Law and the Workplace

Fifth Circuit Confirms Burden of Proof on Regular Rate Miscalculation Claim

Scheduling

On September 2, 2020, the Court of Appeals for the Fifth Circuit held that employees bear the burden of proof on whether bonuses should have been included in the regular rate of pay for purposes of calculating overtime compensation under the Fair Labor Standards Act (“FLSA”).

The plaintiffs in Edwards v. 4JLJ, L.L.C. alleged that their employer failed to account for certain bonuses in calculating the regular rate of pay.  Section 7(e) of the FLSA excludes eight categories of remuneration from the regular rate calculation, including bonus compensation if “both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.”  29 U.S.C. § 207(e)(3).  The Court of Appeals, considering the statutory language as well as the interpretive regulation at 29 C.F.R. § 778.211, noted that “[f]or a bonus to be excepted from the regular rate under § 207(e), the employer must maintain discretion over whether to give the bonus and the amount given.”

In an issue of first impression, the court considered whether the plaintiffs or the employer bears the burden of proof on whether bonuses are discretionary and therefore excluded from the regular rate.  The court held that the burden is on the plaintiffs.  In so holding, the court contrasted the regular rate definitions in § 207(e) with the affirmative defense of exemption from the overtime requirements, the burden of proof on which rests with the employer:

Section 207(e) does not exempt employers from compliance with [the overtime pay requirement in 29 U.S.C.] § 207(a)(1); it provides instruction for compliance with § 207(a)(1), where “regular rate” is used without definition.  Section 207(e) provides that definition, which is crucial for employers if they are to understand what must be included in the regular rate—in order to comply with § 207(a).  It was the [e]mployees’ burden to show that they “performed work for which [they were] not properly compensated.”  And to do so, they must show that [their employer] ought to have included the remuneration in question in the regular rate.  Because § 207(e)(3) is merely a definitional element of the regular rate—and therefore merely a definitional element of the [e]mployees’ claim—it was their burden to show that bonuses were not discretionary according to the statute’s terms.

As the court noted, the holding is consistent with the general principle that “[i]n an FLSA dispute, plaintiffs bear the burden to prove all elements of their claims.”

Louisiana Expands Scope of Non-Compete Law to Include Partners, Shareholders and LLC Members

Louisiana’s amended non-competition statute (La. R.S. 23:921), which meaningfully expands the application of employment-related non-compete restrictions within the state, went into effect on August 1, 2020.  This amendment expressly expands the reach of Louisiana non-compete law by, among other things, adding corporate shareholders, partners in partnerships, and members of limited liability companies, to the category of individuals who may be subject to employment non-competition obligations.  This expansion of the law stands in stark contrast to the approach recently taken by many state legislatures across the country (e.g., Washington, Massachusetts, and Maryland), which have sought to narrow the categories of individuals (e.g., by age, wage, or FLSA classification) who may be subject to non-competes.

As now amended, La. R.S. 23:921 specifically identifies individual “shareholders of [a] corporation,” “partners of [a] partnership,” and “members of [a] limited liability company” as individuals who may also be subject to a non-compete agreement restricting them from “becom[ing] employed by” a competitive company.  This amendment closes what could have been utilized as a technical loophole in non-compete enforcement, as previously a preexisting employment relationship was required in order to maintain a non-compete restriction.

Notably, the amendments to La. R.S. 23:921 do not change the general enforceability conditions for a non-compete agreement in Louisiana.  Specifically, the non-compete obligation is still limited to application: (1) within a specified parish or parishes, municipality or municipalities, or parts thereof, (2) so long as the employer carries on a like business therein, and (3) may not exceed a period of two years.

DOL Reiterates That Hours Need Not Fluctuate Above and Below 40 in Fluctuating Workweek Method of Pay

Scheduling

In an opinion letter issued on August 31, 2020, the U.S. Department of Labor restated its position that an employee’s hours need not fluctuate above and below 40 hours to qualify for the fluctuating workweek (“FWW”) method of calculating overtime pay in 29 C.F.R. § 778.114.

