If you’re a federal contractor, you’ve probably seen the headlines – on July 22, 2021, the U.S. Department of Labor (DOL) issued a Notice of Proposed Rulemaking outlining how it wants to enforce Executive Order 14026, Increasing the Minimum Wage for Federal Contractors. But what exactly does this mean? President Biden tasked the DOL with creating regulations to increase minimum wage to $15/hr. for federal contractors beginning January 30, 2022, and to increase for inflation thereafter. He also asked for regulations to eliminate the tip credit by 2024 (which does not affect Minnesota employers as we are not allowed to take a tip credit under Minnesota law).

Accordingly, the DOL has until November 24, 2021 to issue final regulations to implement the order’s requirements.  At this point, the DOL has taken the first step by issuing the Notice of Proposed Rulemaking (this is like a “draft” for everyone’s review). Accordingly, once the timeline for comments closes (August 23, 2021), the DOL will review the comments make any changes it feels are prudent, then finalize for the final rule to be published.

At this point, federal contractors will want to review the notice and keep an eye on the final rule (which must be published by November 24, 2021).  For example, determine whether it will even apply to your business and/or which employees. Just because your company may  be a federal contractor does not mean this automatically applies to your business (or all your employees). For example, the proposed rules provide, “This part does not apply to contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the Federal Government…”  It will also be applicable only to workers who spend more than 20% of their time performing “on” or “in connection with covered contracts”. However, in an example, the DOL suggests wide coverage with it’s interpretation of “in connection with” – stating that a payroll clerk would be performing covered work “in connection with” a covered contract as their work would be necessary to the performance of the contract.

Also – keep in mind that the minimum wage will only be applicable to new contracts on or after January 30, 2022 (or renewed, extended or optioned contracts thereafter). The government contracting agency will be required to include notice of this requirement in all covered contracts and solicitations. Thus, for new contracts, it should be crystal clear; in renewals or options, if it is not clear, ask the contracting agency to confirm whether it applies (and get it in writing). Though you can’t rely on that (yes, the government can screw up), it can be used as a good faith argument to avoid a willful violation claim.

In sum, I think I said a whole lot of nothing: There is a rule that is coming requiring federal contractors to pay $15/hr. minimum wage on or after January 30, 2022, that may apply to your business (or not), may apply to some or all employees (or not), and we don’t know exactly how it will work, but it might work as proposed, or it may change. You’re welcome!

I know, it’s been awhile since I’ve done one of these. I’m thinking of trying to keep this going.  Or maybe starting a “Why Not Wednesday” (telling stories of what NOT to do and why)! Here’s a fun fact for your Friday…

Minnesota’s 2021 minimum wage for large employers (gross annual revenue greater than $500,000) is $10.08 per hour and $8.21 for small employers.  MN is:

  • 1 of 30 states that has its own minimum wage.
  • The 21st lowest of the 30 states that have a minimum wage.
  • 1 of 18 states that annually adjusts its minimum wage based on a formula (inflation).
  • 1 of 4 states that has a different minimum wage rate based on business receipts.

If you want to geek out with me a bit, there is a 2014 article from MinnPost that details the history of Minnesota’s minimum wage laws back to 1913.

Effective January 1, 2022, Minnesota employers with more than 15 employees will be required to provide PAID “reasonable break times each day” for a new mother (child less than 12 months old) to express breast milk. The Minnesota Women’s Economic Security Act (WESA) currently requires unpaid breaks.  It also currently has no age limit, though it is likely the great majority do not breastfeed for more than a year. WESA was also amended to require the break times to be at the same time as any other break time already provided. An employer, “shall not reduce an employee’s compensation for time used for the purposes of expressing milk.”

So, what does this mean in practice? A nursing mother can (and must) use her already-scheduled break times for expressing milk. Since break times (if provided) are typically 15 minutes or less, they are already paid. Accordingly, nothing really should change in that situation.  However, for employees who only receive reasonable time to use the bathroom each day and an unpaid lunch, this may result in providing additional paid breaks to express milk.

WESA also has been amended to include an entirely new provision for pregnancy accommodations for mothers.  I know this is a wage and hour blog, so consider this a bonus post. In sum, reasonable accommodations must be made (unless undue hardship results) for health conditions related to pregnancy and childbirth upon request, and certain requests (more frequent water, food and restroom breaks, seating, and limits of lifting over 20 pounds) do not need to be supported by a doctor’s note. Employers do not need to create a new position, discharge an employee, transfer another employee, or promote an employee as an accommodation.  Importantly, one other thing I want to highlight as I have spoken to employers about this, (and now it’s crystal clear), “An employer shall not require an employee to take a leave or accept an accommodation.”

