New Jersey Supreme Court Says Salary Step Increments are Negotiable, but Avoids Dynamic Status Quo Issue

In a highly anticipated decision, the New Jersey Supreme Court held that the issue of salary step increments is a mandatorily negotiable term and condition of employment.  However, the Court did not decide whether New Jersey’s Public Employment Relations Commission was correct to adopt the static status quo doctrine in lieu of the dynamic status quo doctrine.  Instead, the Court determined that the express terms of the parties’ expired CNAs required the public employer at issue to advance employees along those CNAs’ salary step guides, even after those CNAs expired.

The issues presented to the Supreme Court originated in the cases of In re County of Atlantic and In re Township of Bridgewater.  In County of Atlantic, PERC determined that, given the current landscape, the static status quo doctrine would advance labor negotiations between New Jersey’s public employers and employees better than the dynamic status quo doctrine, which PERC previously followed.  Under the static status quo doctrine, employees do not advance along a contract’s salary step guide between the time that the contract expires and before a subsequent contract is executed, whereas the opposite is true under the dynamic status quo doctrine.  On the heels of County of Atlantic, PERC decided Township of Bridgewater, in which it concluded that the issue of salary step increases after contract expiration is not a term and condition of employment and therefore not mandatorily negotiable.  On appeal, New Jersey’s Appellate Division reversed PERC.  The Appellate Division found that PERC was not authorized to depart from the dynamic status quo doctrine in the manner that it did, and that post-contract step increases are terms and conditions of employment that cannot be terminated unilaterally.

Ultimately, the Supreme Court affirmed the Appellate Division’s decision on “other grounds.” Nevertheless, the Supreme Court undermined PERC’s Bridgewater decision, when the Court concluded that the issue of salary step increments is a mandatorily negotiable term and condition of employment because that issue “is part and parcel to an employee’s compensation for any particular year.” However, because the Supreme Court’s decision rested upon specific contract language, the Court did not decide the issue of which status quo doctrine is appropriate. Nevertheless, the Court suggested that a contract that is silent with respect to the impact of contract expiration on step increases may require “careful consideration of past practices, custom and the viability of the dynamic status quo doctrine.” Accordingly, the Supreme Court advised that “parties would be wise to include explicit language indicating whether a salary guide will continue beyond the contract’s expiration dates.”

For more information about the Supreme Court’s decision and how it may impact your public entity’s labor contract negotiations, please contact James J. McGovern, III, Chair of the firm’s Labor Law Practice Group, at jmcovern@nullgenovaburns.com or 973-535-7122, or Joseph M. Hannon, Counsel in the firm’s Labor Law Practice Group, at jhannon@nullgenovaburns.com or 973-535-7105. Please also sign-up for our free Labor & Employment Law Blog at www.labor-law-blog.com to keep up-to-date on the latest news and legal developments affecting your workforce.

Supreme Court Punts on Whether Service Advisors Are Exempt from FLSA Overtime Premium Pay

The United States Supreme Court recently issued its long awaited decision in Encino Motorcars, LLC v. Navarro. At issue in the case was whether “service advisors” employed by car dealerships are exempt from the Fair Labor Standards Act’s overtime premium pay requirement, as well as the validity of a related 2011 United States Department of Labor regulation. Unfortunately, the Court did not decide whether service advisors are exempt. Instead, the Court remanded the case to the Ninth Circuit Court of Appeals with the instruction that the Ninth Circuit decide the issue “without placing controlling weight” on the DOL’s 2011 regulation.

The issues in Encino Motorcars were rooted in a provision of the FLSA that expressly provides that “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” is exempt from the FLSA’s overtime premium pay requirement. The FLSA is silent as to whether service advisors qualify for this exemption. In 1970, the DOL issued an interpretive regulation in which it concluded that service advisors do not fall within the exemption. Several courts rejected the DOL’s interpretation, and in a 1978 Opinion Letter the DOL changed course and took the position that service advisors are exempt. The DOL maintained this position until 2011, when it issued a regulation that, without explanation, excluded service advisors from the exemption.