Under the FWW method of pay, an overtime-eligible employee whose hours fluctuate from week to week and who agrees to receive a fixed weekly salary covering all hours of work is entitled to a halftime premium for hours worked in excess of 40 per week—not a time-and-a-half premium.  The rationale is that the employee, by virtue of the fixed salary covering all hours of work, has already been paid the “straight-time” component of pay for the hours over 40.  Accordingly, all that remains for the employer to pay is the “half” in the colloquial “time and a half.”  The FWW principles were first articulated by the Supreme Court in Overnight Motor Transportation Co. v. Missel, 316 U.S. 572 (1942).  In 1950, the DOL codified the rule in the federal regulations.  The rule requires hours that fluctuate from week to week; a fixed salary that does not vary with the number of hours worked; a salary sufficiently large to cover the minimum wage; and a clear mutual understanding between employer and employee that the employer will pay the fixed salary regardless of the number of hours worked.  If these requirements are met, the employer computes the regular rate by dividing the weekly salary by the total number of hours worked that week, and satisfies its overtime pay obligation by paying a premium equal to half that amount for each overtime hour worked.  In the many states where it is permitted, the FWW method is a powerful tool for employers seeking to manage overtime costs for salaried non-exempt employees.

The DOL has long held that the FWW method does not require that an employee’s hours of work fluctuate below 40 hours per week.  It confirmed as much in the June 2020 final rule amending § 778.114, as well as in prior opinion letters.  This most recent opinion from the agency makes clear that the FWW method is appropriate even when the employee always works more than 40 hours per week.  A number of federal courts of appeal have agreed, including (in June 2020) the Second Circuit in Thomas v. Bed Bath & Beyond, Inc.  

Under the Fair Labor Standards Act, employers can rely on DOL opinion letters as defenses to claims for overtime pay.  Specifically, “no employer shall be subject to any liability … on account of the failure … to pay … overtime compensation … if [it] pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on any written … ruling, approval, or interpretation …  of the [Administrator of the Wage and Hour Division of the Department of Labor]….  Such a defense, if established, shall be a bar to the action or proceeding].”  See 29 U.S.C. § 259(a).  The August 31 opinion letter is an official ruling or interpretation for purposes of this good-faith reliance defense.

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DOL Announces Substantial Changes to Guidance Practices

On August 28, 2020, the U.S. Department of Labor (“DOL”) published in the Federal Register a final rule that substantially revises its practices with respect to guidance documents.  The “Promoting Regulatory Openness through Good Guidance Rule,” referred to as the “PRO Good Guidance Rule,” implements President Trump’s Executive Order 13891, which directed federal agencies to curtail and streamline guidance practices.  The DOL explained that in issuing the PRO Good Guidance Rule, it sought “to create fairer procedures for the issuance and use of regulatory guidance at the Department of Labor,” and in recognition of the fact that “the public often treats guidance from agencies as binding, even if it technically is not.”

Of chief significance, under the PRO Good Guidance Rule, all DOL guidance documents going forward will be made publicly available in a searchable database on the DOL’s website.  Anything not posted in this database will no longer be considered guidance and cannot be relied upon as such.  The rule clarifies that many types of documents that parties may have previously utilized as guidance—including DOL legal briefs and court filings, agency adjudications, and opinion letters issued to a particular person in response to a specific inquiry—do not constitute guidance and cannot be relied upon as such, unless that document has been posted to the DOL’s guidance database.

The PRO Good Guidance Rule also requires that any future guidance considered “significant” (which would include guidance with an economic impact greater than $100 million, that would create a serious inconsistency with action taken by another federal agency, or that would have certain other noteworthy impacts) will have to go through a formal process requiring notice-and-comment review before being implemented, similar to what is already required for agency rulemaking.  Finally, under the PRO Good Guidance Rule, the public will now be afforded the right to petition the DOL to amend or withdraw guidance with which it disagrees.

The DOL also announced that in creating its guidance database, it “undertook a comprehensive review of its own guidance” and had “rescind[ed] nearly 3,200 documents.”

The PRO Good Guidance Rule takes effect on September 27, 2020, after which employers and practitioners should confirm that any DOL guidance on which they intend to rely are posted in the public database.

