MINIMUM WAGE INCREASES SCHEDULED FOR NEW YORK EMPLOYEES

Q.  My company conducts operations in several locations throughout New York State. What do I need to know about the upcoming minimum wage increases and new salary threshold requirements for our administrative and executive level employees?

A.  Employers in New York State should prepare to ring in the New Year with yet another increase in the minimum wage, as well as substantial increases in the salary thresholds for exempt executive and administrative employees. In 2016, as part of a sweeping overhaul of the state’s wage and hour law, the New York Department of Labor amended the rules to provide for annual increases across the spectrum of wages, with the third phase set to go into effect on December 31, 2018.

Minimum Wage Increases

The increases in the general minimum wage depend on the employer’s location and number of employees. For example, in New York City, the minimum wage requirement for employers with 11 or more employees will rise from $13 to $15 per hour, with no additional increases planned for the following years.  For New York City employers with fewer than 11 employees, the minimum wage will increase from $12 to $13.50, with an additional increase to $15 slated for December 31, 2019.

The minimum wage requirements increase more gradually for employers outside of New York City. In Nassau, Suffolk, and Westchester counties, employers must raise wages for hourly employees from $11 in 2018 to $12 in 2019.  Employers in all other counties are required to raise the minimum wage from $10.40 to $11.10 per hour.  These increases outside of New York City will continue at the same rate and on the same date annually, with the final increase effective December 31, 2021.  On that date, the statewide minimum wage settles at $15 per hour, regardless of the employer’s location or number of employees.

In addition, the law provides a separate schedule of increases for employees in the fast food industry. Effective December 31, 2018, New York City fast food workers must receive a minimum wage of $15 per hour, while those workers in the rest of the state will see incremental increases annually before arriving at the statewide $15 per hour minimum wage at the close of 2021.

Employers should note several points regarding these changes. First, the applicable minimum wage rate is based on where the employee works, rather than the location of the employer’s headquarters.  Notably, for employees working in more than one location, employers must pay wages based on the applicable rate for the location where a given hour is worked.  In those cases, the employer must record the location worked and the commensurate wage, although the law allows the employer to use a hybrid overtime rate based on the applicable rates for the different locations.

Increases to Salary Threshold for Exempt Status

In addition to changes to the minimum wage, employers must ensure that their employees classified as exempt under the executive or administrative exemption meet the new salary threshold for exempt status. For non-hourly executive and administrative employees, the minimum salary necessary to claim the overtime exemption will rise significantly, again depending on the employer’s size and location.  Regarding the location, it is thus far unclear whether the applicable salary threshold is determined by the location where the work is performed, or some other factor such as the location of the employer’s primary place of work.

Assuming the employee works in one location, on December 31, New York City employers with 11 or more employees must raise salaries for exempt employees from $975 per week in 2018 to $1,125 per week. Along the same timeline, for employers with fewer than 11 employees, the weekly salary threshold increases from $900 to $1,102.50.  In Nassau, Suffolk, and Westchester counties, the salary threshold for exempt status rises from $825 to $900 per week, with further increases yearly until salaried employees in those counties reach the $1,125 threshold in 2021.  For all other counties, the salary threshold increases from $780 to $832 per week at the end of this year, with two additional increases scheduled before arriving at $937.50 at year end 2020.

Employers with employees earning salaries that fall below the new threshold on the effective date have several options going forward. If feasible, the simplest solution for employers in most cases is to raise salaries for exempt employees up to the threshold.  Alternatively, to mitigate the financial burden of the new law, employers might consider reclassifying these employees as non-exempt, track hours worked, and pay them overtime for hours worked over 40 in a workweek.

Given the scope of these changes, every employer in New York should conduct a thorough analysis of its workforce to ensure compliance with the new laws and to assess the financial impact of these changes. For exempt workers earning salaries near the new threshold, employers should carefully analyze the particular circumstances in light of the options discussed above before deciding the most prudent course of action.  Finally, employers in counties outside New York City (and small employers in the City) should mark their calendars in preparation for additional increases annually over the next several years.

Rogers Stevens

 

United States Supreme Court Revises Standard for Review of Exempt Classification

Q.  I heard that the U.S. Supreme Court just issued a ruling finding that auto service workers are exempt from overtime pay. My company is not in the automobile industry. Will this opinion apply to us?

A.  The U.S. Supreme Court issued an opinion this week in Encino Motorcars, LLC v. Navarro, finding that auto service workers – those employees who interact with customers and sell them services for their vehicles – are exempt from overtime pay under the Fair Labor Standards Act (FLSA). While the decision directly impacts this small category of jobs, the opinion will have a much more far-reaching impact, since the Court rejected long-standing precedent that exemptions must be construed narrowly against the employer.

In a 5-4 opinion overturning the Ninth Circuit’s decision finding that auto service advisors were non-exempt, the Court expressly rejected the principle invoked by the Ninth Circuit and many courts before it that exemptions to the FLSA should be construed narrowly.  Instead, the Court observed that “[b]ecause the FLSA gives no textual indication that its exemptions should be construed narrowly, there is no reason to give them anything other than a fair (rather than a narrow) interpretation.” (internal quotations omitted).  The Court concluded that “exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement.  We thus have no license to give the exemption anything but a fair reading.”  Finally, the Court remarked, “even if Congress did not foresee all of the applications of the statute, that is no reason not to give the statutory text a fair reading.”

The dissent criticized the Court for rejecting the narrow construction principle for FLSA exemptions “[i]n a single paragraph . . . without even acknowledging that it unsettles more than half a century of our precedent.”

This is the second time that the Supreme Court ruled in this case. In 2016, the Court rejected a 2011 Department of Labor (DOL) regulation relied on by the Ninth Circuit in finding that service advisors were not exempt.  The Court noted in that opinion that the DOL had flip-flopped on the issue several times over the years.  In 1970, the DOL interpreted an exemption in the FLSA for automobile salesmen to exclude service workers.  The federal courts rejected this interpretation, however, and in 1978, the DOL issued an opinion letter agreeing with the courts that service advisors indeed were exempt.  In 2011, the DOL changed course again, issuing the regulation relied on by the Ninth Circuit that service advisors were not included in the exemption for salesmen.

In its 2016 opinion, the Supreme Court found that the 2011 regulation was not entitled to any deference because the DOL had issued it without a sufficiently reasoned explanation. The Court remanded the matter to the Ninth Circuit to consider the meaning of the statutory language without the regulation.  On remand, the Ninth Circuit again held that the service advisors were not exempt, and the case went back up to the Supreme Court, where it was overturned in last week’s opinion.

What This Means for Employers

This new standard – that exemptions should be given a “fair reading” – is a win for employers, as it should now be easier for companies to persuade courts that an employee’s job duties fall within one of the categories for exempt status under federal law. Prior to this ruling, an employer was unable to overturn the presumption of non-exempt status unless it could demonstrate that an exemption “plainly and unmistakably” applied.  Now, it is more likely that employers will be able to convince a federal court that the exemption applies if it is supported by a fair reading of the text.

Employers must continue to be mindful of state court interpretations of their overtime laws, however, which may construe their corresponding overtime exemption more narrowly than the SCOTUS interpretation.

–Tracey E. Diamond