Management Attorneys Examine Potential Return of DOL Opinion Letters, Provide Guidance on Joint Employment Issue and More

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FLSA Litigation

In a May 2017 interview, Carolyn Rashby and Walter Stella of Miller Law Group discuss President Donald Trump’s administration and its stance on the overtime rule litigation, and explore the possibility of amendment of the Fair Labor Standards Act, as well as other pressing wage-hour topics such as the potential comeback of U.S. Department of Labor opinion letters and the future of joint employment.

Carolyn Rashby Walter Stella

Carolyn Rashby & Walter Stella (interviewed by Katherine C. Parris)

Carolyn Rashby is a partner in the San Francisco office of Miller Law Group, an employment law firm that exclusively represents management. Ms. Rashby’s practice focuses on compliance on a wide range of employment matters, including wage and hour, leaves of absence, discrimination, harassment, and employee handbooks and personnel practices. In addition, Ms. Rashby regularly prepares client education materials touching on all aspects of California and federal employment law.

Walter Stella has over 25 years’ experience representing companies in all aspects of employment law and related litigation, including wage and hour class actions and suits involving trade secret theft, wrongful termination, discrimination, retaliation, and harassment. He routinely counsels clients on employment law matters, provides advice on employment issues arising from complex business transactions, and negotiates employee benefits and employment agreements on behalf of companies and executives. Walter has been selected for inclusion in the list of Best Lawyers in America since 2013, and the list of Northern California Super Lawyers since 2014.

Bloomberg BNA:

Many predict that the DOL under President Donald Trump will most likely heavily issue opinion letters, a practice that was uncommon during former President Barack Obama’s administration.

What impact, if any, would the resurgence of these letters have on defense attorneys’ practice and litigation strategy?

Rashby and Stella:

Opinion letters can be helpful, but also can present obstacles for defense counsel. While opinion letters can be persuasive authority, they aren’t controlling on a court. Defense counsel should always be well informed on controlling case authority in the applicable jurisdiction, and also should follow that case authority in the event of an inconsistency between controlling case law and an opinion letter.

Nevertheless, as persuasive authority, DOL opinion letters can’t be ignored. Opinion letters impact advice we provide clients, as well as on litigation strategies. Litigation strategies are tailored to present clients’ cases as consistent with applicable legal authority, and this includes DOL opinion letters. Unless an opinion letter clearly conflicts with case authority in the relevant jurisdiction, employers are best served to comply with the guidance in opinion letters.

A possible resurgence in the issuance of DOL opinion letters could affect employers’ actions in an effort to comply with applicable law and avoid litigation. In the event of litigation, defense strategy can align with establishing that the employer complied with guidance set forth in the opinion letter.

A well-drafted and clear opinion letter can be helpful guidance for employers and is often welcomed, especially when it provides guidance in gray areas of the law. However, an opinion letter that raises more questions than it answers can often leave employers and their defense counsel agonizing over what actions to take in order to comply with the law.

Bloomberg BNA:

The U.S. Court of Appeals for the Fifth Circuit recently granted the U.S. Department of Justice’s third extension request in overtime rule proceedings. The DOJ now has until June 30 to file a reply brief.

What does the current administration’s litigation strategy indicate and what does this mean for the future of the overtime rule?

Rashby and Stella:

It appears that the administration is trying to buy time while it works out its position and strategy as to the extent of any changes it may decide to make to the pending regulation and the overtime regulation in general. In large part, the delay stems from the fact that the DOL was without a secretary until Alexander Acosta was finally confirmed in late April. The latest court filing requesting an extension of time until June 30 stated as much.

What we do know is that Secretary Acosta has so far avoided directly addressing his views on the overtime rule and whether it should be amended or withdrawn. He has vaguely indicated that the litigation raises two key issues. One, whether the secretary possesses the authority to issue the overtime rule and two, what an appropriate salary level might be if the rule were changed or revised.

We should have more information on this issue in the coming weeks, as the new secretary reveals his strategy for the overtime rule. It is also worth noting that even if the administration ultimately doesn’t pursue the litigation, a group of labor organizations led by the Texas AFL-CIO has already filed a motion to intervene. This motion is based on concerns that the Trump administration would decide not to pursue appeal of the district court’s preliminary injunction of the rule.

