President Obama's Announcement Regarding Overtime Regulations: If It Is As Big Of A Deal As They Say It Is, Beware Of A New Wave Of Class Action Lawsuits

 By Aaron Olsen

President Obama’s announcement last week that he was ordering the Labor Department to revise the regulations concerning who can be classified as “executive or professional” employees has created a buzz about what this will mean for both employers and employees.  The fact that the President specifically identified concerns about managers in the fast-food industry suggests that the Department of Labor will be looking for ways to change how employees in the hospitality industry are classified. 

However, there have been very few details about what any of this will actually mean for employers.  The President trumpeted the request to review the regulations as a way to help make sure “millions of workers are paid a fair wage for a hard day's work.” But, the President’s memorandum simply instructed the Department of Labor “to update regulations regarding who qualifies for overtime protection. In so doing, the Secretary shall consider how the regulations could be revised to:

• Update existing protections in keeping with the intention of the Fair Labor Standards Act.

•Address the changing nature of the American workplace.

•Simplify the overtime rules to make them easier for both workers and businesses to understand and apply.”

Not much detail there.  

The Secretary of Labor’s press release referred generally to the low salary threshold of $455 per week, but did not give any other specific details as what to expect other than to say that it “will give millions more people a fair shot at getting ahead.”

Whether the President’s directive will lead to any real changes is anyone’s guess. (For a discussion by our colleague, Mike Kun, suggesting that there may be no real impact, see his blog entry.)  However, the rhetoric surrounding the announcement suggests that the new regulations could impact “millions” of employees.  If that is the case, employers must be very careful to stay informed of those changes and make the necessary adjustments.  Plaintiffs’ lawyers will undoubtedly be studying the changes carefully to look for a way to bring claims on behalf of the “millions” of employees who will supposedly be affected. 

Are Your Employees Being Compensated Correctly for Training Time?

By Jordan B. Schwartz

Virtually all hospitality employers are aware that pursuant to the Fair Labor Standards Act (“FLSA”), they are required to compensate employees for all hours worked. What is not as clear, however, is whether the time an employee spends at training programs, lectures, meetings, and other similar activities should be considered hours worked. As a result, our clients in the hospitality industry often ask whether they are required to compensate employees for time spent in such training activities. 

The short answer to this question is that an employee’s time spent in training sessions should be considered “working time” and thus is compensable, unless the following four factors are met:

a)      Attendance is outside of the employee’s regular working hours;

b)      Attendance is voluntary;

c)      The training is not directly related to the employee’s job; and

d)     The employee does not perform any productive work during the training.

This “four-factor test,” however, is not as straightforward as it may seem. Indeed, as demonstrated by the below “Common Employer Inquiries and Responses,” these factors contain many nuances that may make it difficult for an employer to easily determine whether training time should be compensable. 

Common Employer Inquiries and Responses

i. How should an employer determine whether attendance at a training session is outside “regular working hours?”

By default, some employers interpret the term “regular working hours” to mean the typical, standard hours of 9:00 a.m. to 5:00 p.m. As a result, these employers automatically compensate all employees for any training that takes place during these hours, even for those who do not work this standard schedule. Such an interpretation, however, may result in significant overpayments to your employees. The term “regular working hours” refers to the particular shift worked by an individual employee.  Thus, if a waitress regularly works a shift from 2:00 p.m. to 10:00 p.m., the restaurant employing her would not be required to compensate her for attending a training session from 9:00 a.m. to 11:00 a.m. (assuming all three other factors were satisfied), since the training session would be outside of her specific regular working hours. 

ii. How can an employer ensure that attendance will be considered “voluntary”?

The Department of Labor (“DOL”) classifies training as “voluntary” if (1) the employer does not require the employee to attend the training; and (2) the employee is not led to believe that her employment would be adversely affected if she does not attend the training. If an employer takes an adverse action against the employee as a result of her failure to attend the training, attendance clearly is not voluntary and the employee must be compensated. Therefore, an employer should explicitly convey to its employees that any voluntary training is not required and ensure that its supervisors and managers do not give any indication that non-attendance will result in an adverse employment action against the non-attending employee.

iii. When is a training considered “directly related to” an employee’s job?

Of all the factors set forth in the four-factor test, the question of whether training is directly related to an employee’s job generates the most employer uncertainty. In short, training is directly related to an employee’s job if it is designed to make her more effective in her position or to teach her something new she needs to know to perform her current job duties. Conversely, training is not directly related to an employee’s job when its primary focus is to prepare an employee for advancement or train her for another position, even if it results in incidental improvement to an employee’s ability to perform her regular duties. Furthermore, training is not considered to be directly related to an employee’s job when an employer’s non-mandatory training program is of general applicability and corresponds to courses offered by independent, bona fide institutions of learning.

Questions often arise as to whether non-mandatory training offered by the employer to facilitate attainment or renewal of a license, permit or certification is directly related to an employee’s job. For example, a hotel or spa may offer non-mandatory training sessions to its masseuses so that they can obtain their required licensure as massage therapists. Although the training would arguably make an employee more effective in her position as a masseuse, the program is of general applicability and corresponds to courses offered by other entities in accordance with the requirements of the state licensing division. Moreover, while the employee’s receipt of the license is mandatory, the employer’s training program is non-mandatory, as it is simply one means of achieving the required documentation. Consequently, as long as the training offered by the employer corresponds to the requirements outlined by the state licensing division, an employee’s attendance at the employer-sponsored program would not be compensable.

iv. What type of work performed during training constitutes “productive work”?

The DOL defines “productive work” as any work that an employer is able to use for business purposes. Therefore, so long as an employer does not permit an employee to actually perform work that could benefit it during the training session (as opposed to simply learning to perform such work), an employee would not be considered to have performed productive work during the training.  

Conclusion

Although the FLSA creates a presumption in favor of compensation for training sessions, there are many instances in which an employer in the hospitality industry is not required to pay employees for such time. As a result, hospitality employers should consistently evaluate their policies and practices regarding their training sessions to ensure they are not compensating employees for time when there is no obligation to do so.

Tipped Employees Under the FLSA

Our colleagues Kara Maciel and Jordan Schwartz, both of Epstein Becker Green, recently cowrote an article for PLC titled "Tipped Employees Under the FLSA."

Following is an excerpt:

Wage and hour lawsuits certainly are not new phenomena, but in recent years, service industry employees have increasingly made claims regarding tips and service charges. In particular, employers in states such as Massachusetts, New York and California have seen a surge in class actions involving compulsory tip pools and distributions of service charges to employees. Commonly targeted employers include large restaurant and coffee chains, as well as upscale eateries, many of which feature celebrity chefs.

The US Department of Labor (DOL) Wage and Hour Division (WHD) under the Obama Administration has taken an aggressive stance against wage and hour violations, leading to strict rules regarding proper tip pooling and service charge practices. As a result, many businesses with tipped employees, most notably in the food service and hospitality industry, face significant legal exposure arising from improper practices relating to the retention and distribution of tips and service charges.

To help employers comply with this complex and developing area of the law, this Note discusses and explains:

  • Federal law on tips and service charges and the interaction with state laws.
  • Who are considered tipped employees.
  • Disbursement of tips and service charges.
  • Tip pooling requirements.
  • States experiencing a high volume of class action litigation on this topic.
  • Best practices for compliance.

Download the full article, here, in PDF format.

Wage and Hour Update

Our colleague Kara M. Maciel of Epstein Becker Green wrote a wage and hour update in this month’s Take 5 labor and employment newsletter.

Here’s a preview of the five items:

1. IRS Will Begin Taxing a Restaurant's Automatic Gratuities as Service Charges
2. The New DOL Secretary, Tom Perez, Spells Out the WHD's Enforcement Agenda
3. DOL Investigates Health Care Provider and Obtains $4 Million Settlement for Overtime Payments
4. Federal Court Strikes Down DOL Tip Pooling Rule
5. Take Preventative Steps When Facing WHD Audits

Read the full article here.