Wait, what? In other words, sometimes an employer is annoyed at a request for an accommodation (maybe they think the employee is milking the system – this never happens!).  And, because we know that an employer does not have to accept the employee’s requested accommodation, but may suggest ones the will accomplish the same goal, an employer may have in the past forced a pregnant employee to take the accommodation the employer created to address the medical issue. No can do as of January 1, 2022. For example, a pregnant employee requests 1 day off a week and asks for Friday off. The employer can say sure, but you can take off Wednesdays, not Fridays.  The employee responds, no thanks, I will just work all 5 days then.  Currently, an employer may say nope, you asked for a day off because you said you needed it for your health conditions related to pregnancy, so you can have it and must take it. This causes the pregnant employee to not get paid to work one day a week (though they asked for it). The amendment allows the pregnant employee to decide whether to accept the offered accommodation. Thus, the “be careful what you wish for” adage no longer applies (as of January 1, 2022).

On July 1, 2021, the U.S. Department of Labor (DOL) issued yet another press release regarding recovery (this time $1.5 million) of back wages for 242 home healthcare workers (this is not a MN employer, but this is a nationwide DOL effort). In this instance, according to the DOL, the employer paid straight-time wages for all hours an employee worked in a week, rather than straight time for all hours under 40 and overtime (time and one-half) for all hours over 40. By lowering the “regular rate” each week and then paying “overtime” based on the changing regular rate, the employees actually received the same hourly rate of pay each week no matter how many hours they worked, depriving them of overtime pay. As the DOL notes, this is a “scheme” which violates the Fair Labor Standards Act (FLSA). The employer was also fined a civil money penalty for the willful nature of the violations.

Here’s how the scheme works (don’t do this) so that the employee is paid the same amount for all hours worked – but it appears they receive “overtime”:

  1. Mary and Employer “agree” she will make $25/hr. for all hours worked.
  2. Mary works 40 hours week 1.  She is paid $25/hr. (regular rate).  40hrs x $25 = $1,000.
  3. Mary works 60 hours week 2.  She is paid $25/hr. (regular rate) and $25 (overtime).  60hrs x $25 = $1,500.
  4. On the payroll, Employer lowers Mary’s regular rate to show $21.44/hr. and notes an overtime rate of $32.16/hr.  Accordingly, she is paid (40hrs x $21.44) + (20hrs x $32.16) = $1,500.80.
  5. Mary should have been paid (40hrs x $25) + (20hrs x $37.50) = $1,750, a shortfall of $249.20.

This is one of many press releases the DOL has put out in the past year regarding violations of overtime rules by home healthcare agencies. Here’s another scheme the DOL has previously noted by home healthcare agencies (don’t do this either):

  1. Mary and Employer “agree” she will make $1,000 a week.
  2. Mary works 40 hours week 1.  She is paid $25/hr. (regular rate).  40hrs x $25 = $1,000.
  3. Mary works 60 hours week 2.  She is paid $14.29/hr. (regular rate) and $21.44 (overtime).  (40hrs x $14.29) + ($21.44 x 20) = $1,000.30.
  4. Mary should have been paid 40hrs x $25 + 20hrs x $37.50 = $1,750, a shortfall of $750.

Unfortunately, home healthcare agencies have unique issues insofar as they are only paid $X per hour worked by the State of Minnesota, and overtime is not typically reimbursed. Accordingly, if an employee works overtime (whether they want to or not), the employer may not actually be getting reimbursed by the state enough to cover the overtime amounts (and thus, loses money on the contract). Accordingly, it is not surprising that such employers desire creative solutions so that the employee is paid a higher hourly wage (to be competitive), and yet the employer does not lose money on the contract.

What can such employers do? You can prohibit the working of overtime (though, if overtime is worked, you must pay for it), or lower the employee’s hourly rate (and keep it at the agreed-upon rate) so that when overtime is worked, you are not losing money. Also, keep in mind that employers and employees cannot agree to be paid outside of what the law requires. Therefore, even if an employee agrees to be paid say, $30 for all hours worked, or agrees to a certain set amount each week (as in the examples above), that is not allowed – hourly (non-exempt) employees must be paid overtime at time and one half (we won’t get into the fluctuating workweek method here…).