Bloomberg BNA:

Some believe that congressional action on the overtime issue may be an option, which would mean amendment of the FLSA.

Is this a viable option, and how might such an amendment affect the future of FLSA litigation?

Rashby and Stella:

Given the current Republican-controlled makeup of Congress, it is unlikely that we will see Congress step-in to significantly increase the FLSA minimum salary for exempt employees. What we may see is congressional action amending the FLSA to provide scheduling flexibility in lieu of overtime. Congress is currently considering the Working Families Flexibility Act ( H.R. 1180). If passed, the law will amend the FLSA to allow employers and employees to voluntarily agree to paid time off instead of overtime compensation, at the rate of one and a half hours of paid time off for each overtime hour worked.

This measure passed the House on May 2, 2017 and is now in the Senate. Not surprisingly, support for the bill divides along party lines. Republicans are touting the flexibility that workers would have to more easily balance work and personal obligations. Democrats have expressed concern that employees could be coerced into giving up their right to overtime compensation under the FLSA. While it’s too early to predict the outcome for this bill, employers should keep their eye on it. Employers also should take note that even if the FLSA were amended to permit compensatory time off, applicable state law could still require payment of overtime compensation.

Bloomberg BNA:

Certain employers made the decision to change overtime pay policies prior to the overtime rule taking effect; however, the court halted implementation with an injunction. Employers like Wal-Mart raised salaries for overtime exempt employees, while others categorized certain employees to nonexempt hourly.

Have some employers rescinded these types of changes and what might be the best method for employers unsure of how to respond?

Rashby and Stella:

In our practice, we found that most employers that made changes last December because of the then-impending overtime rule (either raising salaries or converting to hourly status), have left those changes in place. In particular, employers that raised exempt salaries to the new threshold level were concerned that reducing salaries would negatively impact employee morale.

We recommend for employers that raised salaries and are now considering pay reductions, consider the impact on morale and turnover, and take a look at state minimums as well as where those minimums may be headed in the future. On the other hand, an employer that recently reclassified workers to hourly could more easily reverse that, so long as close attention is paid not only to the minimum exempt salary (federal and state) but also to ensuring that the workers’ duties qualify for exemption.

Bloomberg BNA:

Some state governments have taken action by proposing their own changes to overtime. New York implemented its salary threshold increase at the end of 2016 and the California legislature recently introduced AB 1565.

Do you believe that other states may follow this trend and will it impact the prevalence of FLSA class and collective actions?

Rashby and Stella:

We think other states will follow this trend. Employers and their counsel are facing a period of uncertainty as to the direction the federal government will go in with respect to wage and hour enforcement, passage of new laws and regulations, and even rollbacks of existing ones. It is our opinion that a key impact we will see is a significant uptick in regulation by states as well as by local governments, with respect to wage and hour matters as well as other areas of employment. As a result, it will be critical for management attorneys to be well-versed in the intricacies of the jurisdictions in which their clients operate, to keep clients timely alerted to employment law developments in those areas, and assist them with staying on top of new compliance challenges.

As to whether an increase in state/local regulation will drive down FLSA class and collective actions, time will tell. While the number of FLSA actions filed in 2016 was down a bit from the prior record year, the fact remains that it was still the second highest year for FLSA filings on record, and we expect plaintiffs’ attorneys to continue to file FLSA actions at a rapid clip on a wide range of issues, including calculation of overtime pay, exempt classification, independent contractor classification, and more.

Bloomberg BNA:

The NLRB previously adopted a broader joint employer test in Browning-Ferris, No. 186. The case is currently on appeal at the D.C. Circuit; however, some expect a revocation of this test after President Donald Trump’s appointments to the board.

What can we expect with regards to this case and the joint employer issue?