 

Take 5 Views You Can Use: Wage and Hour Update

By:  Kara M. Maciel

The following is a selection from the Firm's October Take 5 Views You Can Use which discusses recent developments in wage hour law affecting the hospitality industry.

IRS Will Begin Taxing a Restaurant’s Automatic Gratuities as Service Charges

Many restaurants include automatic gratuities on the checks of guests with large parties to ensure that servers get fair tips. This method allows the restaurant to calculate an amount into the total bill, but it takes away a customer’s discretion in choosing whether and/or how much to tip the server. As a result of this removal of a customer’s voluntary act, the Internal Revenue Service (“IRS”) will begin classifying automatic gratuities as service charges, taxed like regular wages, beginning in January 2014.

This change is expected to be problematic for restaurants because the new treatment of automatic gratuities will complicate payroll accounting. Each restaurant will be required to factor automatic gratuities into the hourly wage of the employee, meaning the employee’s regular rate of pay could vary from day to day, thus adding a potential complication to overtime payments. Furthermore, because restaurants pay Social Security and Medicaid taxes on the amount that its employees claim in tips, restaurants are eligible for an income-tax credit for some or all of these payments. Classifying automatic gratuities as service charges, however, would lower that possible income-tax credit.

Considering that the IRS’s ruling could disadvantage servers as well, restaurants may now want to consider eliminating the use of automatic gratuities. Otherwise, employees could come under greater scrutiny in reporting their tips as a result of this ruling. Furthermore, these tips would be treated as wages, meaning upfront withholding of federal taxes and delayed access to tip earnings until payday.

Some restaurants, including several in New York City, have begun doing away with tips all together. These restaurants have replaced the practice of tipping with either a surcharge or increased food prices that include the cost of service. They can then afford to pay their servers a higher wage per hour in lieu of receiving tips. This is another way for restaurants to ensure that employees receive a sufficient wage, while simultaneously removing the regulatory burdens that a tip-system may impose.

The New DOL Secretary, Tom Perez, Spells Out the WHD’s Enforcement Agenda

On September 4, 2013, the new U.S. Secretary of Labor, Tom Perez, was sworn in. During his remarks, Secretary Perez outlined several priorities for the U.S. Department of Labor (“DOL”), including addressing pay equity for women, individuals with disabilities, and veterans; raising the minimum wage; and fixing the “broken” immigration system.

Most notably, and unsurprisingly, Secretary Perez emphasized the enforcement work of the Wage and Hour Division (“WHD”). Just last year, the WHD again obtained a record amount—$280 million—in back-pay for workers. Employers can expect to see continued aggressive enforcement efforts from the WHD in 2013 and 2014 on areas such as worker misclassification, overtime pay, and off-the-clock work. In fact, Secretary Perez stated in his swearing-in speech that “when we protect workers with sensible safety regulations, or when we address the fraud of worker misclassification, employers who play by the rules come out ahead.” By increasing its investigative workforce by over 40 percent since 2008, the WHD has had more time and resources to undertake targeted investigation initiatives in addition to investigations resulting from complaints, and that trend should continue.

Federal Court Strikes Down DOL Tip Pooling Rule

In 2011, the WHD enacted a strict final rule related to proper tip pooling and service charge practices. This final rule was met with swift legal challenges, and, this summer, the U.S. District Court for the District of Oregon (“District Court”) concluded that the DOL had exceeded its authority when implementing its final rule. See Oregon Rest. and Lodging Assn. v. Solis, No. 3:12-cv-01261 (D. Or. June 7, 2013).

Inconsistent interpretations of the FLSA among various appellate courts have created confusion for both employers and courts regarding the applicability of valid tip pools. One of the most controversial interpretations of the FLSA occurred in early 2010, when the U.S. Court of Appeals for the Ninth Circuit held that an employer could require servers to pool their tips with non-tipped kitchen and other “back of the house staff,” so long as a tip credit was not taken and the servers were paid minimum wage. See Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010). According to the Ninth Circuit, nothing in the text of the FLSA restricted tip pooling arrangements when no tip credit was taken; therefore, because the employer did not take a tip credit, the tip pooling arrangement did not violate the FLSA.

In 2011, the DOL issued regulations that directly conflicted with the holding in Woody Woo. As a result, employers could no longer require mandatory tip pooling with back-of-the-house employees. In conjunction with this announcement, the DOL issued an advisory memo directing its field offices nationwide, including those within the Ninth Circuit, to enforce its final rule prohibiting mandatory tip pools that include such employees who do not customarily and regularly receive tips.

Shortly after the issuance of the DOL’s final rule, hospitality groups filed a lawsuit against the DOL challenging the agency’s regulations that exclude back-of-the-house restaurant workers from employer-mandated tip pools. The lawsuit sought to declare the DOL regulations unlawful and inapplicable to restaurants that pay employees who share the tips at least the federal or applicable state minimum wage with no tip credit. On June 10, 2013, the District Court granted the plaintiffs’ summary judgment motion, holding that the DOL exceeded its authority by issuing regulations on tip pooling in restaurants. The District Court stated that the language of Section 203(m) of the FLSA is clear and unambiguous; it only imposes conditions on employers that take a tip credit.

The District Court’s decision may have a large impact on the tip pool discussion currently before courts across the country, especially if employers in the restaurant and hospitality industries begin to challenge the DOL’s regulations. Given the District Court’s implicit message encouraging legal challenges against the DOL, the status of the law regarding tip pooling is more uncertain than ever. Although the decision is a victory for employers in the restaurant and hospitality industry, given the aggressive nature of the DOL, employers in all circuits should still be extremely careful when instituting mandatory tip pool arrangements, regardless of whether a tip credit is being taken.

Take Preventative Steps When Facing WHD Audits

In response to a WHD audit or inspection, here are several preventative and proactive measures that an employer can take to prepare itself prior to, during, and after the audit:

  • Prior to any notice of a WHD inspection, employers should develop and implement a comprehensive wage and hour program designed to prevent and resolve wage hour issues at an early stage. For example, employers should closely examine job descriptions to ensure that they reflect the work performed, review time-keeping systems, develop a formal employee grievance program for reporting and resolving wage and hour concerns, and confirm that all written time-keeping policies and procedures are current, accurate, and obeyed. Employers should also conduct regular self-audits with in-house or outside legal counsel (to protect the audit findings under the attorney-client privilege) and ensure that they address all recommendations immediately.
  • During a DOL investigation, employers should feel comfortable to assert their rights, including requesting 72 hours to comply with any investigative demand, requesting that interviews and on-site inspection take place at reasonable times, participating in the opening and closing conferences, protecting trade secrets and confidential business information, and escorting the investigator while he or she is at the workplace.
  • If an investigator wants to conduct a tour of an employer’s facility, an employer representative should escort the investigator at all times while on-site. While an investigator may speak with hourly employees, the employer may object to any impromptu, on-site interview that lasts more than five minutes on the grounds that it disrupts normal business operations.
  • If the DOL issues a finding of back wages following an investigation, employers should consider several options. First, an employer can pay the amount without question and accept the DOL’s findings. Second, an employer can resolve disputed findings and negotiate reduced amounts at an informal settlement conference with the investigator or his or her supervisor. Third, an employer can contest the findings and negotiate a formal settlement with the DOL’s counsel. Finally, an employer may contest the findings, prepare a defense, and proceed to trial in court.

In addition, employers should review our WHD Investigation Checklist, which can help them ensure that they have thought through all essential wage and hour issues prior to becoming the target of a DOL investigation or private lawsuit.

Following these simple measures could significantly reduce an employer’s exposure under the FLSA and similar state wage and hour laws.

Serving Up More Taxes - IRS to Begin Taxing Automatic Gratuities as Service Charges

By: Kara M. Maciel

Many restaurants include automatic gratuities on guests’ checks with large parties to ensure servers get fair tips. This method allows the restaurant to calculate an automatic gratuity or tip into the total bill, but it takes away the customer’s discretion in choosing whether and/or how much to tip the server. As a result of this removal of a customer’s voluntary act, the IRS has decided that it will separately tax automatic gratuities.

