to comply with other employment-related laws. In addition, the Affordable Care Act opens companies that misclassify workers to significant penalties — both based on failure to offer coverage to the required portion of the workforce and where a misclassified worker obtains coverage on an exchange.
In light of these developments, we strongly recommend that any company that has independent contractors work with counsel to determine if these workers are properly classified. A thorough review now could save you lots of money, time, and aggravation later.
This morning the Department of Labor announced that it is seeking to increase the number of employees eligible for overtime pay by increasing the minimum salary required if an employee is to be considered exempt under the administrative, executive and professional exemptions. The proposed increase would take the minimum annualized salary from $23,660 to $50,440. In addition, under the proposed rule the threshold for the FLSA’s Highly Compensated Employee exemption would rise from $100,000 to $122,148. Both the minimum salary and the Highly Compensated Employee threshold would be indexed for inflation. The DOL also suggested that it may seek other changes to limit the available overtime exemptions. If this change becomes a final rule, we would expect it to become effective in 2016.
Note that even if employees meet the higher minimum salary requirement, they still must meet the other requirements for exempt status — being paid on a salary basis and satisfying one of the duties tests — to qualify as exempt from overtime requirements.
No action is necessary at the moment as the proposed rule is not final. We will keep you updated on future developments.
The U.S. Department of Labor (DOL) has released its spring 2015 regulatory agenda, which provides a window into what we can expect from the agency over the coming months. The agenda provides updates on 70 rulemaking measures and suggests that — with President Obama’s term approaching its end — the DOL is putting its rule-making into high gear.
Here are some highlights from the agenda:
The DOL indicates that we should see the proposed rule redefining the white-collar exemption under the Fair Labor Standards Act (FLSA) in June. As we reported last year, President Obama has directed Labor Secretary Thomas Perez to “modernize and streamline” the regulations defining this exemption for executive, administrative, professional, outside sales, and computer employees. We expect that the proposed rule will narrow the white-collar exemptions, resulting in fewer employees qualifying as exempt from overtime requirements.
Use of Technology during Non-Working Hours
Also on the agenda is information seeking – in the pre-rule stage – on “the use of technology, including portable electronic devices, by employees away from the workplace and outside of scheduled work hours.” It appears that the DOL is seeking this information with an eye toward proposing a rule clarifying how this type of 21st Century off-the-clock work is compensated (likely to the benefit of employees). The request for information is expected in August.
Reporting under the Labor-Management Reporting and Disclosure Act
Lastly, the DOL agenda also indicates that we should expect a controversial final rule on the narrowing of the “advice” exception under the Labor-Management Reporting and Disclosure Act (LMRDA) in December. The LMRDA requires employers and labor relations consultants (or other similar individuals) to report any agreement or arrangement they have to engage in activities to persuade employees concerning the right to organize or bargain collectively. The LMRDA contains an exception for “advice,” stating that no employer or consultant has to file a report concerning services of a consultant if that consultant just gives “advice” to the employer. The proposed rule would limit the definition of “advice” to “oral or written recommendations,” so that any other activity would need to be reported. This proposed rule has been on the books for a number of years and continues to face serious opposition from many groups — including the American Bar Association — because it raises critical concerns about attorney-client privilege. We expect lengthy legal challenges to this rule.
It should be a busy second-half of the year for the DOL. We will keep you updated on any new developments.
Statistics released earlier this month by the Administrative Office of the U.S. Courts show an 8.8% increase in the number of Fair Labor Standards Act (“FLSA”) cases in the year ending in September 2014 as compared to the prior year.
This dramatic increase is the result of a variety of factors. First, the law itself has many ambiguities in its terms and definitions. Although the Department of Labor has attempted to reduce ambiguity in its guidance and regulations, many terms and issues are still unresolved and leave open the potential for legal claims. Also, the law is old. Applying a law passed in 1938 to the modern workplace, with drastic advances in technology, can be very difficult and often times leads to confusion. Finally, both employees and the attorneys to whom they may go to challenge a termination are becoming more savvy regarding wage and hour issues. As a result, we are seeing many cases where a terminated employee who comes into an attorney’s office looking to sue for “wrongful termination” walks out with a wage and hour claim – potentially even a class claim.
Employers should continue to review wage and hour practices to make sure that employees are properly classified as exempt or non-exempt and are being paid in accordance with local requirements. In addition, employers with specific concerns about class or collective actions should consider an arbitration program, which would require all claims to be dealt with in arbitration on an individual – not class or collective – basis.