Federal Judge Halts Final Overtime Rule Days Before Implementation

On November 22, U.S. District Court Judge Amos L. Mazzant III, sitting in Sherman, Texas, issued a nationwide preliminary injunction against the U.S. Department of Labor’s (“USDOL”) enforcement of its Final Overtime Rule which would have more than doubled the minimum salary employees must be paid to be treated as exempt from overtime. The USDOL estimated that the Final Overtime Rule, which was set to go into effect December 1, 2016, would capture 4.2 million workers into the overtime ranks.

The case, entitled Nevada v. U.S. Department of Labor, Civil Action No. 4:16-CV-00731, was filed by 21 states in the Eastern District of Texas. The States argued that the Department of Labor lacked the statutory authority to use a salary-level test and an automatic updating mechanism to determine overtime eligibility. Judge Mazzant agreed. Judge Mazzant found that under a plain reading of the statute, nothing in the White-Collar exemption indicates Congress intended the USDOL to define and delimit parameters for a minimum salary level. Instead, the focus is on the employee’s duties and Judge Mazzant found that the USDOL “exceed[ed] its delegated authority and ignor[ed] Congress’s intent by raising the minimum salary level such that it supplants the duties test.” While the USDOL may appeal the preliminary injunction, and the Court will eventually rule on whether to grant a permanent injunction, the Court has told the USDOL that it may not enforce the Rule.

So, what does this mean? For now, because of the nationwide preliminary injunction barring enforcement of the Overtime Rule, employers do not have to comply with the Overtime Rule’s requirements.  Right now, the current minimum salary that must be paid to qualify an executive, administrative or professional employee for an overtime exemption is $455 per week and this will remain the minimum salary on December 1st and until such time as Judge Mazzant’s decision is modified at the permanent injunction phase or successfully appealed.

Whether and when the government will appeal is unclear. The Final Overtime Rule is unpopular with employers, employer groups (like the Chamber of Commerce), and Senate and House Republicans. Whether President-elect Trump’s Department of Labor will defend the Overtime Rule in the face of State and business opposition is an issue that will be addressed in early 2017. We will keep you posted about any new developments regarding the Overtime Rule.

If you have any questions or would like to discuss the preliminary injunction against the Overtime Rule and options available to your business if it has already taken action to comply with the Overtime Rule, please contact John Vreeland in our Labor Group at (973) 535-7118 or jvreeland@nullgenovaburns.com.


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.

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.

Nationwide Chain of Gyms Agrees to Pay Substantial Wage and Hour Settlement

24-Hour Fitness, a nationwide chain of fitness centers, recently agreed to pay nearly $17.5 million to settle a class action suit filed on behalf of trainers and managers who claimed that they were misclassified as exempt employees and denied overtime pay.

The 24-Hour Fitness settlement is a reminder to fitness center employers that not all managers and trainers are exempt from the FLSA’s overtime requirements. Determining whether an employee qualifies for an overtime exemption requires a fact-specific analysis of the employee’s duties and how the employee is paid. For instance, in the case of classifying a trainer as exempt, the employer must ensure the employee at issue successfully completed four academic years of pre-professional and professional study in a specialized curriculum accredited by the Commission on Accreditation of Allied Health Education Programs, and is certified by the Board of Certifications of the National Athletic Trainers Association Board of Certification.

For more information on our firm’s wage and hour audit services tailored to fitness centers, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Douglas J. Klein, Esq., dklein@nullgenovaburns.com.

Wage and Hour Issues in the Summer Camp Industry

Summer camps, typically a go-to option for many parents to send their kids when school lets out, are now faced with a myriad of other non-traditional competitors.  Specialty camps, teen tours, and other options have affected the entire industry and forced some traditional camps out of business.  To compensate for revenue losses, many camps have turned to alternative sources of income, such as bringing in outside groups and renting out their facilities during off-season months.  Camp administrators must be mindful, however, that their expanded operating season can have severe implications under federal wage and hour law.

Section 13(a)(3) of the Fair Labor Standards Act (“FLSA”) exempts “organized camps,” such as summer camps, from most of the FLSA’s minimum wage and overtime requirements.  However, to qualify for such exemptions, the camp must meet one of the following criteria:  (1) the camp must not operate for more than seven months in any calendar year, or (2) in the previous calendar year, the average receipts for any six months must not have been greater than one-third of the camp’s average receipts for the other six months of the year.  Determining whether the camp satisfies one of these criteria is not always clear.

In determining whether the camp has operated for more than seven months in the calendar year, not all activities count.  Maintenance completed in the offseason, for example, is not considered operations. Construction to build new facilities would be analyzed similarly.  However, renting the facility during the offseason may need to be counted in the equation, especially if the camp provides staff such as cooks, waiters, lifeguards, and maintenance workers.