In 2012, the IRS issued a ruling to clarify earlier tax guidance on tips, particularly automatic gratuities, but because restaurants persuaded the IRS to hold off for a year, the IRS did not immediately enforce that ruling. As of January 2014, however, the IRS will begin classifying automatic gratuities as service charges, taxed like regular wages. 

This change is expected to be problematic for restaurants because the new treatment of automatic gratuities will complicate payroll accounting. Each restaurant will be required to factor any automatic gratuities into the hourly wage of the employee, meaning the employee’s regular rate of pay could vary from day to day, thus adding a potential complication to overtime payments. Furthermore, because restaurants pay Social Security and Medicaid taxes on the amount its employees claim in tips, restaurants are eligible for an income-tax credit for some or all of these payments. Classifying automatic gratuities as service charges, however, would lower that possible income-tax credit. Finally, it will produce more paperwork and add to the already rising costs restaurants will incur due to the Affordable Care Act. 

Restaurants considering eliminating the use of automatic gratuities are unlikely to face much backlash from employees, as the IRS’s ruling could disadvantage them as well. For example, employees could come under greater scrutiny in reporting their tips as a result of this ruling. Furthermore, these tips would be treated as wages, meaning upfront withholding of federal taxes and delayed access to tip earnings until payday. For those waiters and waitresses used to coming home with money in their pockets each workday, such a delay could prove a serious financial hardship.

Some restaurants have begun moving toward the use of suggested tips on a customer’s bill instead of charging an automatic gratuity in light of this change. For example, Darden Restaurants Inc., has begun implementing a new system in some of its restaurants in which three suggested tip amounts, 15%, 18% and 20%, appear on all customer bills. This system allows the customer to exercise discretion in choosing whether and how much to tip. In its ruling, the IRS suggested that such a practice would not be subject to federal withholdings because the decision to leave a tip is still voluntary. Therefore, this practice presents a viable alternative to automatic gratuities as it provides some protection for employees without incurring increased tax penalties.

Other restaurants, including several in New York City, have begun doing away with tips all together. These restaurants have replaced the practice of tipping with either a surcharge or food prices that include the cost of service. They can then afford to pay their servers a higher wage per hour in lieu of receiving tips. This is another way for restaurants to ensure employees receive a sufficient wage, while simultaneously removing the regulatory burdens that a tip-system may impose.   

T.G.I. Fridays Settles With DOL For FMLA Policy and Procedure Violations

By Anna A. Cohen

Demonstrating the importance for employers to review their FMLA practices, an investigation by the U.S. Department of Labor’s Wage and Hour Division (DOL) revealed that T.G.I. Fridays’ FMLA policy and notification practices did not comply with the law. Specifically, the policy did not include information on the FMLA’s military family leave provisions, information on the right to take FMLA-covered leave on an intermittent or reduced schedule basis, and misstated the 12-month employment requirement for FMLA eligibility as being 12 continuous months. 

T.G.I. Fridays has agreed to revise its FMLA policy and to correct the violations found by the DOL. These changes will affect FMLA-eligible employees at its 272 locations.

The DOL’s investigation also found that the restaurant violated the FMLA by failing to reinstate an employee to the same or equivalent position, including pay, benefits and other terms of employment, and that the employee was not allowed to return to work immediately following FMLA-covered leave.

To avoid a DOL investigation and potential penalties, employers should examine their FMLA policies and notification forms, as well as review procedures for employees returning to work after leave. 

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DOL Tip Pooling Rule Held Invalid by Federal Court

By:      Kara Maciel and Jordan Schwartz

As discussed in prior blogs, due to confusion surrounding FLSA tip pool requirements, the U.S. Department of Labor (“DOL”) Wage and Hour Division enacted a strict rule in 2011 related to proper tip pooling and service charge practices. This rule was met with swift legal challenges, and earlier this week the U.S. District Court for the District of Oregon concluded that the DOL had exceeded its authority when implementing its final rule. See Oregon Rest. and Lodging Assn. v. Solis, No. 3:12-cv-01261 (D. Or. June 7, 2013). 

Inconsistent interpretations of the FLSA among various appellate courts have created confusion for both employers and courts regarding the applicability of valid tip pools. One of the most controversial interpretations of the FLSA occurred in early 2010, when the Ninth Circuit held that an employer could require servers to pool their tips with non-tipped kitchen and other “back of the house staff,” so long as a tip credit was not taken and the servers were paid minimum wage. See Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010).According to the court, nothing in the text of the FLSA restricted tip pooling arrangements when no tip credit was taken; therefore, because the employer did not take a tip credit, the tip pooling arrangement did not violate the FLSA. 

The DOL initially announced that in accordance with the Woody Woo decision, it would permit employers in the Ninth Circuit to impose mandatory tip pooling on employees who did not customarily and regularly receive tips.   However, on April 5, 2011, the DOL issued regulations that directly conflicted with the holding in Woody Woo. At that time, it was unclear whether the DOL would enforce the new regulations against employers in the Ninth Circuit. In early 2012, the DOL clarified its position on tip pooling by fully rejecting the Ninth Circuit’s decision in Woody Woo. As a result, employers could no longer require mandatory tip pooling with back of the house employees. In conjunction with this announcement, the DOL issued an advisory memo directing its field offices nationwide, including those within the Ninth Circuit, to enforce its rule prohibiting mandatory tip pools that include such employees who do not customarily and regularly receive tips.    

Shortly after the DOL’s final rule, hospitality groups, including the Oregon Restaurant and Lodging Association, the Washington Restaurant Association, and the Alaska CHARR, filed a lawsuit against the DOL challenging the agency’s regulations that exclude back-of-house restaurant workers from employer-mandated tip pools. The lawsuit sought to declare the DOL regulations unlawful and inapplicable to restaurants that pay employees who share the tips at least the federal or applicable state minimum wage with no tip credit. On June 10, 2013, the court granted the plaintiffs’ summary judgment motion, holding that the DOL exceeded its authority by issuing regulations on tip pooling in restaurants. The court stated that the language of Section 203(m) of the FLSA is clear and unambiguous; it only imposes conditions on employers that take a tip credit. Quoting the Ninth Circuit’s opinion in Woody Woo, the court explained that “[a] statute that provides that a person must do X in order to achieve Y does not mandate that a person must do X, period.”   

The court’s decision may have a large impact on the tip pool discussion currently before courts across the country, especially if employers in the restaurant and hospitality industries begin to challenge the DOL’s regulations. Given the court’s implicit message encouraging legal challenges against the DOL, the status of the law regarding tip pooling is more uncertain than ever.   Although the decision is a victory for employers in the restaurant and hospitality industry, given the aggressive nature of the DOL, employers in all circuits should still be extremely careful when instituting mandatory tip pool arrangements, regardless of whether a tip credit is being taken.

EBG Provides a Wage and Hour Division Investigation Checklist for Hospitality Employers

Epstein Becker Green is pleased to announce the availability of a Wage and Hour Division Investigation Checklist, which provides hospitality employers with valuable information about wage and hour investigations and audits conducted by the U.S. Department of Labor (DOL). Like EBG’s first-of-its kind Wage and Hour App, which provides detailed information about federal and state laws, the Checklist is a free resource offered by EBG.

The Checklist provides step-by-step guidance on the following issues: preparation before a Wage and Hour Division investigation of the DOL; preliminary investigation issues; document production; on-site inspection activities; employee interviews; and back-wage findings, and post-audit considerations.

“The multitude of wage and hour claims and lawsuits that workers have filed under the Fair Labor Standards Act and its state law counterparts have made wage and hour law the nation's fastest growing type of litigation. And federal and state agencies are investigating and pursuing wage and hour claims more aggressively than ever,” said Michael Kun, the national Co-Chairperson of the firm's Wage and Hour, Individual and Collective Actions practice group. “We hope that our Checklist will serve as an important resource for hospitality employers to use when confronted with an audit – and perhaps help them avoid an audit altogether.”

