On June 6, 2018, in Ayala v. CyberPower Systems (USA), Inc., the United States Court of Appeals for the Eighth Circuit, applying Minnesota law, confirmed that a compensation agreement did not alter the employee’s at-will status. As I know you all know, under Minnesota law, the general presumption is of at-will employment, meaning employers are free to terminate an employee for any lawful reason, and employees may resign at any time for any reason. While the employers and employees can contract around this presumption, the parties must have a clear intention to do so. So, how did it get to a lawsuit?

In 2006, Daniel Ayala began working for CyberPower Systems as the Vice President, an at-will employee. Six years later, Ayala was promoted to Executive Vice President and General Manager for Latin America. As a result, Ayala and CyberPower entered into a new agreement entitled “Compensation Agreement,”  that outlined the Ayala’s salary and bonus structure under his new position. The agreement was to “remain in place until sales reached $150 million USD.” Under the “Employment terms,” section, the agreement stated, “[t]he above mentioned agreement outlines the new salary and bonus structure to remain in place until $150 million USD is reached. It is not a multiyear commitment or employment contract for either party.”

CyberPower terminated Ayala before sales reached $150 Million. Ayala then filed a lawsuit against CyperPower, claiming the agreement altered the at-will employment presumption, and instead promised him employment until $150 million in sales was reached. The court disagreed, and found the agreement “unambiguously did not modify Ayala’s status as an at-will employee.” The court’s analysis focused on that fact the title and content of the agreement solely concerned compensation. This is notable as the majority of employers title such a document “Employment Agreement,” not “Compensation Agreement”. Further, the court noted, “the agreement later reiterates that, rather than guaranteeing Ayala’s employment, it sets out only his compensation until the sales threshold is met.” Therefore, the court found the agreement did not express CyberPower’s clear intention to alter the at-will employment status.

Accordingly, employers looking to enter into a compensation agreement with an employee without altering the at-will employment status should clearly state the agreement pertains only toward a compensation plan, and consider titling it “Compensation Agreement” instead of “Employment Agreement.” In addition to the title, the content in the agreement should focus only on compensation terms and avoid detailing or describing other employment terms.

Many laws governing employment contain anti-retaliation prohibitions. Indeed, many claims, demands and lawsuits are accompanied by retaliation allegations. For example, the Minneapolis and St. Paul paid sick leave ordinances both make it unlawful for an employer to take adverse employment actions against an employee for requesting to use earned paid sick leave hours.  The Equal Pay Act similarly disallows retaliation for asserting discrimination under that Act.

On June 12, 2018, in Brazil v. Arkansas Dep’t of Human Servs., the Eighth Circuit dismissed an employee’s retaliation claim, since the employee had changed jobs with the employer after commencing the suit, and was thus, not subjected to the adverse employment action that caused her to sue in the first place. The employee alleged her employer retaliated against her after she had filed a lawsuit against it for violation of her civil rights by subjecting her to manual labor and fewer opportunities for promotion. The employee asked the court to require the employer to transfer her to a “suitable position under the direction of different supervisors.” However, since filing the retaliation claim, the employee had transferred to new division with different supervisors. Thus, the court found the employee had already received what she sought in her lawsuit. Further, the court held that, “a speculative possibility of future harm is not enough to preserve a live case or controversy” necessary for a lawsuit. The lesson here is that an intervening event in a current employee’s employment may aid in cutting off a retaliation claim (similar to re-hiring someone who was wrongfully terminated).

When is the last time you seriously worked on updating your job descriptions…with input from the hiring manager for that job? On May 11, 2018, the Eighth Circuit Court of Appeals (this includes Minnesota), in Faidley v. United Parcel Service of America, Inc., held that the employer, United Parcel Service (UPS), was not required to accommodate an employee’s request to work no more than 8 hours a day, because an essential function of his job position was working overtime. Faidley had been working for UPS roughly 25 years, when a back injury began causing him problems while working shifts longer than 8-hours. Faidley’s doctor issued a permanent work restriction, limiting him to working no more than 8-hours a day. Faidley then requested an accommodation with UPS for his current position (package driver). UPS denied the accommodation request, determining that working overtime was an essential function of the package driver position.