Even if a camp does “operate” for more than seven months in a calendar year, it could still qualify for the FLSA exemptions if, in the previous calendar year, the average receipts for any six months were not greater than one-third of the average receipts for the other six months.  This calculation can be based on any six months in the year, which need not be consecutive.  For example, the six months with the highest average receipts might include the following:  (1) January:  $10,000; (2) May:  $10,000; (3) June:  $25,000; (4) July:  $50,000; (5) August: $50,000; (6) September:  $20,000.  The total revenue is $165,000 which averages $27,500 per month.  The six months with the lowest monthly receipts might include the following:  (1) February:  $5,000; (2) March:  $5,000; (3) April:  $5,000; (4) October:  $5,000; (5) November:  $5,000; (6) December:  $5,000.  The total revenue is $30,000, which averages $5,000 per month.  Because the average revenue for the lowest six revenue months ($5,000) is not greater than one-third of the average revenue of the other six months of the year (one-third of $27,500 is $9,167), this hypothetical camp would be exempt.  Obviously, camps with extended summer seasons and/or winterized facilities must be particularly mindful of this calculation.

Determining what constitutes a “receipt” and when it is received can also present challenges.  Certainly revenue from tuition, camp fees, and the camp store, would clearly be included in the average monthly receipt calculation.  Yet, for other types of revenue, such as vendor incentives and donations to the camp, the line is not as clear.  Similarly, if money is paid in January for a camper to attend in July, to which month should this “receipt” be applied?

The answers to these questions are not always clear; the analyses are fact-sensitive and require close attention to the particular details of each camp.  What is clear, however, is that camps forced to rely more heavily on outside income must be aware of these issues. The loss of the exemption in any given year requires full compliance with the FLSA’s minimum wage and overtime requirements and can lead to significant exposure for unpaid wages, including liquidated damages and fines in the event of a Department of Labor audit.

For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Brett M. Pugach, Esq., bpugach@nullgenovaburns.com.

Third Circuit Clarifies Test for Joint Employer Status under FLSA

On June 28 the U.S. Court of Appeals for the Third Circuit refined the standard for deciding whether an organization is a joint employer under the Fair Labor Standards Act (“FLSA”) for purposes of liability for unpaid minimum and overtime wages owed another entity’s employees.

This issue arose in a collective action suit by assistant branch managers at Enterprise Rent-A-Car locations who claimed they were denied overtime pay in violation of the FLSA. Both the subsidiary company Enterprise Rent-A-Car and the parent company Enterprise Holdings, Inc. were named defendants. The District Court granted Enterprise Holdings’ motion for summary judgment on the basis that Enterprise Holdings did not qualify as a joint employer, and the Third Circuit affirmed.

In determining whether a company is a joint employer for purposes of FLSA liability, the Third Circuit articulated a four-prong, “economic reality” test. The Court stated it would require proof of significant control, instead of ultimate control, by one entity over another’s employees and “even indirect control may be sufficient.” The test is as follows:
1) Does the entity have authority to hire and fire?
2) Does the entity have authority to promulgate work rules and assignments, and set conditions of employment, including compensation, benefits and hours?
3) Does the entity conduct day-to-day supervision, including employee discipline?
4) Does the entity control employee records, including payroll, insurance, taxes?

The plaintiffs argued that Enterprise Holdings was a joint employer because it provided its Rent-A-Car branches with human resources best practices guides, employee benefit plans and compensation recommendations, constituting sufficient control under the four prong test for joint employer. The Third Circuit disagreed and found controlling the facts that the subsidiary branch offices were free to choose whether to use any or all of the parent’s suggested guidelines at their own discretion and none of the parent’s guidelines was mandatory. The Court also stressed that the four factors were by no means an exhaustive list and should not be blindly applied. Instead, according to the Court, they should be evaluated in light of other relevant factors that show the first entity is exerting significant control over the other entity’s employees, such as interlocking directorates and the common nature of the businesses each conducted.

Joint employer status under the FLSA continues to require a fact-specific analysis consistent with the Third Circuit’s guidance. If your organization needs assistance in reviewing potential joint employer issues, please contact Jim McGovern, Pat McGovern or Doug Solomon in our Labor Law Practice Group.

New Jersey Amends Overtime Regulations

On February 21, 2012, the New Jersey Department of Labor amended its regulations regarding overtime to reinstate the inside sales exemption that was removed when the Department of Labor adopted the federal overtime exemptions last year. N.J.A.C. 12:56-7.2 has been amended to include a new section c stating: “Administrative shall also include an employee whose primary duty consists of sales activity and who receives at least 50 percent of his or her total compensation from commissions and a total compensation of not less than $400.00 per week.” The New Jersey regulation resembles the federal Section 7(i) exemption that exempts retail or service establishment employees from federal overtime requirements if: (1) the employee’s regular rate of pay is greater than one-and-one half the minimum wage; and (2) more than half of the employee’s compensation comes from commissions.

Last September, New Jersey repealed its own regulations defining overtime exemptions and adopted the federal regulations. In doing so, the Department of Labor inadvertently removed the inside sales exemption that previously existed. The Department of Labor’s recent actions returns the exemption for certain inside sales employees. Employers with commissioned sales employees should consider evaluating the classification of their employees based on the amended regulation.

For more questions about the federal and New Jersey overtime requirements, contact John R. Vreeland, Esq. or Patrick McGovern, Esq. in our Labor Law Practice Group.