               Click Here to Download EBG's Wage and Hour Division Investigation Checklist

Hurricane Sandy Is About to Blow Our Way: Wage & Hour Implications for the Hospitality Industry

By: Kara Maciel

Hurricane Sandy is approaching this weekend, so hospitality employers along the East Coast should refresh themselves on the wage and hour issues arising from the possibility of missed work days in the wake of the storm.

A few brief points that all employers should be mindful of under the FLSA:

  • A non-exempt employee generally does not have to be paid for weather-related absences. An employer may allow (or require) non-exempt employees to use vacation or personal leave days for such absences. But, if the employer has a collective bargaining agreement or handbook policies, the employer may obligate itself to pay through such policies.
  • An exempt employee generally must be paid for absences caused by office closures due to weather, if he/she performs work in that week. The Department of Labor has stated that an employer may not dock a salaried employee for full days when the business is closed because of weather. Partial day deductions for weather related absences are not permitted.
  • If certain employees are required to be on-call (such as public safety, IT, or other essential personnel) during the storm, and the employee cannot use the time effectively for his or her own purpose, the on-call time is compensable and the employee must be paid. However, if the employee is simply at home and available to be reached by company officials, then the time is not working time and an employer does not have to pay for that time.

Policies and procedures to keep in place:

  • Decide whether your company will offer “weather days” for non-exempt workers who are absent because of disasters.
  • Ensure that your payroll systems are prepared for employees working from home, longer shifts, or not taking lunches.
  • Decide whether employees absent because of weather will be allowed / required to use vacation or PTO time.
  • Ensure safety of payroll records and ability to process payroll from alternate location if needed.

Natural disasters pose a myriad of employment and HR issues from wage-hour to FMLA leave and the WARN Act. The best protection is to have a plan in place in advance to ensure your employees are paid and well taken care of during a difficult time. Our reference tool contains answers to common questions, and while aimed at employers in the Gulf Coast, if you have operations anywhere along the East Coast, you should find it helpful.

Tip Pools: Challenging DOL's Amended Rule on Employee Participation

By:  Kara M. Maciel

In April of 2011, the U.S. Department of Labor (“DOL”) changed its rule defining the general characteristics of tips in an attempt to overrule the U.S. Court of Appeals for the Ninth Circuit’s decision in Cumbie v. Woody Woo, Inc. ruling that the FLSA does not impose any restrictions on the kinds of employees who may participate in a valid tip pool where the employer does not claim the “tip credit.”

DOL’s Recent Position on Tip Pool Participation

The DOL’s amended rule provides that tips are the property of the employees, and may not be used by the employer for any purpose other than as a tip credit or in furtherance of a valid tip pool, regardless of whether the employer actually uses the “tip credit.”  Accordingly, the DOL will now find a tip pool to be invalid if it includes employees who do not “customarily and regularly receive tips” – a requirement that the DOL generally interprets to limit tip pools to employees who provide direct service to customers.

Earlier this year, the DOL issued a memorandum stating that it would be enforcing its new rules on tip pools uniformly throughout the country.  Accordingly, employers who have established mandatory tip pools but who do not use the tip credit may find themselves faced with DOL enforcement actions if they permit employees who do not provide direct service to participate in the tip pools.  Those businesses faced with such enforcement actions may find it in their interest to challenge the validity of the DOL’s position on tip pools and argue that it conflicts with the plain language of the FLSA. 

Legal Arguments to Challenge DOL’s Interpretation on Tip Pools

For those businesses seeking to challenge the DOL’s new rule on tip pooling, the Ninth Circuit’s opinion in Woody Woo, provides useful guidance.  Specifically, the Court concluded that that the plain language of Section 203(m) of the FLSA imposes limitations on mandatory tip pools only when the employer takes a “tip credit,” and does not state freestanding requirements for all tip pools.  Further, under the U.S. Supreme Court precedent, when a federal statute addresses a particular issue, courts must apply the plain language of the statute and may not rely on a federal agency’s interpretation of the law, particularly if the agency’s interpretation conflicts with the plain language of the statute.  Based on this case law, an employer could argue that the DOL’s position on tip pools is invalid because it conflicts with the plain language of Section 203(m) of the FLSA.  Specifically, the DOL has attempted to extend to all tip pools a restriction that Congress clearly limited to tip pools involving workers for whom the employer claims the “tip credit.” 

The DOL has attempted to get around this argument by claiming that Section 203(m) of the FLSA left a “gap” in the statutory scheme regarding the treatment of tips which the DOL may fill through its interpretation of the law.  Under Woody Woo, the problem with the DOL’s argument is that it mischaracterizes Congress’ clear intent to limit the FLSA’s restrictions on mandatory tip pools to those involving employees for whom the employer claims the “tip credit” as “silence” on the issue of whether those same restrictions apply to other kinds of tip pools.  However, a legislative decision to limit a particular rule’s application to one situation does not create a “gap” for a federal agency, like the DOL, to then apply that rule to other situations.  Indeed such an expansion of the rule would conflict with the limitations on its application that were expressly established by Congress.

While a federal agency, like the DOL, can fill “gaps” left by a statute it enforces, the agency does not have the power to simply make new law.  To the extent that the FLSA is “silent” about the restrictions on mandatory tip pools in situations in which the employer does not claim the “tip credit,” that is because the statute does not address the subject matter at all.  Rather, as the Ninth Circuit noted in Woody Woo, it regulates tip pools only to the extent that they are comprised of employees for whom the employer claims the “tip credit.”  A rule or enforcement position that imposes restrictions on such tip pools does not fill a “gap” left by Congress; it is nothing more than an attempt to create new law – something the DOL cannot do.

Review Tip Pool Practices

In light of the DOL’s enforcement efforts, all hospitality employers should review their tip pooling practices to ensure compliance with both federal (and state) laws.  While the safest approach to administering a tip pool may be to comply with the DOL’s current interpretation, and restrict participation to non-management employees who provide direct service to customers, hospitality businesses that are faced with enforcement actions based on their past practices may find it useful to raise these challenges to the DOL’s position.  A successful challenge to the DOL’s enforcement position can allow hospitality businesses to avoid significant monetary penalties and preserve valid tip pool arrangements that promote cooperation and harmony among their employees.

Are Your Employees' Tips Subject To Garnishment?

By Matthew Sorensen

 

Wage garnishment can pose a number of potential problems for hospitality businesses. This is particularly true where the employee whose pay is subject to garnishment receives tips. 

Garnishment is a legal procedure in which an employee’s earnings must be withheld by an employer for the payment of a debt under a court order. When faced with a garnishment order involving a tipped employee, the employer must determine whether all or part of the employee’s tips must be included in the amounts withheld under the garnishment order. This question turns on whether or not the employee’s tips may be characterized as “earnings” under the applicable garnishment statute. A mistake by the employer could lead to significant liability. Many state and federal laws concerning garnishment contain provisions that allow for direct employer liability for failing to timely respond to or follow a garnishment order. On the other hand, federal and state wage and hour rules can create liability for wrongfully withholding an employee’s tips. A recent Tennessee Appellate court ruling provides some additional guidance in this area that will likely have broader application to hospitality businesses around the country. 

In Erlanger Medical Center v. Strong, the Tennessee Court of Appeals relied on guidance found in the U.S. Department of Labor’s Field Operations Manual and a Wage and Hour Opinion Letter to hold that tips are not “earnings” that may be garnished. Specifically, the Court noted that “garnishment is inherently a procedural device designed to reach and sequester earnings held by the garnishee (usually the employer).” The Court went on to note that tips paid to an employee by a customer (including those paid by means of a credit card) are not “earnings” that may be garnished because they do not pass to the employer (the garnishee). Rather, tips are direct payments from customers to employees and are the property of the tipped employee. 

