UberBLACK Drivers Are Properly Classified as Independent Contractors

Q.  Have there been any new legal developments on whether gig economy workers can be classified as independent contractors?

A.  On April 11, Judge Michael Baylson of the U.S. District Court for the Eastern District of Pennsylvania became the first judge to grant summary judgment on the issue of whether UberBLACK drivers are employees or independent contractors under the Fair Labor Standards Act (FLSA). Judge Baylson concluded that Uber correctly classified the plaintiffs — drivers who provided “black car” limousine services for Uber — as independent contractors. Razak v. Uber Techs., Inc., No. 16-573 (E.D. Pa. 2018). The plaintiffs intend to appeal. Although the analysis of independent contractor classification is fact-intensive and varies depending on the type of claim asserted by the plaintiffs, gig economy employers will find the Razak opinion helpful in structuring their independent contractor relationships.

For the full article, click here.

Susan K. Lessack

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

 

 

A Win for MA Employers, Sick Pay Does Not Constitute Wages

Q. I have employees in Massachusetts.  Do I need to pay for accrued sick leave upon termination?

A.  In a recent opinion, the Massachusetts Supreme Judicial Court followed the lead of most other jurisdictions in finding that sick pay does not constitute wages under the Massachusetts Payment of Wages Law.  Unlike accrued and unused vacation, which is considered to be wages and must be paid at termination, Massachusetts employers are not required by statute to pay out accrued but unused sick pay to employees upon termination of employment.

Although the Massachusetts statute does not explicitly exclude sick pay from the definition of wages, the Court reasoned that “employees do not have an absolute right to spend down their sick time,” it must be used only when the employee or a family member is sick.  Further, the Court noted that it is not customary for employees to be compensated for accrued but unused sick time, and it is common for employers to have a “use it or lose it” policy regarding sick leave.  Accordingly, the Court limited the definition of “wages” under the Massachusetts Payment of Wages Law to include only hourly and salaried pay, accrued and unused vacation time, and certain commissions that have become due and payable to the employee.

Despite this win for Massachusetts employers, companies should continue to remain vigilant about compliance with the Wage Payment statute upon an employee’s termination.  An employer that fails to comply with the statute may be liable for mandatory awards of treble damages and attorneys’ fees.  In particular, keep in mind that employees who are terminated must be in paid in full on the day of discharge and those who resign must be paid in full by the next regular pay day.

Rebecca Alperin

 

POTENTIAL CHANGES ON THE HORIZON FOR PENNSYLVANIA WAGE AND HOUR LAW

Q.  Have there been any recent changes to the overtime pay rules that we have to be concerned about?

A.  Currently, under both federal and Pennsylvania law, to be exempt from overtime under the “white collar exemptions,” an employee must meet both the salary basis test and the duties test, meaning they must make more than a certain amount weekly and perform certain identified duties. The salary threshold has been stagnant for decades. In 2016, however, the Department of Labor (DOL) announced new regulations that would increase the salary threshold from $23,660 annually ($455 per week) to $47,476 (or $913 per week).  The regulations however, fell short of becoming law when a federal court in Texas enjoined the DOL from implementing it, only weeks before it was set to go into effect.  Today, the federal law remains in limbo, with speculation that new regulations will be issued raising the salary test to less than the previously anticipated increase, although the exact amount remains unclear.

In the meantime, however, Pennsylvania Governor Tom Wolf has taken measures into his own hands. On January 17, 2018, Governor Wolf announced plans to issue rules that would increase the salary level from $455 per week ($23,660 annually) to $610 per week ($31,720 annually), beginning on January 1, 2020.  The threshold salary would again increase on January 1, 2021 to $39,832, followed by a third increase in 2022 to $47,892.  After the year 2022, the salary threshold would increase automatically every three years.  The goal of these proposed rules is to strengthen the middle class.

Although these rules have not yet been passed, employers should keep their eyes out for any changes that may occur. If the new rules do become implemented, Pennsylvania employers would be required to follow Pennsylvania law in determining overtime eligibility for Pennsylvania workers, rather than the federal law, assuming federal law remains less favorable for employees.

Kali T. James-Wellington

U.S. Department of Labor Endorses More Flexible Unpaid Intern Test

Q.  Our company wants to establish an internship program and host student interns to work alongside our employees. Do we need to pay the interns?

A.  Possibly. Over the past few years, courts and the Department of Labor (“DOL”) have carefully examined the relationship between businesses and unpaid student interns to determine whether students working at a company are more properly classified as unpaid interns or employees protected by the Fair Labor Standards Act (“FLSA”).  Under the FLSA, if an individual is deemed a non-exempt employee, that employee must be paid at least a minimum of $7.25 per hour and one and a half times their regular rate of pay for all hours worked in excess of 40 in a workweek.  The minimum wage is higher in many states, including New York and New Jersey.

Previously, the Department of Labor required employers to meet a six-part test to prove that an individual was properly classified as an unpaid intern. One of the benchmarks employers were required to prove under the prior test was that the employer providing the internship opportunity “derives no immediate advantage from the activities of the intern . . . and on occasion its operations may actually be impeded.”

Citing four separate appellate court rulings that had rejected DOL’s six-part test, the DOL recently announced that it would use a more flexible “primary beneficiary” test in order to determine the “economic reality” of whether an individual is an intern or an employee. Going forward, the DOL will consider the following seven factors to determine whether an individual is an intern:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

No single factor described above is determinative and DOL cautions that whether an individual is properly classified as an unpaid intern will depend on the unique facts of any particular case.  Employers should also be aware that some states have their own test for determining whether an intern must be paid. For example, the New York Department of Labor lists eleven separate factors relevant to determining whether an unpaid intern should be considered an employee under New York law.

Before establishing an internship program or allowing a student to intern at a business, companies should examine the “economic reality” of their relationship with interns, review the new DOL Fact Sheet on interns, and consult with a qualified employment lawyer to ensure that the internship program complies with both federal and state wage and hour laws.

Lee E. Tankle