Law and the Workplace

Fifth Circuit Dismisses Appeal of Nationwide Injunction of Obama-Era Overtime Rule

In light of the Texas district court’s recent judgment invalidating the 2016 overtime rule, the DOL filed an unopposed motion to withdraw its appeal of the November 2016 order that preliminarily enjoined the rule on a nationwide basis.  The Fifth Circuit Court of Appeals granted the motion and dismissed the appeal on September 6.  Unless and until a party to the underlying litigation files a plenary appeal of the summary judgment order, the Texas litigation challenging the 2016 rule is over.

The DOL, meanwhile, has received more than 124,000 comments in response to its June 2017 Request for Information regarding the overtime rule.  The agency is likely to propose some version of a new overtime rule, but what exactly that new rule will look like–and when it will be published–remains to be seen.  Based on comments made by Labor Secretary Alexander Acosta, many expect a proposed increase in the minimum salary threshold for the executive, administrative, and professional exemptions to the low $30,000 range.

Guidance Issued on Taxability of Contributions and Benefits under New York Paid Family Leave Law

Leave of absence form

The New York State Department of Taxation and Finance has issued official guidance on several taxability issues relating to the New York Paid Family Leave Law (“PFLL”), which goes into effect on January 1, 2018.  Among other details addressed, employee contributions under the PFLL shall be made on an after-tax basis, and benefits paid to employees shall be treated as taxable non-wage income.

As we previously reported, the New York Workers’ Compensation Board in July adopted final regulations for implementation of the PFLL.  The law provides a phased-in system of paid, job protected leave for eligible employees: (i) to care for a new child following birth, adoption, or placement in the home; (ii) to care for a family member with a serious health condition; or (iii) for qualifying exigencies related to military duty.  Paid family leave (“PFL”) benefits will be funded entirely by employee payroll contributions, with an employee’s contribution level based on a percentage of his or her weekly wage, up to a maximum statutory cap.

Since the final regulations did not address taxability concerns, questions remained as to how both employee payroll contributions and PFL benefits would be treated for tax purposes. The notice addresses several issues in this regard, namely:

  • Employee contributions to PFL benefit premiums will be deducted from employees’ after-tax wages.
  • PFL benefits paid to employees will be taxable non-wage income that must be included in federal gross income.
  • Taxes will not automatically be withheld from benefits, but employees can request voluntary tax withholding from PFL benefits paid.

With regard to reporting, the guidance provides that: (1) employers should report employee payroll contributions on Form W-2 using Box 14 – State disability insurance taxes withheld; and (2) PFL benefits paid to employees should be reported on Form 1099-MISC.

We will continue to report on further developments in the lead up to the PFLL’s effective date.

Texas Court Invalidates 2016 Federal Overtime Rule; DOL Seeks to Withdraw Appeal of Injunction

On August 31, 2017, the Texas federal district court that had issued a preliminary injunction in November 2016 blocking implementation of the Obama Administration’s revised overtime rule granted the plaintiffs’ motion for summary judgment, declaring the rule invalid and ending the case at the district court.  The DOL had appealed the injunction with the Fifth Circuit Court of Appeals, but on September 5, 2017, the agency filed an unopposed motion to withdraw the appeal as moot.

The district court’s reasoning was similar to its reasoning in the order granting the injunction.  Judge Amos Mazzant noted that in enacting the “white collar” overtime exemptions of the Fair Labor Standard Act (FLSA), Congress made clear that an employee’s duties should determine whether or not the exemptions apply.  In the 2016 overtime rule, by more than doubling the previous minimum salary level for exemption, the Department of Labor (DOL) set the threshold at a level that was so high as to “effectively eliminate the duties test” required by the FLSA.  As the Court explained:

This significant increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.  As a result, entire categories of previously exempt employees who perform “bona fide executive, administrative, or professional capacity” duties would now qualify for … exemption based on salary alone.… This is not what Congress intended …. [The] Final Rule … makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.