This ruling is consistent with a recent decision by the Appellate Division of the New Jersey Superior Court which held that tips are not “earnings” subject to garnishment under New Jersey law. It is also bolstered by the U.S. Department of Labor’s 2011 amendments to its rules defining the general characteristics of “tips.” In those revised rules, the Department of Labor has stated that the Fair Labor Standards Act prohibits employers from using an employee’s tips for any reasons other than as a credit against the minimum wage or as part of a valid tip pool.

Although each state’s garnishment laws are different, many states have defined “earnings” that may be subject to garnishment in a manner that is similar to the Tennessee statute at issue in Erlanger Medical Center v. Strong. As such, the Tennessee Court of Appeals’ decision and the U.S. Department of Labor guidance documents on which it relied may serve as strong persuasive authority in other jurisdictions. Nevertheless, hospitality employers should remain mindful that some states, including Colorado, expressly include tips in their definitions of “earnings” subject to garnishment. 

When served with a garnishment order, hospitality employers should act promptly to determine their obligations under both state and federal law, particularly where the order involves a tipped employee. Garnishment orders often set out specific timelines for the employer to respond and comply. Failure to appropriately or timely respond to the order can put the employer on the hook for its employee’s debt. To avoid such undesirable consequences and ensure that no improper deductions or withholdings are made from an employee’s tips under applicable wage and hour laws, it is best practice to consult with an attorney immediately upon receipt of a garnishment order.

Are Your Non-Exempt Employees Being Compensated Correctly For Travel Time?

By:   Jordan Schwartz

Like many attorneys, I spend a significant amount of time traveling, whether it is to meet with clients, take depositions, or conduct training sessions. Business-related travel certainly is not unique to the legal industry. In fact, more and more employees in other industries, including the hospitality industry, are spending a greater amount of time traveling for work than ever before. Such travel typically includes attending out-of-state trade shows, recruiting visits, job fairs, and sales calls. As an exempt employee, compensation for travel time is cut and dry – an employee simply continues to receive his or her salary. For non-exempt employees, however, determining proper travel-time compensation is not nearly as straightforward.

The Fair Labor Standards Act (“FLSA”) governs the payment of wages, and requires that employees be compensated for all work performed. Yet, two common questions surface routinely concerning the compensability of travel time:

(1)   Is a non-exempt employee’s travel time for business-related events, whether as a passenger on an airplane, train, boat, bus, or automobile, compensable?; and

(2)   If so, and as a result the travel takes them over 40 hours in a workweek, must that employee be paid overtime for those additional hours?

The answer, as is often the case in the legal profession, is “it depends.” Under the FLSA, time spent traveling during normal work hours is considered work time. Therefore, since a non-exempt employee is essentially substituting travel for other duties he or she would have been performing, that employee must be paid for travel time occurring during his or her normal work hours. The employee is not, however, entitled to be paid for time traveling outside of regular working hours. Thus, if an employer requires an employee who typically works from 9:00 am to 5:00 pm Monday through Friday to travel to a conference and such travel occurs on Wednesday from 3:00 pm to 7:00 pm, the employer is only required to pay the employee for a typical eight hour day ending at 5:00 pm. Because the additional two hours of travel are not “working time,” no additional pay (and thus no overtime) would be required. 

Where this gets confusing, however, is that an employee’s “normal working hours” also applies to corresponding hours on weekends or other non-working days. Thus, if the same hypothetical employee is required to travel back home on Saturday from 3:00 pm to 7:00 pm, he or she must be compensated for two additional hours (corresponding to 3:00 pm to 5:00 pm), even though that employee would not otherwise have been required to work on a Saturday. Assuming that employee had already worked a full 40-hour workweek, he or she would thus be entitled to overtime for these additional two hours. 

There are several other important issues employers should keep in mind regarding travel time:

·         Employees are not entitled to be paid just for the time they are “in the air” on a flight. Rather, time spent in the airport on layovers also constitutes travel time. 

·         Generally, travel time on work-related day trips is counted as time worked, except for meal times, which may be deducted.

·         Typically, time spent commuting is not work time. Just as employees are not compensated for the time it takes to drive to and from work on a typical non-traveling work day, the time spent commuting to and from the airport or train station does not constitute work time. Rather, the work time would start when the employee arrived at the airport, train or bus station.

In this day and age, with business travel becoming the norm as opposed to the exception, it is essential for hospitality employers to recognize and be aware of these rules relating to travel time. Indeed, it would be a shame if an employee’s otherwise productive business-related trip resulted in a major expense due to non-compliance with the FLSA. 

Hotel Operators and Managers Remain Vulnerable to Wage and Hour Class Actions

By:  Casey Cosentino

A hotel management company was recently hit with a putative class action in federal court for allegedly failing to compensate hotel employees overtime pay at one and one-half times their regular rate of pay for all hours worked over 40 hours in a workweek. As the chief engineer, the lead plaintiff was classified as an executive employee and, thus, was exempt from overtime requirements under the Fair Labor Standards Act (“FLSA”). The lead plaintiff asserts, however, that he was misclassified under the Executive exemption because he “regularly and routinely performed non-exempt tasks . . . including but not limited to, upkeep of the hotel and its grounds, and building and property maintenance; and supervised no more than one other employee.” As such, the complaint contends, among other things, that he and other similarly situated employees unlawfully worked between 50 and 60 hours per week without receiving overtime pay. 

As evidenced by this case, a constant issue challenging the hospitality industry is the proper classification of employees as exempt under the Executive exemption when those employees regularly and routinely perform non-exempt duties. By way of background, the FLSA requires employers to pay employees at one and one-half times their regular rate of pay for hours worked in excess of 40 hours; however, there are exemptions from overtime pay for an employee employed as bona fide executive, professional, administrative, outside Sales, and computer professional. Specifically, to qualify for the Executive exemption, employees must meet all of the following requirements:

1.              The employee must be compensated on a salary basis at a rate not less than $455 per week;

2.              The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;

3.              The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

4.              The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

A “primary duty” under the Executive exemption is the “principal, main, major or most important duty that the employee performs.” 29 C.F.R. § 541.700(a). Notably, an executive employee is not precluded from exempt status for performing non-exempt work when his/her primary duty is to perform managerial duties such as interviewing, directing work, appraising work performance, and delegating assignments. Determination of an employee’s primary duty is based on all the facts in a particular case, and not solely on the amount of time spent on a particular aspect of the employee’s job. Indeed, “[e]mployees spending less than fifty percent of their time on managerial aspects can nonetheless satisfy the primary duty requirement under other relevant facts of the case,” including:   

·         Importance of exempt duties as compared with other types of duties;

·         Amount of time spent performing exempt work;

·         Employee’s relative freedom from direct supervision; and

·         Relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.

29 C.F.R. § 541.700(b).

Most industries have experienced the tidal wave of wage and hour class action suits with respect to misclassifying exempt employees, and the hospitality industry is no exception. Because it is common for exempt employees in the hospitality industry to perform non-exempt duties, hotels classifying or planning to classify employees under the Executive exemption should ensure that their primary duty is managerial functions. Moreover, as a best practice, prudent hotel operators should regularly review their wage and hour practices to ensure compliance with federal and state laws. In doing so, hotel operators should: (1) review and update employee classifications and job descriptions; (2) audit their payroll practices with an emphasis on overtime calculation, meal and rest break periods, and salary deductions; and (3) determine whether “preliminary” and “postliminary” job tasks are compensable work time. Identifying and correcting wage and hour mistakes before plaintiffs collectively march to the courthouse is vital to defending class action wage and hour suits and reducing legal liability.