Intersection Between Return-to-School and FFCRA

As we have previously reported, the Families First Coronavirus Response Act (FFCRA), which remains in effect through December 31, 2020, provides, among other things, that eligible employees can take up to 12 weeks of FMLA leave if the employee is unable to work (or telework) due to a need for leave to care for their son or daughter if the child’s school or place of care has been closed, or the child’s child care provider is unavailable, due to a public health emergency with respect to COVID-19 declared by a Federal, State, or local authorities. The United States Department of Labor (DOL) has been issuing guidance with respect to various provisions of the FFCRA and, as the schools across the country are getting ready to start or have already started the new school year, on August 27, 2020, issued three new Questions and Answers on the intersection of return-to-school and the FFCRA. The new guidance is straightforward:

  1. If the school’s operations are 100% virtual, the FFCRA is available for eligible employees.
  2. If the school’s operations are hybrid (i.e., students attend the school in person on alternate days), the FFCRA is available for eligible employees on days when their child is not permitted to attend school in person and must instead engage in remote learning so long as the employees need the leave to actually care for their child during that time and only if no other suitable person is available to do so.
  3. If the school offers both in person and virtual option and the employee chooses a virtual route, the FFCRA is not available, unless other provisions of the FFCRA apply such as, for example, if because of COVID-19, the child is under a quarantine order or has been advised by a health care provider to self-isolate or self-quarantine, the employee may be eligible to take paid emergency sick leave under the FFCRA to care for the child.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

CDC Updates Guidance on Travel During the COVID-19 Pandemic

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On August 21, 2020, the Centers for Disease Control and Prevention (“CDC”) updated its guidance on Travel during the COVID-19 Pandemic. Previously, the guidance recommended that travelers self-quarantine for 14 days after: (1) all international travel, and (2) domestic travel to areas with a high concentration of COVID-19 cases. The guidance now recommends that travelers “follow state, local, and territorial travel restrictions,” which may include “testing requirements, stay-at-home orders, and quarantine requirements upon arrival.” For international travel, the CDC recommends visiting the destination’s Office of Foreign Affairs or Ministry of Health or the U.S. State Department website for information about quarantine requirements.

Despite the CDC’s shift away from the 14-day quarantine recommendation upon return from international travel, CDC Level 3 Travel Health Warnings remain in place for nearly 200 countries – recommending that travelers avoid all nonessential travel to these areas. In addition, foreign nationals who have been to China, Iran, most countries in Europe, the United Kingdom, Ireland or Brazil during the past 14 days are still not permitted to enter the United States due to a Presidential declaration. According to the U.S. State Department, citizens and legal permanent residents are permitted to return from these areas, but may be required to travel through select airports with enhanced screening procedures.

Furthermore, in recent weeks, a number of states have issued travel advisories and guidance for travelers, several of which include either a mandated or recommended 14-day self-quarantine following return from travel to certain “hot spot” areas. For example, on June 24, New York Governor Andrew Cuomo issued an Executive Order requiring all travelers entering New York from a state or territory with a high positive test rate to quarantine for 14 days. The New York Department of Health has been publishing an updated list of states and territories that meet the criteria for quarantine. As of August 27, 2020, this list includes over thirty states and territories. Those who violate the quarantine order may be subject to a civil penalty of up to $10,000 or imprisonment up to 15 days. Notably, the Order does not require a self-quarantine after international travel. However, any federal restrictions and guidance regarding such travel would still apply.

Other states that have issued advisories or guidance requiring or recommending a self-quarantine following travel include (but are not limited to): Connecticut, Massachusetts, New Jersey, Pennsylvania, and Washington, D.C.

In light of this federal and state guidance, employers should: (1) continue to monitor the travel restrictions and recommendations in the jurisdiction in which they operate, and (2) consider how these may impact business travel policies and, for employers who have resumed in-person operations, policies regarding return to work following international or out-of-state travel. Employers are also advised to consult with counsel, as certain considerations including anti-discrimination, wage and hour, and leave policies may be implicated.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

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