In Faidley, overtime was determined to be an essential function of the employee’s job due to the unpredictable nature of workloads and weather, combined with the adverse effects UPS would suffer if packages were not delivered on time or other drivers had to be sent to finish a person’s delivery because that individual could only work 8 hours. Further, the job description and collective bargaining agreement with the union indicated that working overtime was a requirement for the package driver position. Based on this evidence, the Court agreed that working overtime was an essential function of a package driver, and UPS’s denial of an accommodation was not in violation of the American’s with Disabilities Act.

Thus, when presented with requests to accommodate an employee’s restricted hours due to a disability, keep in mind that you have a much better chance of having it affirmed (if sued) if you have documentation to support your position. The key here is that employers should make sure that this information is explicitly written in the job description and any collective bargaining agreement. Further, employers should be able to articulate objective reasons as to why the overtime is an essential function of the job. In other words, it may be time to dust off your job descriptions and look at them. Make sure they are current (jobs morph over time), and accurately reflect the job duties and essential functions. Be as specific and accurate (and reasonable) as possible. For example: work overtime up to 20 hours per week; lift up to 50 pounds; stand up to 10 hours, etc. The job description must reflect the job to be useful – do not try to be “Minnesota nice” with it and use as a recruiting tool. If 20 hours of overtime is essential, state it. This doesn’t mean you have a lost cause if you don’t specifically have it in there, but it sure will make the defense a lot stronger (and our job a lot easier!).

In 1974, the Supreme Court of the United States issued a decision in American Pipe & Constr. Co. v. Utah that allowed individuals to bring a claim after the statute of limitations ended if the court did not allow a class action complaint that encompassed them to go forward. Ultimately, the American Pipe holding tolled (paused), the statute of limitations on a claim brought by an individual while a court was deciding the appropriateness of the class action claim. However, on June 11, 2018, in a 9-0 decision, the Supreme Court limited the American Pipe tolling rule to individual claims, not successive class action suits.

In China Agritech, Inc. v. Resh, an employee, Michael Resh, filed a class action a year and a half after the statute of limitations for his claim expired. Prior to the statute of limitations expiring, the court had denied two class action claims. The employee argued that his claim was timely because the rejection of the two prior class actions tolled the statute of limitations. The Court rejected his argument and found his claim was untimely since it was filed after the statute of limitations expired. Importantly, the Court further held that the tolling rule established in American Pipe did not apply to successive class action claims, because it could result in an endless extension of the statute of limitations (the statute of limitations would be extended each time a class action was filed).

While the Court’s holding in China Agritech limits the ability of plaintiffs to bring class action claims, it also exposes employers to multiple individual claims if the court does not allow a class action suit to proceed.

 

With summer starting and with it the rise of seasonal workers, I thought it would be a good time to review the fluctuating work week method (FWM) that can be used to determine overtime pay under the Fair Labor Standards Act for employees who are paid on a salary basis and whose hours fluctuate week to week.  While this can be a very useful method of paying overtime to seasonal or other employees whose overtime fluctuates with certain times of the year, it also brings with it confusion.  Many times the confusion surrounding the calculation and application of the FWM exposes employers to potential liability under the Fair Labor Standards Act for failure to pay overtime wages.

What is the Fluctuating Work Week Method?

Under the Fair Labor Standards Act (FLSA), employers are required to pay employees time and a half (150%) of the “regular rate” for all hours over 40 hours per workweek. The U.S. Department of Labor (DOL), the agency that enforces and interprets the FLSA, allows employers to pay employees who receive a fixed salary and work fluctuating hours, overtime at half (50%) the employee’s regular rate.

Which employers use the FWM calculation?

Generally, seasonal employers use the FWM to provide employees a predictable set salary regardless of the amount of hours they work each week (e.g. workers whose hours are influenced by the weather).

When can an employer use the FWM calculation?