Top Legal Issues for the Hospitality Industry to Watch in 2012

by:  Matthew Sorensen

 1.      Deadline For Compliance With New ADA Accessibility Rules Approaching:

 On March 15, 2012, hospitality establishments will be required to be in compliance with the standards for accessibility set by the Department of Justice’s final regulations under Title III of the ADA (2010 ADA Standards). The regulations made significant changes to the requirements for accessible facilities, and will require additional training of staff on updated policies and procedures in response to inquiries from guests with disabilities. Among the most significant changes for hospitality businesses are:           

·         New structural and communication-related requirements for automatic teller machines (“ATMs”);

·         Accessible means of entry for pools and spas – for pools, a sloped entry or a pool lift is required for the primary method of entry, and for spas, the means of entry may be a pool lift, transfer wall, or transfer system;

·         At least 60% of public entrances must be accessible as compared with 50% under the former standards;

·         A new requirement to modify hotel policies to ensure that individuals with disabilities can make reservations for accessible guest rooms during the same hours and in the same manner as individuals who do not need accessible rooms;

·         Golf facilities must have either an accessible route or golf cart passages with a minimum width of 48 inches connecting accessible spaces of the golf course.

2.      Tip Credit and Tip Pooling Lawsuits Remain The Lawsuit Du Jour:

 In recent years, the number of individual and collective action lawsuits involving allegations of tip credit and tip-pooling violations by hospitality businesses has significantly increased. Given the ever changing web of state, federal and local laws regarding tip credit and tip pooling arrangements, it is important that hospitality employers with tipped employees periodically audit their pay practices to ensure compliance with all applicable rules. To minimize the risk of tip credit and tip pooling violations employers should ensure that:

·         They inform tipped employees of any tip credit claimed against their wages;

·         Employees report their tips and that proper records of tips are maintained; and

·         Management and other categories of workers who are precluded from participating in tip pools by federal, state or local law do not participate in such pools.

3.      Increase In Organizing Efforts By UNITE HERE:

The NLRB’s new rule amending the procedures for union election cases introduces a number of union-friendly changes to the election process, including the elimination of the right to seek NLRB review of regional directors’ pre-election rulings. These changes increase the risk that unions will seek approval of smaller units for elections that are based on the extent to which employees in such units support union representation. 

In addition, the NLRB has also announced that its new rule requiring employers to post a notice describing employee rights under the NLRA will go into effect on April 30, 2012. The notice has the potential of generating more discussion of unionization among employees as well as more employee and union-initiated representation campaigns. 

It is anticipated that groups like UNITE HERE will likely attempt to capitalize on these recent changes to increase unionization in the hospitality sector.

4.      Social Media Remains A Hot Topic With The NLRB:

As the use of social media has steadily grown among restaurants and hoteliers, so too has the NLRB’s interest in cases involving social media policies and social media-related discipline. While employees do not receive protection under the NLRA merely by posting a work-related complaint on a social media website, under some circumstances employee complaints made using social media may be found to constitute protected concerted activity. 

As such, hospitality employers need to remain cautious when crafting social media policies and any time they contemplate taking adverse action against an employee for social media activity. 

5.      U.S. Supreme Court to Address The Patient Protection and Affordable Care Act (PPACA):

The U.S. Supreme Court is scheduled to address the challenges to the constitutionality of PPACA in 2012 and it is possible that the Court will issue an opinion on the matter before its June break. If the statute, or at least the portion of the statute that applies to employers and insurance companies, is found to be constitutional, hospitality employers with more than 50 employees will be required to provide certain mandated levels of healthcare coverage to all employees who regularly work more than 30 hours per week by 2014, or face penalties. 

Lessons Learned: 

In light of these issues, it is important that hospitality employers take action to evaluate their policies and practices, including those related to pay, social media, employee handbooks, and health insurance to ensure that they are compliant with applicable legal requirements. It is equally important that they plan proactively to address the potential business challenges posed by the NLRB’s new union-friendly election and notice rules and PPACA.

First Circuit Finds Hotel Banquet Sales Manager Exempt from Overtime Pay

By Peter M. Panken, Michael S. Kun, Douglas Weiner and Larissa Lalor-Rosado

Hotels, restaurants and private clubs all rely on sponsored events, banquets and social soirees for the profitability of their operation.  Most employ one or more “managers” to solicit the business, work with the clients, detail the services to be provided, prepare the contract and even negotiate a price.  In most instances higher management must approve the terms the managers propose including the financial arrangements.  In other cases the basic terms are set forth in directions which can only be varied if approved by higher management. There have been a rash of recent lawsuits by such administrative employees who claim they are not exempt from overtime but must be paid time and one half for the hours they work each week over 40 hours plus liquidated damages which double the exposure.

Misclassification of employees as exempt from overtime compensation has become a cottage industry for plaintiff’s lawyers and for the United States Department of Labor (“DOL”) in the Obama years. One of the most difficult issues is whether employees meet the so-called administrative exemption to the Wage Hour laws. In Hines v. State Room , the United States Circuit Court in New England offered some clarity and help to beleaguered employers holding that former  banquet sales managers were exempt from overtime requirements under the Fair labor Standards Act (“FLSA”).

The FLSA requires overtime pay at the rate of one and one half times the regular rate of pay for all hours worked in excess of 40 hours in a seven day period unless the employee is exempt. The three pronged test for exemption for administrative employees is whether the employee is (1) salaried (paid a regular amount of at least $455 for all hours worked in a workweek) , (2) the employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Plaintiffs were banquet sales managers whose job included seeking potential customers for events at the employer, developing the elements of the party or other event and submitting the proposed contract terms for approval by senior officials of the Banquet Halls.

The Court found that Plaintiffs met the first two prongs for exemption: Plaintiffs were paid on a salary basis, and their work was primarily administrative because it was ancillary to the employer’s actual business of providing banquet services.

Plaintiffs claimed that they did not meet the third prong for exemption because they lacked the authority to make any decisions of financial consequence, supervisory authority or policy-making authority.

The Court found that while the plaintiffs’ discretion in matters having significant financial impact was subject to managerial approval, such restrictions did not detract from the judgment exercised in developing a proposal for the client. Plaintiffs’ duties included maintaining primary contact with a client, tailoring an event to their needs, and overseeing the event through to execution. The Court ruled that plaintiffs exercised adequate discretion as sales people to be designated as exempt.

Other Factors Considered for Exemption

The preamble to the current DOL regulations identifies a host of factors that courts have found sufficient to demonstrate that employees exercise independent judgment. 69 Fed. Reg. at 22144. Such factors include:

·                     the ability to exercise discretion and independent judgment,

·                     freedom from direct supervision,

·                     personnel responsibilities,

·                     trouble-shooting or problem-solving activities on behalf of management,

·                     use of personalized communication techniques,

·                     authority to handle atypical or unusual situations,

·                     responsibility for assessing customer needs, primary contact to public or customers on behalf of the employer, the duty to anticipate competitive products or services and distinguish them from competitor’s products or services,

·                     advertising or promotion work, and coordination of departments, requirements or other activities for or on behalf of employer or employer’s clients or customers.

Unfortunately these factors are very fact intensive and do not provide a bright line test for exemption, But the Hines case does offer some useful precedent and guidance for employers. In any event, care must be taken to be sure that the law in a particular state or in a particular circuit does not impose a stricter limitation on the discretion and independent judgment issue.

Take-Away

An employer may retain the right to review an employee’s ability to create financial and contractual obligations and still properly classify the employee as exempt. Requiring managerial approval for these purposes does not necessarily detract from the judgment exercised by the employee at arriving at the proposal in the first place. In addition, as set forth above, there are numerous other factors that courts can consider in determining whether an employee should be designated as exempt.

Employees Working Dual Jobs: Better Watch Out for the Tricky Wage & Hour Issues

By:   Jordan Schwartz

The holiday season is often the busiest time of the year for hospitality employers. At the same time, employees may appreciate the opportunity to earn more during these busy months. Consequently, there may be occasions when an employer places an employee in a dual capacity role. For example, from November through January, a hotel may permit (or require) a housekeeping attendant to also function as a front desk reservation assistant. While assigning (or permitting) an employee to work at another post with a different rate of pay is generally permissible and may be preferable to hiring additional employees for the holiday rush, there are complex “wage & hour” factors to consider prior to doing so. 