Employers also need to remember Minnesota’s wage theft law – employees must be made aware of their wages prior to the wages being earned.  Changing wages each week after work is performed is inconsistent with this law as well. This invites a recordkeeping violation as well. When in doubt – have your pay system checked out by counsel to determine if there are any potential issues and if so, how to correct them.

 

 

Back in 2016, one of the first posts I wrote on this blog concerned whether the Fair Labor Standards Act (FLSA) applied to Native American tribes.  My conclusion was that there was currently no clear answer in Minnesota.  However, we were recently given a bit more clarity. On June 28, 2021, the federal District Court of Minnesota dismissed a case brought against the Leech Lake Band of Ojibwe (“Band”) for, among other things, alleged violation of the Equal Pay Act (EPA), 29 U.S.C.  206(d), which is a part of the FLSA. In Butler v. Leech Lake Band of Ojibwe, et. al, Judge Doty granted the Band’s motion to dismiss based on lack of jurisdiction.

In Butler, the Plaintiff was a director of the Band from 2018, until her termination in 2020. She thereafter filed this lawsuit in the United States District Court for the District of Minnesota (not the Band’s Tribal Court). The Band sought to have the lawsuit dismissed based on lack of jurisdiction (i.e., arguing the federal court is the wrong court to decide the matter) due to tribal sovereign immunity. Judge Doty held that the Band did not waive its sovereign immunity and the EPA lacks Congressional abrogation of the Band’s sovereign immunity. In other words, a tribe may only be sued where Congress has authorized it or the tribe has waived its immunity.  The Court concluded, “As such, the Band is immune from suit.”

However, Judge Doty took it one step further (thank you, Your Honor), and opined that, even if the Band were not immune, federal statutes, including the FLSA and its EPA, do not apply to, “Indian tribes when the matters at issue are purely internal, as here.” As to the EPA claim, the Court relied on guidance from Snyder v. Navajo Nation (9th Cir. 2004), noting that, “…the Fair Labor Standards Act, which includes the EPA, does not apply to Indian tribes when the law would interfere with tribal self-government).” So, there it is…one mystery partially solved, 5 years later…

 

Well…I hate to say I called it but…on May 6, 2021, the U.S. Department of Labor (DOL) issued a final rule at 86 FR 24303, withdrawing the Independent Contractor Status rule issued January 7, 2021. As you may recall, that rule was set to change the test as to whether a worker was an independent contractor or employee. While the DOL previously used the “economic realities” test, the new rule would have used an “economic dependence” test. The new test would have narrowed the definition of “employee”, allowing more individuals to classify as independent contractors. Alas, we are back to where we were with the DOL using the economic realities test.

What is the test, you ask? Well, it is not the same test the IRS uses (confusing, I know), but is based on the concept that there are seven factors to consider:

  1. The extent to which the services rendered are an integral part of the principal’s business.
  2. The permanency of the relationship.
  3. The amount of the alleged contractor’s investment in facilities and equipment.
  4. The nature and degree of control by the principal.
  5. The alleged contractor’s opportunities for profit and loss.
  6. The amount of initiative, judgment, or foresight in open market competition with other required for the success of the claimed independent contractor.
  7. The degree of independent business organization and operation.

Keep in mind that the following common misconceptions are not sufficient alone (the economic realities test must still be met):

  • An employer and worker cannot agree on a classification – if the worker does not meet the criteria, they must be paid as an employee.
  • Remote work
  • Providing a 1099 (versus W-2)
  • State or tax law does not determine FLSA status
  • Using an EIN, LLC, etc.
  • Executed independent contractor agreement
  • Paying in cash, check, etc. to an entity other than the worker

In other words, I’ve said it before – if it looks like a duck, quacks like a duck, the DOL is going to say it’s a duck.

I have spent plenty of time in the quaint small town of Plainview, Minnesota (where the City snowplow is a tractor and dump truck team), and so it’s fun to write about this one, but I feel for the City (which voted to sell the liquor store in August 2020 while this appeal was pending). On February 3, 2021, the Minnesota Supreme Court issued its decision in Hall v. City of Plainview, 2021 WL 359508 (Minn. 2021) holding that  a paid time off (PTO) policy in an employee handbook was a unilateral contract, even though the employee handbook had broad disclaimer language that no contract was created by the handbook. Minnesota has long held that broad disclaimer language in an employment handbook is sufficient to convey intent not to create an employment contract. So what went wrong?