Judge Mazzant also concluded that the 2016 rule’s provision that would automatically increase the minimum threshold for exemption every three years also exceeds its authority under the FLSA and therefore is unlawful.

It remains to be seen whether the DOL will take a plenary appeal of the summary judgment order.

Illinois Governor Vetoes Bill That Would Prohibit Employer Inquiry Into Wage History

On August 25, 2017, Illinois Governor Bruce Rauner vetoed a bill that would prohibit employers from asking applicants about their wage histories. The bill, known as the Illinois No Salary History Law, previously had been passed by the Illinois House and Senate with overwhelming bipartisan support (91-24 in the House and 35-18 in the Senate).  The House and Senate may still vote to override the Governor’s veto, and would only need one more vote in the Senate to do so (a veto override requires 71 votes in the House and 36 votes in the Senate).

This bill is one of the latest to be considered as part of a growing patchwork of salary history inquiry laws around the country. Similar laws, aimed at combatting gender-based disparities in pay, have been passed in New York City, San Francisco, Oregon, Philadelphia, Massachusetts, Delaware and Puerto Rico, with other jurisdictions also considering similar bills.  The laws all share the common restriction against requesting salary history (with limited exceptions) during the hiring process, but have some notable differences.  For example:

  • The Illinois bill would establish a private right of action. The Oregon law allows employees to file an action in court. Other laws, such as Philadelphia’s law, require applicants to file complaints with administrative agencies.
  • The New York City and San Francisco laws permit employers to discuss salary expectations of an applicant (without requesting information relating to past compensation), while others, like the Illinois bill, do not explicitly permit this.
  • The Oregon law permits a discussion of salary history after an offer of employment that includes compensation terms has been made. Other state and local laws do not permit this.

Employers should be aware that this issue is percolating and we will continue to monitor advancements in this area, both in Illinois and nationwide.

New EEO-1 Form Put On Hold: Employers Have Until March 31, 2018 To Submit Prior Version Of EEO-1 Form

EEOC seal

Key Points:

  • The OMB has stayed the implementation of the new EEO-1 Form, which added compensation and hours worked components to the annual EEO-1 submission
  • OMB’s decision was based in part on concerns about burdens the new form would place on employers and the questionable utility of the new information requirements
  • Employers who must submit the EEO-1 form will have to submit the prior version of the EEO-1 Form, but will not have to submit 2017 data until March 31, 2018

Summary Of The Development

As we reported earlier this month, the expanded EEO-1 form requiring certain employers to report pay data of their employees was under review by the Office of Information and Regulatory Affairs (“OIRA”), an office within the Office of Management and Budget (“OMB”), for compliance with the Paperwork Reduction Act (“PRA”). Acting Chair of the Equal Employment Opportunity Commission (“EEOC”), Victoria Lipnic, announced on August 3, 2017 that she had sent the Administrator of OIRA, Neomi Rao, memorandum asking OIRA to decide by the end of August 2017 whether to implement or discard the wage data collection portion of the revised EEO-1.

On August 29, 2017, OIRA complied with Chair Lipnic’s request. In a memorandum  to Chair Lipnic, Administrator Rao informed the EEOC that it was “initiating a review and immediate stay of the effectiveness of the new aspects of the EEO-1.” Administrator Rao explained that there were three reasons for OIRA’s decision. First, it determined that the relevant circumstances related to the collection had changed since OIRA (under the Obama Administration) had previously approved the new form. Specifically, since that time EEOC released data file specifications for employers to use in submitting EEO-1 data. Because those specifications were not contained in the Federal Register notices as part of the public comment process or outlined in the supporting statement for the collection of information, the public did not receive an opportunity to provide comment on the method of data submission to EEOC.

Second, OIRA found that the EEOC’s calculation of burden estimates of the new form on employers failed to account for these new data specifications and how the specifications could affect the EEOC’s initial burden estimate.