The payment of wages is governed by the federal Fair Labor Standards Act (“FLSA”) and applicable state law. Under the FLSA, non-exempt employees must properly be compensated for all work performed, including overtime at a rate of one and one-half times their regular rate of pay for all hours worked in excess of 40 in a workweek.

Since overtime must be based on the employee’s “regular rate of pay,” calculating the overtime amount can be tricky when an employee works two or more jobs for which the employee is paid different rates of pay. Let us assume, first, that the housekeeping attendant position and the front desk reservation assistant position are both “non-exempt” positions. A common assumption in such a scenario is that the employee would receive overtime pay based on the rate of pay of the job at which he is working when he passes the 40-hour threshold. Absent a prior agreement between the employer and the employee, however, this assumption is false. Rather, according to the FLSA regulations, the employee’s regular rate of pay when he works two jobs is calculated as the weighted average of the different rates. Consequently, to determine the employee’s “regular rate of pay” in this scenario, his weekly earnings from his job as housekeeping attendant and his weekly earnings from his job as front desk reservation assistant are added together, and the total is then divided by the total number of hours worked at both jobs.  The employee would then be entitled to 1.5 times this rate of pay for all hours worked over 40 in a workweek.

To complicate matters further, let us assume that the housekeeping position is exempt, while the front desk reservation assistant position is non-exempt. In this scenario, the key issue that must be addressed is how this employee should be classified, since an employee may have only one FLSA designation and cannot simultaneously be classified as both exempt and non-exempt. 

According to the U.S. Department of Labor (“DOL”), to determine exempt status in such a scenario, the employee’s “primary duty” must be analyzed. The term “primary duty” means the principal, main, major or most important duty that the employee performs, with the major emphasis on the character of the employee’s job as a whole. Once this analysis is performed, the employer can appropriately determine whether the employee is exempt or non-exempt. If the combined duties would qualify the employee to remain in exempt status, there would be no requirement to pay the employee any additional salary above his normal weekly salary, although the employer could compensate the employee further for the additional work performed without compromising his exempt status.

If however, after analyzing the employee’s primary duty it was concluded that he was non-exempt, the employee would be eligible to receive overtime pay for all hours worked over 40 in a workweek. Once again, if overtime pay is required, absent a prior agreement otherwise, no attention should be paid as to which particular job the employee is performing when he crosses the 40-hour threshold. Rather, the employer will need to calculate the employee’s regular rate of pay as the weighted average of the different rates, and employee would then be entitled to 1.5 times this rate of pay for all hours worked over 40 in a workweek

As explained above, employers are not prohibited from—or required to—permit employees to work for more than one job for them, although in certain circumstances during the busy holiday season, doing do may be a prudent option for hospitality employers. It is crucial, however, to be cognizant of the “dual employment” wage and hour requirements of both the FLSA and applicable state law. Failure to abide by these requirements could remove all the cheer from the holiday season. 

National Restaurant Chain Seeks Guidance from U.S. Supreme Court on Tip Credit

By:  Ana S. Salper

With the recent surge in class action wage and hour lawsuits, hospitality employers have developed a heightened sensitivity to tip pooling arrangements, distributions of service charges to employees, and application of the “tip credit.” A case before the U.S. Supreme Court this month, Applebee’s International Inc. v. Gerald A. Fast et al., is likely to add further fuel to the fiery “tip credit” world,  as the high court will have to decide whether tipped employees should be paid minimum wage for nontipped tasks employees perform.

Under the Fair Labor Standards Act (“FLSA”), tipped employees can be paid below minimum wage – as low as $2.13 per hour – so long as employees earn enough tips to reach the minimum wage (which is $7.25 under federal law, although state minimum wages may be higher).  In the case pending before the high court, Applebee’s is asking the Court to decide whether employers can use the tip credit to pay tipped employees -- namely, waiters and bartenders -- below minimum wage even if they spend more than 20 percent of their time performing nontipped tasks. Applebee’s is challenging a U.S. Department of Labor (“DOL”) rule that requires an employer to pay a tipped employee the regular minimum wage if they spend more than 20% of their work time in a given week performing non-tipped duties. 

In April 2011, siding with the DOL’s 20% rule, the United States Court of Appeals for the Eighth Circuit affirmed a lower court ruling that Applebee’s had violated the FLSA by paying its service staff below minimum wage even when the waiters and bartenders had spent more than 20% of their time on setup, maintenance, and general preparation -- tasks for which they could not be tipped. The case originated from a class action initiated by approximately 43,000 current and former Applebee’s servers and bartenders. Notably, the Eighth Circuit’s decision is a sharp departure from the decisions of two other federal appeals courts, the Sixth and Eleventh Circuits, which have already rejected the DOL’s 20% requirement.

Applebee’s is arguing that it is entitled to take a tip credit for all the work the waiters and bartenders are performing, even if some of it involves nontipped duties. The argument suggests that the question of whether the tip credit can be applied should depend not on how much of the employees’ time is spent on nontipped tasks, but rather on whether the employees are considered tipped employees under the FLSA.

For hospitality employers, the tip credit is a useful cost-saving tool, allowing employers to pay a lower cash wage to employees who rely upon tips received from customers and guests to bring their total hourly compensation up to the minimum wage. If the Supreme Court decides to depart from the DOL’s 20% rule, the decision will have a significant impact on employers’ tip credit arrangements, and could ultimately change the entire landscape of work allocation, assignment of duties, and distribution of pay for tipped employees in the hospitality industry. 

N.Y. Court Allows Restaurant Servers to Pursue Class Claims against Batali Restaurants due to Tip Policy

By:  Kara M. Maciel and Jordan Schwartz

On May 10, 2011, the Southern District of New York conditionally certified a collective action against eight New York metropolitan area restaurants owned by celebrity chef Mario Batali alleging violations of the Fair Labor Standards Act. In the action, restaurant servers argue that the Batali restaurants are paying employees less than minimum wage and unlawfully retaining a portion of their tips.

The primary allegation in the lawsuit is that the restaurants deduct from the employee tip pool a portion of all credit-card tips equal to approximately 4-5% of the nightly wine sales. One plaintiff, a former server at Otto Enoteca Pizzeria, alleges that several managers told him the deducted amount went to the “wine program,” while a general manager told him it went “back to the house.” 

The restaurant owners argued that class certification was improper because there was not sufficient evidence to prove a common policy of withholding tips. The court disagreed, however, finding that there was a reasonable inference “that there was a uniform policy across the eight restaurants.” Consequently, it granted the plaintiffs’ motion for conditional certification so that they can send out notice to other tipped workers at all eight restaurants. 

This lawsuit is just one of the increasing number of nationwide and New York-based class action lawsuits alleging unlawful conduct regarding tips, gratuities and service charges. Just one day prior to the Batali decision, a group of Yankee Stadium food service workers filed a putative class action alleging that the concession operators misappropriated their tips by keeping the service charge added to the cost of food and drinks served to field-level patrons, rather than giving that money to the workers. The suit alleges that, by accepting the service charge, the companies willfully violated New York labor law, which directs that gratuities be provided to the workers who provided the service.

This flood of activity is not surprising. Problems with mandatory service charges and their distribution among waitstaff have plagued the hospitality industry for years. To add to this confusion, as of January 1, 2011, thelaws in New York regarding tips, tip credits and tip pooling, among other things, have been amended. Until restaurants implement policies consistent with these new laws, the trend of increasing lawsuits will only continue. Hotel and restaurant employers in all states, including New York, should make compliance with state and federal wage hour laws regarding tips, gratuities and service charges a top priority.

Minimize Your Risk of Invalidating the Tip Credit Paid to Tipped Employees Performing "Dual Jobs"

By:  Douglas Weiner  

In a recently reported case from the Eighth Circuit Court of Appeals, Applebee’s servers and bartenders alleged they spent a “substantial” amount of time performing non-tipped work, such as cleaning and maintenance, and, therefore, should be paid the minimum wage of $7.25 for the time spent performing non-tipped work, rather than the direct wage of $2.13 the FLSA allows employers to pay employees in tipped occupations See 29 U.S.C. § 203(m) and 29 U.S.C. § 203(t).