The Supreme Court’s opinion in Encino Motorcars arose from a Ninth Circuit decision in which the Ninth Circuit relied on the DOL’s 2011 regulation to hold that a group of service advisors were eligible for overtime premium pay. The service advisors at issue would meet with a customer, evaluate the customer’s car, suggest repairs and dealership service plans, and then send the car to a mechanic who repaired and/or serviced the car. In remanding the case, the Supreme Court found that the DOL failed to follow basic procedural requirements of administrative rulemaking, which require administrative agencies to explain their rules. The Supreme Court found this especially important here, where the DOL issued a rule contrary to its prior position. The Supreme Court was critical of the DOL for its failure to explain adequately its rationale for changing its position, and its failure to consider the public’s reliance on the DOL’s longstanding policy. Car dealerships will have to wait for the Ninth Circuit’s subsequent decision, and possibly another Supreme Court decision, before the issue of whether service advisors are exempt from the FLSA’s overtime premium pay requirement is resolved.

For more information regarding the potential impact of the Supreme Court’s decision, or regarding any other wage and hour issues, please contact John R. Vreeland, Esq. Director of the Firm’s Wage & Hour Compliance Practice Group, at 973-535-7118 or jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq. at 973-646-3297 or jmanney@nullgenovaburns.com.

New Jersey Minimum Wage Set To Increase To $8.38 Per Hour

New Jersey’s minimum wage will increase from $8.25 to $8.38 per hour on January 1, 2015. This increase is the result of a Constitutional Amendment that New Jersey voters approved in November 2013 which tied future increases in the minimum wage to increases in the consumer price index for all urban wage earners and clerical workers (“CPI”). The $0.13 increase in the minimum wage reflects a 1.59% increase in the CPI.

For more information about New Jersey’s minimum wage requirement and our firm’s wage and hour compliance audit services, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.

Employer Can Be Liable For Its Predecessor’s FLSA Violations

The Third Circuit Court of Appeals recently held that an employer can be liable for its predecessor’s violations of the Fair Labor Standards Act. Thompson v. Real Estate Mortgage Network, No. 12-3828 (3d Cir. Apr. 4, 2014). The Third Circuit joins the Seventh and Ninth Circuits on the list of federal circuit courts that have extended successor liability –  a doctrine which has been applied to violations of Title VII, the NLRA, ERISA, the MPPAA, and the ADEA – to violations of the FLSA.

In light of Thompson, every employer in the Third Circuit that intends to acquire another business should fully vet its predecessor’s wage and hour practices for the three-year period that precedes acquisition. Such employers should also take into consideration that owners, officers, and other supervisory personnel may be personally liable for violations under the FLSA.

For more information about the impact of Thompson and our firm’s wage and hour compliance audit services, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.

NJ Voters Approve Constitutional Amendment to Increase Minimum Wage

On Tuesday, New Jersey voters approved a Constitutional amendment which will increase the state’s minimum wage to $8.25 per hour on January 1, 2014 and will tie future annual increases to increases in the consumer price index for all urban wage earners and clerical workers.  As we discussed here, however, the amendment does not provide a mechanism for reducing the minimum wage in years in which the economy regresses.

Future blogs will discuss the impact of this increase on other wage and hour issues.

For more information about New Jersey’s minimum wage requirement and our firm’s wage and hour compliance audit services, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Groupjvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq.jmanney@nullgenovaburns.com.

NY DOL Issues Final Wage Deduction Regulations

The NY DOL’s final regulations regarding an employers’ ability to reduce employee wages for overpayments recently took effect.  Consistent with the DOL’s proposed regulations, which we discussed here, the final regulations permit employers to make wage deductions for overpaid wages resulting from a mathematical or other clerical error as follows:

  • When an employer wants to deduct an overpayment which is less than or equal to the net wages earned in the next pay period, the employer may recover the entire overpayment in the next wage payment, but must give the employee at least three days’ notice before it makes such a deduction.
  • When an employer wants to deduct an overpayment which exceeds the net wages in the next pay period, the employer may only recover up to 12.5% of gross wages earned in that wage payment, and the deduction may not reduce the effective hourly rate below minimum wage.  In this situation, the employer must give the employee at least three weeks’ notice before it commences such deductions.
  • Notice must be given within eight weeks of the overpayment, although the wage deductions may continue for up to six years from the original overpayment.  The notice must include the total amount and the amount per pay period that the employer overpaid the employee, the total amount to be deducted and the date and amount of each deduction.  The notice must also inform the employee that the overpayment may be contested, and include the deadline and procedure for challenging the employer’s determination.
  • Employers must adopt procedures for employees to dispute the overpayment and the terms of recovery, and/or the timing of the recovery. For unionized employers, dispute resolution provisions in collective bargaining agreements which provide at least as much protection to the employee shall be deemed to be compliant with the law.

Employers are also permitted to make deductions for repayment of advances of wages or salary, as defined by the regulations, with similar notice and procedural requirements.

For more information about the regulations and our firm’s wage and hour compliance audit services, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Groupjvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq.jmanney@nullgenovaburns.com.

Dunkin’ Donuts Franchise To Pay Nearly 200k For Failing To Pay Its Manager On A Salary Basis

After a nearly two year investigation, the USDOL is requiring a franchisee which operates 55 Dunkin’ Donuts locations throughout New Jersey and New York to pay nearly $200,000 for overtime violations.  The USDOL found that the franchise’s store managers were not properly treated as exempt employees because they were not paid on a salary basis.

In order to qualify for what are known as the FLSA’s “white collar” overtime exemptions, the employee must satisfy both the “duties test” and the “salary basis test.” Under the salary basis test, the employee must receive a guaranteed salary of at least $455 per week and this salary cannot be reduced because of the quantity or quality of the employee’s work. In the Dunkin’ Donuts case, despite their management duties (which would pass the duties test), the store managers’ compensation was reduced whenever they worked less than 60 hours per week. This violated the salary basis test and converted the store managers into hourly employees.

This case underscores the importance of periodic self-audits to ensure compliance with the FLSA and state wage and hour laws. One of the areas tested during a compliance audit is whether exempt employees are being properly paid on a salary basis.  For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.

New York Court of Appeals Issues Opinion Addressing Tip Pool Arrangements

The New York Court of Appeals recently issued an opinion addressing Starbucks’ tip pooling practices with regard to its shift supervisors and assistant store managers, which we discussed here.  New York’s highest court was asked to decide what factors determine which employees may participate in a tip pool and whether employers may exclude otherwise eligible employees from a tip pool under New York Labor Law 196-d.

In answering the first question, the Court declared that customer service employees with “meaningful or significant authority or control over subordinates” – not necessarily full or final authority – may not participate in an employer-mandated tip pool arrangement.  The Court provided examples of “meaningful authority,” such as the ability to discipline employees, assisting in performance evaluations or the hiring or termination process, and influencing the creation of work schedules. But, employees whose principal or regular duties involve serving customers may participate in an employer-mandated tip pool even if they are vested with limited supervisory responsibilities.

The Court answered the second question in the affirmative.  Nevertheless, the Court stated it was leaving “open the possibility that there may be an outer limit to an employer’s ability to excise certain classifications of employees form a tip pool.”  Given the case’s procedural nature, the Second Circuit will ultimately determine how these legal principles apply to Starbucks’ shift supervisors and assistant store managers.

The Court of Appeals’ decision comes weeks after a federal district court judge for the District of Oregon invalidated regulations issued by the United States Department of Labor in 2011.  The regulations prevented employers from including “non-tipped employees,” such as line cooks and dishwashers, in a tip pool when employers did not claim a tip credit.  Oregon Restaurant & Lodging v. Hilda L. Solis, No. 3:12-cv-01261-MO (D. Or. June 7, 2013).

While these decisions are favorable for employers, their precedential value is limited, as both cases control only their respective jurisdictions and neither case is necessarily final.  Accordingly, employers should consult with counsel to evaluate their current tip pool practices and before implementing a new tip pool arrangement.  For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.