Third, Administrator Rao expressed concerns with the form itself – specifically, that “some aspects of the revised collection of information lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.”

As a result, EEOC must publish a notice in the Federal Register announcing the immediate stay of new compensation and hours worked reporting requirements contained in the revised EEO-1 form and “confirming that businesses may use the previously approved EEO-1 form in order to comply with their reporting obligations for FY 2017.”

In response, Chair Lipnic issued a statement  informing employers that “the previously approved EEO-1 form which collects data on race, ethnicity and gender by occupational category will remain in effect. Employers should plan to comply with the earlier approved EEO-1 (Component 1) by the previously set filing date of March 2018.” (emphasis in original) Chair Lipnic, a vocal opponent of the revised form, also stated that she “hope[s] that this decision will prompt a discussion of other more effective solutions to encourage employers to review their compensation practices to ensure equal pay and close the wage gap.”

Key Takeaways

OIRA’s decision is welcome news for employers who have been struggling with the practical challenges presented by the revised EEO-1 Form, including how to merge HRIS and payroll data in an efficient and accurate manner and nuances in how to calculate and report hours worked data. Those employers no longer have to worry about preparing for the expanded EEO-1 Form.

Although many will decry the decision as a step backward in the fight for pay equity, in truth, the revised EEO-1 Form would have been little more than an exercise in paperwork with little if any practical value. Reporting wage information for employees in extremely broad EEO-1 categories provides little utility to employers attempting to assess their pay practices or government agencies attempting to do the same.

Even so, pay equity represents a growing risk to employers. More and more states have and are passing laws making it easier to bring pay equity claims, imposing pay transparency obligations, and prohibiting inquiries regarding pay of applicants.  In addition, government agencies, including OFCCP, continue to focus on compensation in their investigations and audits of employers.  Employers should therefore continue to engage in self- assessments (protected by attorney-client privilege where possible) to ensure their pay practices can comply with federal, state and local requirements and withstand scrutiny in an investigation, audit or litigation.

Wage and Hour Considerations During Weather-Related Emergencies

As Tropical Storm Harvey continues wreak havoc across Texas and beyond, it’s the right time to revisit employer rights and responsibilities during a weather-related emergency or other major disruption.  Here are some typical scenarios that employers face during weather-related or other emergencies, and the consequences under the wage and hour laws.

“Our office was closed for a few days because of the storm.  Do we have to pay our employees for those days?”

Non-exempt (i.e., overtime-eligible) employees generally have to be paid only for hours they actually work.  So if a non-exempt employee cannot work because your office is closed—or because the employee cannot make it into the office because of weather-related conditions—the wage and hour laws do not require you to pay the employee for non-working time.  On the other hand, a non-exempt employee who performs work remotely (say, from home, from a temporary site, or from a coffee shop) is entitled to pay for the time worked.

An exception exists for salaried non-exempt employees, who may—depending on the terms of their agreement with the employer—expect to receive their full weekly salary regardless of how many hours they actually work that week.

Exempt employees (i.e., employees not entitled to overtime pay) generally receive their full salary for any week in which the office is closed for less than a full workweek.  Employers who prorate an exempt employee’s weekly salary because of office closure risk losing the exemption for the week in question—a consequence that may or may not be material depending on how many hours the employee works that week.  If your office is closed for an entire workweek, you can inform all employees of the closure and you need not pay them for that week (unless they are working remotely).

Be sure to check any agreements with exempt employees—as well as offer letters, policies, or other statements regarding the nature of their pay—which may also limit your ability to prorate salary during office closures and/or give rise to pay claims.

 “Our office was open, but some of our staff could not make it in because of the weather.  Do we need to pay them?

As we note above, non-exempt employees generally must be paid only for hours they actually work, but salaried non-exempt employees may have a contractual right to receive their full salary for any week in which they perform any work.