In order to use the FWM calculation for overtime, the following conditions must be met:

  1. The employee’s salary must be sufficient to compensate him/her at a rate not less than minimum wage, regardless of how many hours worked, whether few or many.
  2. The employee receives a fixed salary – this does not change even if they work less than 40 hours a week (exception for unpaid leave of absence for entire day or more due to illness).
  3. The employee’s hours fluctuate from week to week.
  4. The employer and employee have a clear mutual understanding that the employee will be paid a salary and overtime at half his/her regular rate, regardless of how many hours worked.
  5. The employee received overtime equal to at least half his/her regular rate of pay for all hours worked over 40 hours.

How to calculate an employee’s regular rate

To calculate an employee’s regular rate of pay, divide the employee’s weekly salary by the total number of hours worked that week.  Overtime is then paid at 0.5 times that regular rate, since the 1.0 of the 1.5x has already been paid via the salary.  The more hours the employee works per week, the less the overtime rate (because it is spread over more hours).

Alternatively, the DOL allows an employer to calculate an employee’s regular rate based on a 40-hour workweek. Thus, an employer may divide the employee’s weekly salary by 40 hours, regardless of how many hours the employee worked that week. The DOL permits this calculation since the regular rate at 40 hours will always be higher than if the employer were to use the employee’s actual hours when the employee has worked overtime.

Should I use the FWM?

With a clear understanding of the conditions and calculations, the FWM can be a great tool for employers to save on costs, and provide year-round salary predictability for non-exempt employees.

Small businesses (100 or fewer employees) have less than one month left until the first phase of the Minneapolis Minimum Wage Ordinance goes into effect. The Minneapolis Minimum Wage Ordinance went into effect for large business (more than 100 employees) on January 1, 2018, when the minimum wage increased to $10.00. However, as I mentioned here, the ordinance differentiates based on employer size. Thus, on July 1, 2018, small employers are facing their first minimum wage increase under the ordinance, while large employers are on their second minimum wage increase.  Starting July 1, small Minneapolis employers must pay employees a minimum wage of $10.25 per hour, while large employers must pay $11.25 per hour.

We are less than a month away from the 1-year anniversary of when the Minneapolis and Saint Paul sick and safe time ordinances went into effect. Both cities have recently released a tracking spreadsheet available to employers to compute and track accrual and use of sick and safe time hours. Minneapolis employers can use this link and St. Paul employers can use this link to access the spreadsheets.  Minneapolis also updated their notice poster to include the minimum wage increase schedule. Employers should make sure to update their handbooks and workplace posters with the current version (found here).

For those of you keeping track of the Minneapolis ordinance, as I discussed most recently here, the Minneapolis ordinance has been the center of a legal dispute between business groups and the City of Minneapolis. However, we may finally have a resolution to the question I am most frequently asked, whether an employer must comply with the ordinance if they are not located in Minneapolis, or if they are located in Minneapolis, but do not have employees who work in Minneapolis. On May 9, 2018, the Minnesota District Court held that state law does not preempt the ordinance, but the amended ordinance still exceeds Minneapolis’ territorial authority due to the record keeping and administrative obligations placed on employers.

As a result of the court decision, businesses located outside of the geographic bounds of Minneapolis do not need to comply with the ordinance at this time (UPDATED 5-30-19 EMPLOYERS MUST COMPLY RETROACTIVE TO JULY 1, 2017). If you are unsure of whether your company is located within the geographic bounds check the city ward map found at here.

It’s all over the internet, so it must be true!  Indeed, this time it is…on May 21, 2018, the U.S. Supreme Court held in Epic Systems Corp. v. Lewis, that employers may have arbitration clauses in employment contracts that prohibit class or collective actions (and it does not violate the National Labor Relations Act). Long story short, Epic Systems Corp. was a trio of consolidated cases, in which the employee in each case sought to litigate an employment dispute through a class or collective action in federal court. However, the employees had signed a contract providing for individual arbitration proceedings in the event of an employment dispute. In all three cases, the lower court or NLRB ruled in favor of the employees, holding that the individual agreements violated the employee’s right to concerted activities protected under the NLRA. The Supreme Court reversed the lower court decisions finding, “Congress has instructed that arbitration agreements like those before us must be enforced as written.” The Supreme Court decision in Epic Systems Corp reverts to the pre-2012 almost unanimous court and NLRB decisions upholding the legality of similar arbitration agreements. Accordingly, as long as the employee has consented to individuated proceedings for employment disputes, the employer may enforce such an agreement.