In this case, the Plaintiff, Donald Hall (Hall), managed the city’s liquor store, and accumulated over 1,778 hours (almost 11 months) of paid time off (PTO). Now, the first part of the story (I try not to digress but this is important) is that employers should consider a cap on PTO, or a maximum carry-over so that any payout is not bank-breaking. In any event, upon termination, Hall sought a payout for his PTO, citing the detailed PTO payout policy in the City’s handbook. The City refused, citing a general disclaimer in its handbook that the handbook, “is not intended to create an express or implied contract of employment between the City of Plainview and an employee,” and the lawsuit ensued. The Minnesota Supreme Court ultimately held that the handbook’s PTO policy was sufficiently specific as to create a contract , and the general handbook disclaimer was too broad and ambiguous to allow the City to not follow the PTO policy requiring payment upon termination. Accordingly, the Court held that Hall was entitled to his PTO payout.

Given this ruling, employers should (besides capping PTO/vacation as discussed above), review the disclaimer language in your employee handbook (every employer should have at least one “at-will” disclaimer!), and consider whether more precise and detailed language is needed to clearly communicate intentions regarding contractual obligations (or lack thereof).

*UPDATE – THE FINAL RULE HAS BEEN WITHDRAWN MAY 6, 2021.

Regardless of whether you call it a teeter totter or seesaw, the DOL continues its ups and downs with its interpretations of important laws. You may recall my January 7, 2021 post reminding all y’all of the U.S. Department of Labor (“DOL”) final rule regarding the DOL’s adoption of the “economic reality test” for determining whether a worker is an employee or independent contractor.  That new rule was set to go into effect March 8, 2021. However, the Biden Administration issued a regulatory freeze, postponing all effective dates for any rules not yet in effect. Accordingly, on February 5, 2021, the DOL delayed the effective date to May 7, 2021. However, I will not be surprised if the DOL scraps the economic reality test (and the new rule altogether), in favor of the three-prong “ABC test” used by California (the home state of Julie Su, Biden’s nominee for DOL Deputy Secretary). The ABC test presumes that a worker is an employee unless the employer proves otherwise. So, stay tuned as the teeter is tottering. Or is the see-sawing?

I know you’re thinking, what possibly can a turtle hiding in his shell have to do with wage and hour law?! Since the Biden Administration has begun, several Department of Labor (DOL) opinion letters have been withdrawn (get it yet?) by the DOL (and are no longer assessable). In this instance, they may no longer be relied upon. Employers who changed their practice based on one of the following opinion letters should revisit the issue:

  •  FLSA2021-9 (whether tractor-trailer truck drivers are employees or independent contractors).
  • FLSA2021-8 (whether distributors of manufacturer’s food products are employees or independent contactors).
  • FLSA2021-4 (addressing tip pooling that includes servers (tip credit in some states – not MN) and hosts and hostesses (no tip credit).
  • FLSA2019-10 (addressing compensation for time spent in a truck sleeper berth while relived of duty).
  • FLSA2019-6 (whether virtual marketplace company is an employee or independent contractor).

Notably, between 2009-2017, during the Obama Administration, the DOL did not issue any Administrator opinion letters. From 2018-2021, the Trump Administration issued seventy (70) opinion letters. Accordingly, only time will tell whether the Biden Administration will issue any new opinion letters.

In Opinion Letter FLSA2021-7, the second of four opinion letters released today, the U.S. Department of Labor clarified that journalists – no matter whether they work for a major newspaper or small-town community paper – may qualify for the creative professional exemption. In order to qualify, journalists must have a primary duty that requires, “invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.” 29 C.F.R. 541.300(a)(2)(ii). Referencing Encino Motocars, LLC v. Navarro, 138 S. Ct. 1134 (2018), the DOL noted that it no longer reads the FLSA’s exemption strictly, as the Supreme Court has made it clear that is an incorrect reading. In short, while the opinion letter goes through the history of this exemption for journalists (including the DOL’s historical view that the majority of journalists were non-exempt), the takeaway is that, the DOL has confirmed that any journalist may qualify, no matter the circulation, so long as they meet the salary level, primary duties test, and whose work product is not subject to the employer’s substantial control.