Exempt employees who are absent from work for one or more full days because of inclement weather, including because of transportation difficulties, are considered to be absent for personal reasons (if the office is otherwise open).  Absent a contractual right to be paid, they do not have to be paid for the days they fail to report to work, and your failure to pay them for such days will not jeopardize their exempt status.  Deductions for partial-day absences under these circumstances, however, will violate the salary basis rules and jeopardize the exemption for that week.

“Because of flooding or another dangerous condition, we had to close our office after a number of employees had already reported for work.  Do we have to pay them for the day?” 

Exempt employees who report to work but are turned away or sent home by their employer generally must receive their salary for that day.  Non-exempt employees who report to work but are turned away or sent home must be paid for all hours actually worked that day.  In addition, some states have “reporting pay” or “call in” pay laws that require employers to pay non-exempt employees a minimum number of hours’ pay for any day in which they report to work.

“Our payroll records were destroyed in the storm, or are inaccessible.  How do we pay our employees?”

Exempt employees paid on a salary basis should receive their normal salary payment (less any permissible full-day deductions).  For hourly non-exempt employees, use a reasonable method to determine the number of hours worked, such as:

  • Asking employees to submit a certified time sheet indicating the number of hours they worked;
  • Re-creating hours worked through electronic records (e.g., card/ID swipes or log-ins/log-outs);
  • Making assumptions based on an employee’s fixed or regular schedule of hours;
  • Asking managers to verify hours worked; or
  • Some combination of the above.

“Can we require our employees to use available vacation days or other paid time off during a weather-related office closure or absence?”

Yes.  Under federal law and the laws of most states, employers are not required to provide vacation benefits or other paid time off to employees.  Such benefits are generally a matter of agreement between employer and employee, or set forth in the employer’s handbook or policy.  Under these circumstances, there is no prohibition on an employer giving PTO and requiring that it be taken on specific days.  So long as it’s permitted under the applicable PTO policy or agreement, employers can generally reduce an employee’s accrued PTO bank for either partial or full day absences, without violating wage and hour laws.

“Can we give our staff additional paid or unpaid time off to assist in recovery or relief efforts?”

Employers can grant their employees additional paid and unpaid time off for any reason, including assisting with storm-related recovery and relief efforts.

Employees who are assisting in relief efforts as part of the National Guard or Armed Forces Reserves may have additional rights under federal and state law.

Because of the storm, it took our employees twice as long to commute to work as opposed to most other days.  Do we need to pay them for the additional commute time?”

Time spent in an employee’s normal commute from home to work at the beginning of the workday, and from work to home at the end of the workday, is not considered time worked and need not be paid.

“Some of my employees are members of a union.  Do these rules apply to them as well?”

Collective bargaining agreements generally cannot waive or reduce the protections available to employees under federal, state, or local wage and hour laws.  Collective bargaining agreements can, however—and often do—impose additional pay, time off, and other obligations on employers.  Employers with unionized employees should consider all applicable agreements when analyzing their rights and responsibilities in the context of a weather-related emergency or other “force majeure” event.

“We want to do more for our employees, to go above and beyond what the law requires. What are some things we can do?”

There are many options available to an employer that wants to do more for its employees, including:

  • Granting additional paid or unpaid time off
  • Allowing employees to donate accrued paid time off to other employees (i.e., leave-sharing plans)
  • Allowing affected employees to work remotely for some period of time
  • Making emergency advances of wages, or loans
  • Setting up disaster-relief programs or payments
  • Making certain payments to assist disaster victims that can be excluded from their taxable income
  • Setting up food and clothing drives

Final Thoughts

Employers making decisions about scheduling, pay, and time off during weather-related emergencies and disruptions should bear in mind the potential implications on employee morale.  Flexibility and support in times of need—or the absence of them—are likely to be remembered long after the storm passes.

As always, check state and local laws—as well as your contracts and policies—before making any final decisions regarding wages, hours, or time off.