New York Court of Appeals to Decide Whether Supervisors May Pool Tips With Employees

On May 28, 2013, the New York Court of Appeals heard oral argument in two cases, which are likely to impact New York’s restaurant and hospitality industries.  In the companion cases of Barenboim v. Starbucks and Winans v. Starbucks, the Court is being asked to decide what factors determine whether an employee is considered an employer’s “agent.”  Under New York Labor Law 196-d, agents are prohibited from pooling tips with employees.  The Court is also being asked to determine whether an employer may exclude an otherwise eligible employee from tip pooling under the law.

In Barenboim, Starbucks baristas argue that Starbucks’ policy of distributing pooled tips between baristas and shift supervisors is illegal because shift supervisors are agents.  Conversely, in the companion case of Winans, Starbucks assistant store managers argue that Starbucks has impermissibly excluded them from tip pools because they are not agents, and that New York Labor Law 196-d prevents employers from excluding otherwise eligible employees from tip pools.  Whichever way the Court decides these issues is almost certain to have a significant effect on New York employers and the way in which they compensate tipped employees who also have supervisory or managerial responsibilities. Hospitality industry groups estimate that the decision will impact 42,000 businesses statewide and a quarter-million workers in New York City.  Last year, the First Circuit Court of Appeals determined that Starbucks’ policy of tip pooling between baristas and shift supervisors violated a Massachusetts law which prevents food service employees with “managerial responsibility” from tip pooling.  Consequently, the First Circuit upheld a $14.1 million award against Starbucks.

We will continue to report on these cases and their effect on New York employers.  For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.

EASTERN DISTRICT COURT OF NEW YORK ENFORCES ARBITRATION AGREEMENT’S FLSA COLLECTIVE ACTION WAIVER

In the wake of the Eighth Circuit’s recent decision in Owens v. Bristol Care, Inc., the Eastern District Court of New York has joined the growing list of federal courts that have found FLSA collective action waivers contained in arbitration agreements enforceable.  In Torres v. United Healthcare Serv., 12 CV 923 (DRH) (ARL), 2013 U.S. Dist. LEXIS 14200 (E.D.N.Y. Feb. 1, 2013), the plaintiffs brought a collective action against the company claiming unpaid overtime. United Healthcare maintained an “Employment Arbitration Policy,” which required any dispute covered by the Policy to “be arbitrated on an individual basis” and provided that an individual employee could not “seek to bring his/her dispute on behalf of other employees as a class or collective action.”  Because each plaintiff had received a copy of the Policy upon hire and had electronically acknowledged that he or she read and agreed to the Policy’s terms, United Healthcare sought to compel arbitration.

The district court enforced United Healthcare’s Employment Arbitration Policy, holding that nothing in the language of the FLSA or its legislative history prevented an employee from waiving the right to pursue a collective action. The court found unavailing plaintiffs’ blanket assertion that the waiver would effectively prevent potential plaintiffs with small claims from bringing an FLSA claim due to the cost of individual arbitration. However, citing decisions of the Supreme Court and Second Circuit, the court recognized that such an agreement could be invalidated if the plaintiffs were able to offer sufficient evidence to establish that the cost of arbitration “would be prohibitively expensive.” Additionally, consistent with the Eighth Circuit’s position in Owens, the court declined to adopt the NLRB’s 2012 D.R. Horton decision, 2012 NLRB LEXIS 11, in which the NLRB found that collective action waivers violate employees’ right to engage in concerted activity guaranteed by Section 7 of the NLRA.  The court quoted Owens when it determined that the waiver at issue did not violate Section 7 because it did not prevent an employee from filing a complaint with the Department of Labor or other administrative agency, nor did it prevent such an agency “from investigating [or] . . . filing suit on behalf of a class of employees.”

While the United Healthcare decision is favorable for New York employers, the issue of the enforceability of FLSA class and collective action waivers is not yet settled. While the trend in federal courts is to find such waivers enforceable, the NLRB continues to use its holding in D.R. Horton to strike them down, and the Second Circuit and the United States Supreme Court have yet to address such a specific policy.  Accordingly, we advise all employers to confer with counsel over the risks and benefits of maintaining an FLSA class and collective action waiver policy and to ensure compliance with the specific holdings of these recent decisions.

For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Groupjvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.