Applebee’s argued it properly applied a tip credit to the servers and bartenders’ direct wage earnings because they worked in tipped occupations, and received more than the minimum wage for all hours worked in direct wages paid by the employer plus the tips they received. Thus, a “dual job” analysis was not required, because cleaning and maintaining work areas are duties related and incidental to their tipped occupations of bartending and serving. See 29 C.F.R. § 531.56(e)

The Eighth Circuit rejected Applebee’s argument, holding there was a temporal limit to the amount of non-tipped work a tipped employee may perform to retain tip credit eligibility. Specifically, the Eighth Circuit observed that 29 C.F.R. § 531.56(e) provided employees may perform related duties in a tipped occupation that are not themselves tip producing “part of the time or occasionally.” In defining “part of the time” and “occasionally,” the Eighth Circuit affirmed the district court’s holding that Section 30d00(e) of the Department of Labor's Field Operations Handbook is entitled to deference for the requirement that where more than 20% of a tipped employee's time is spent on non tipped work, the employer cannot take the tip credit for that time, and must pay the full minimum wage for non-tipped work.

In the Hospitality industry, dual jobs may be found in many varieties. Examples include servers who perform duties as ice sculptors, pastry decorators, or floral arrangers, or runners and bussers who make salads, polish silverware, stock inventory or wash dishes.

STEPS TO MINIMIZE RISK

To avoid “dual job” claims from tipped employees, employers are well advised to keep accurate records of the time employees spend performing non-tipped duties. In a typical 6 hour shift, where the employer can demonstrate through time records that less than 1.2 hours was devoted to non tipped work, the employer’s use of the tip credit will ordinarily be upheld. Daily and weekly records allow the employer to prove the percent of time spent in tipped and non-tipped work. 

Another step to minimize “dual job” claims is to require all tipped employees to perform the same amount of incidental duties, rather than limiting the non-tipped work to designated individuals. Employers may also want to require that available non-tipped employees perform the non-tipped producing work.  

Oral Discomfort: Supreme Court Holds That Verbal FLSA Complaints Suffice

The U.S. Supreme Court’s decision in Kasten v. Saint-Gobain Performance Plastics Corp., __ U.S. __ (March 22, 2011), holds that an employee’s oral complaint of a violation of the Fair Labor Standards Act (“FLSA”) constitutes protected conduct under the FLSA’s anti-retaliation provision. 

EBG partner Frank C. Morris, Jr., discusses in an EBG Act Now Advisory the fact that the Kasten decision is merely the latest in an ever-growing series of cases where the Supreme Court has broadly interpreted protections against retaliation and for whistleblowers.  The EBG Act Now Advisory also addresses what employers should do in light of these recent decisions.

 

To review the EBG Act Now Advisory on this issue, click here.

Restaurant Waives Overtime Defense Under FLSA

By: Kara M. Maciel and Forrest G. Read, IV

The U.S. Court of Appeals for the Eleventh Circuit’s recent decision in Diaz v. Jaguar Rest. Group, LLC underscores the importance for hospitality employers to know which job duties their employees are performing in order to assert every potentially applicable affirmative defense when answering an employee’s FLSA lawsuit for non-payment of overtime. In Diaz, the Eleventh Circuit reversed the trial court’s decision that a restaurant, which failed to raise the administrative exemption to the overtime requirement at any point until shortly before trial, was permitted to amend its Answer and include that defense at the close of its case at trial.

The jury determined that Diaz, a formerly employed bookkeeper, “was an administrative employee” who “performed numerous administrative tasks in addition to her bookkeeping duties.” Diaz “managed the cash register, distributed tips, opened bank accounts, maintained menus, processed new employees into the system, ran errands, managed liquor orders, and occasionally opened the restaurant.” However, the Eleventh Circuit concluded that those facts could not help the restaurant in the absence of its earlier assertion of the administrative exemption.

Hospitality employers should carefully track which duties their employees are performing. Armed with that knowledge, they can better assess whether a bookkeeper, a bartender, a bellhop, or any other employee who may “wear different hats” can be deemed to have performed duties involving the management of some part or function of the hotel’s operations. They should also remember that the administrative exemption is subject to a fact-intensive inquiry into job duties and not applicable based merely on job title. Even if at first blush an employee’s job title may not seem administrative, it is wise to assert the administrative exemption when answering an overtime complaint under the FLSA if the job duties actually performed can be construed as managerial or involving discretion. Otherwise, the hotel may be left wondering “what might have been?”

U.S. Department of Labor to Refer Employees to Plaintiffs' Lawyers

by Michael Kun and Doug Weiner

It is no secret that employers have been beseiged by wage-hour litigation, including wage-hour class actions and collective actions.   These lawsuits have hit the hospitality industry as hard as any other industry, perhaps harder.

It is also no secret that the persons who benefit most from these actions are often plaintiffs' counsel, who frequently receive one-third or more of any recovery.  

Now, as a result of an unprecedented new program initiated by the the Department of Labor's Wage and Hour Division ("WHD"), the WHD will be practically delivering potential plaintiffs to the doors of plaintiffs' counsel -- and the WHD has invited plaintiffs' counsel to let it know if it wants a piece of the action. 

Despite the fact that the WHD has an increased enforcement budget and has hired 350 new investigators over the last two years, the WHD has said that it is unable to handle all of the claims it receives.  Rather than seek more funding or implement new procedures to handle the claims, the WHD has made a stunning announcement that can only lead to an increase in wage-hour litigation across the country.  It has announced that it will begin referring employees directly to attorneys to assist them with their claims under the Fair Labor Standards Act ("FLSA") and the Family and Medical Leave Act ("FMLA").   The WHD's new program, which is referred to as the "Bridge to Justice," is part of collaboration with the American Bar Association. 

The Department of Labor's guidance on the "Bridge to Justice" program may be found here.  Under the new initiative, employees will be given a toll-free number to obtain referrals to attorneys in their area.  And attorneys who wish to be included on the referral list are invited to submit their names. 

For employers  -- and hospitality employers in particular --  the "Bridge to Justice" is likely to be seen as little more than the latest effort by the WHD to encourage employees to sue their employers, rather than to raise any concerns with their employers and try to resolve them amicably.  

For plaintiffs' counsel, the "Bridge to Justice" is likely to be seen as an early holiday gift from the WHD, one that they will reap the benefits of for years to come

EBG Workshop for Hospitality Employers in NY on Oct. 28

EBG is holding its annual NY briefing for clients and friends on Oct. 28. This full-day program will feature a special, two-hour workshop just for employers in the hospitality and retail industries, updating the many recent and significant labor and employment law developments affecting the industry. We will provide real-world guidance on how to manage the risks your company faces from increasingly aggressive plaintiffs' lawyers and government investigators who have openly and unabashedly targeted the industry.

Topics on the workshop agenda include:
 

  • Wage and hour class actions and government investigations: The prime targets are the misclassification of employees, the failure to provide or pay for meal and rest periods, tip pooling, and the failure to reimburse for business expenses, including uniforms. These pitfalls are eminently avoidable - learn how.
  • Union organizing: UNITE HERE, SEIU, and other unions are continuing to aggressively target employees in the hospitality industry and they are newly emboldened by an increasingly union-friendly legal and political environment. Understanding why employees reach out for, or are receptive to, a union is the key to remaining union-free.
  • Leave laws and other hot-button issues: ADA and FMLA requests – and, often, legal action – tend to increase during tough economic times, as do discrimination and retaliation charges.  We will address the most common issues faced by hospitality employers in these and a host of other areas, including OSHA and immigration.
     

Come for the workshop; stay for the day! The workshop for hospitality employers is part of a day-long briefing covering a wide range of labor and employment challenges all employers are facing these days. We invite you to view the full agenda and join us for the entire program.