Rashby and Stella:

We expect to see changes in the government’s strategy on joint employer issues. All signs point to the fact that the new administration will be more business-friendly than the Obama administration on many fronts, including at the NLRB. The new NLRB Acting Chair Philip Miscimarra, the Board’s sole Republican member, is serving out the last year of his four-year term that began in 2013. There are two vacant seats ready to be filled, which likely will result in a Republican-majority Board. President Trump will appoint a new NLRB General Counsel when current General Counsel Richard Griffin steps down later this year. With a conservative majority, we certainly expect to see a shift in enforcement priorities and positions on a range of matters that the NLRB has focused on in recent years; including joint employment, social media, work rules, and class action waivers.

With respect to joint employment, the NLRB’s decision in Browning-Ferris Industries adopted a broad definition of joint employment, thus increasing the prospect that businesses will share labor and employment risk with subcontractors, staffing agencies, supply chain partners, franchisees, and possibly even private equity firms, even if the business exercises only indirect control over the other’s workers or has merely reserved the right to do so.

Notably, Acting Chair Miscimarra dissented, arguing that the new joint employer test adopted by the Board would “subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity.”

This is a key indicator that the Board in its new and evolving configuration will change course on the joint employer standard. In the meantime, the D.C. Circuit recently heard oral arguments in Browning-Ferris Industries, and while the outcome is far from clear, the line of questioning suggested the possibility that the court might overturn the decision. It’s also important to keep in mind that the NLRB is not the only agency that has taken a broad view of joint employment. Shortly after the NLRB issued the Browning-Ferris Industries decision, the DOL issued guidance expanding when businesses will be liable as joint employers. With the confirmation of new Labor Secretary Alex Acosta it’s possible that we will see an about-turn on the DOL’s joint employer position.

Bloomberg BNA:

What are some best practices that employers can utilize to protect themselves against joint employer allegations pending resolution in the courts?

Rashby and Stella:

Businesses should focus on key documents governing their relationship with other entities, such as staffing agency agreements, franchise agreements, or subcontractor agreements. Agreements should contain clear language that indicate the entities don’t intend to be joint employers, that identify which entity is the direct employer with control over the workers, and that specifies that the direct employer entity is solely responsible and liable for all employment-related decisions (even if a court or agency should later find that joint employment existed).

Employers should remove any language that states or suggests that the non-employing entity retains ability to exercise control over another’s business operations or employees, and pay close attention to provisions that indicate who can set terms and conditions of employment or terminate the relationship, and who is responsible for compliance with employment laws. It is also critical to include an indemnity provision in relevant agreements to make clear which party bears liability, including for attorneys’ fees, in the event of a joint employer determination.

Businesses should take steps to ensure they are eliminating, or at the very least minimizing, actual or potential control over a staffing company’s, subcontractor’s, or franchisee’s workers’ terms and conditions of employment, as well as ensuring they aren’t exercising day-to-day supervision over things such as work assignments, performance evaluation, discipline, monitoring work output, or handling grievances and complaints. A best practice is to implement management and human resources procedures to ensure the maximum amount of operational control is in the hands of the direct employer, and to ensure that managers of both entities, as well as the workers, understand the parameters of the relationship.

Bloomberg BNA:

Some employers are choosing to pay their employees a day rate instead of the more standard hourly rate. What are some pros and cons for this method of payment and how can employers avoid legal liabilities arising from this form of payment?

Rashby and Stella:

The advantage of a daily rate for most employers is the ability to pay a set amount regardless of the number of hours worked, or the level of productivity, by the employee on any given day. The trap for the unwary is that the daily rate doesn’t compensate employees for any overtime worked. This issue is even more pronounced in California, which requires payment of daily overtime.

The daily rate also must be set at an amount that ensures that the employee will receive at least minimum wage for all hours worked. One of the perceived advantages of using a daily rate for many employers is the ability to avoid timekeeping paperwork. Unfortunately, due to the potential overtime and minimum wage issues, paying a daily rate may not allow an employer to avoid tracking time worked. Unless the employer can ensure that an employee will never work overtime, tracking hours may be necessary. Also, some states (like California) require tracking of all hours worked. Employers should keep in mind that the best way to defend against wage and hour claims is having contemporaneous and accurate time keeping records.

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