That being said…should employers do so? As with most things employment law, it depends on the employer and its specific facts and situation. For example, many employers may prefer to defend an alleged common wage violation in one litigation, versus multiple individual arbitration hearings. Further, arbitration is not necessarily going to save money because the employer typically must pay for the arbitrator(s) (unlike a judge). Thus, just because you can, doesn’t necessarily mean you should.

As expected, on May 29, 2018, the Duluth City Council voted to pass the Earned Sick and Safe Time Ordinance (“Ordinance”). The Ordinance currently mandates that employers (wherever located), with 5 or more employees, provide paid sick and safe leave to employees starting January 1, 2020. That being said, given the recent ruling on the Minneapolis Ordinance, I would not be surprised if Duluth’s Ordinance is challenged as well, and eventually limited to employers with a business in Duluth.

What Does the Duluth Earned Sick and Safe Time Ordinance Require?

Effective January 1, 2020 employers are required to provide employees with 1 hour of earned sick and safe time for every 50 hours worked, up to 64 hours per year. However, the Ordinance only allows employees to use up to 40 hours of accrued but unused sick and safe time each year. Alternatively, employers can comply with the Ordinance by front-loading at least 40 hours of earned sick and safe time following the initial 90 days of employment each year and again at the beginning of each subsequent year.

Accrual begins at the commencement of employment, or for current employees, January 1, 2020. If an employee has unused accrued sick and safe time at the end of the year, the employee may carry over 40 hours of accrued but unused sick and safe time into the next year. Employers are not required to payout the accrued but unused sick and safe time hours upon termination or other separation from employment (make sure your handbook is clear especially if you have different types of time off such as vacation, sick, etc.).

Employers must compensate employees at their standard hourly rate, or an equivalent rate for salaried employees. The Ordinance does not require compensation for lost tips or commissions.

Who Is An “Employer” and “Employee” Under the Ordinance?

All individuals, corporations, partnerships, associations, nonprofit organizations with 5 or more Employees (as defined below), are considered an “employer” under the Ordinance. The number of employees is calculated based on the average number of employees per week in the previous year. Temporary employees from a staffing agency are considered an employee of the staffing agency under the Ordinance. Notably, in an attempt to avoid challenges to the Ordinance similar to the ones that arose surrounding the Minneapolis Sick and Safe Time Ordinance, the Duluth Ordinance defines an “employee” as:

  1. A person working within the geographic boundaries of Duluth for more than 50% of the employee’s working time in a 12-month period, or
  2. “is based in the city of Duluth and spends a substantial part of his or her time working in the city and does not spend more than 50 percent of their work-time in a 12-month period in any other particular place.”

The Ordinance does not cover independent contractors, student interns, or seasonal employees.

Construction Company Opt-Out

Similar to the Minneapolis Ordinance, construction companies may opt to satisfy the requirements of the Ordinance by paying at least the prevailing wage rate (Minn. Stat. 177.42), or the rates set for in a registered apprenticeship agreement.

What If An Employer Already Offers Paid Time Off?

Continue Reading Duluth Passes Sick & Safe Time Ordinance

Contractors – today is the last day to fill out your annual prevailing wage survey! The Minnesota Department of Labor and Industry (MnDOLI) uses information collected from the survey to determine the prevailing wage rates on commercial, highway/heavy and residential construction projects in Minnesota. Thus, this is non-union contractors’ chance to have a say in setting the wages. To complete the survey log on to https://secure.doli.state.mn.us/lspwratesurvey/LoginVerify.aspx, with your personal identification number (PIN) and KEY. If you did not receive this information via mail, call the Minnesota Department of Labor and Industry at (651) 284-5091.