Month: March 2019

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The Department of Labor Proposes New Rule Regarding the Regular Rate of Pay

The U.S. Department of Labor (DOL) will publish a proposed rule on March 29, 2019, to amend the Fair Labor Standards Act (FLSA) regulations regarding the regular rate of pay (RROP). Interested parties may submit comments on the proposal at www.regulations.gov in the rulemaking docket RIN 1235-AA24 by May 28, 2019. The proposed rule is not a departure or significant change from the current law but clarifies that employers may exclude certain perks from employees’ RROP.

Generally, the FLSA requires employers to pay non-exempt employees overtime pay of at least one and one-half times the RROP for hours worked in excess of 40 hours per workweek. The RROP is not necessarily the employee’s base hourly rate; rather, an employer must calculate the RROP by taking into account the employee’s total compensation for the workweek and dividing the total by the number of hours worked. Any amounts that an employer pays its employee in addition to the base wage, such as bonuses, shift differentials, and incentive payments, will increase the RROP and thus increase the amount of overtime pay.

According to the DOL, the current rules discourage employers from offering more perks to employees as it may be unclear whether those perks must be included in the calculation of RROP. The DOL’s proposed rule focuses primarily on clarifying whether certain kinds of perks, benefits or other miscellaneous items must be included in the RROP. Specifically, the proposed rule will confirm that employers may exclude the following from the RROP:

  • the cost of providing wellness programs, onsite specialist treatment, gym access, and fitness classes, and employee discounts on retail goods and services;
  • payments for unused paid leave, including paid sick leave;
  • reimbursed expenses, even if not incurred “solely” for the employer’s benefit;
  • reimbursed travel expenses that do not exceed the maximum travel reimbursement permitted under the Federal Travel Regulation System regulations and that satisfy other regulatory requirements;
  • discretionary bonuses;
  • benefit plans, including accident, unemployment, and legal services; and
  • tuition programs, such as reimbursement programs or repayment of educational debt.

These items have been excludable from the RROP all along, but the proposed rule makes that clearer. The proposed rule also includes additional clarification about other forms of compensation, including payment for meal periods, “call back” pay, and others.

Although the proposed rule is not a material change from the current rule, it serves as an occasion for employers to revisit how they are calculating the RROP, and thus overtime pay, to ensure that they are doing it correctly. Improper calculation of the RROP that causes an underpayment in overtime pay can lead to significant liability.

If you have questions about the proposed rule or the proper calculation of the RROP and overtime, the labor and employment law attorneys at Vandeventer Black LLP are available to assist you.

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U.S. SUPREME COURT RULES THAT TRANSPORTATION EMPLOYER’S ARBITRATION AGREEMENT WITH INDEPENDENT CONTRACTOR IS NOT SUBJECT TO THE FEDERAL ARBITRATION ACT

Generally, once parties sign a contract with an arbitration provision, disputes arising out of the contract are required to be heard by an objective arbitrator. After Congress passed the Federal Arbitration Act (FAA) in 1925, the long-established federal policy has been to liberally favor arbitration agreements.

Prior to the FAA, however, there was no guarantee that a court would honor a party’s agreement to arbitrate. Now, the FAA requires courts to compel parties to arbitrate according to the terms in their agreement. Although the FAA provides the court with broad authority to enforce and compel arbitration, the Act is not without its limits.

Included in section one of the FAA is a narrow exception for certain types of contracts: the FAA does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” This is often referred to as the FAA’s “transportation workers exception.” When this exception applies, the court is without authority to compel a party to arbitrate. If the court has no authority to compel a party to arbitrate, then regardless of the arbitration agreement, a party may bring the dispute in court.

Recently, in New Prime, Inc. v. Oliveria, the Supreme Court unanimously held that the transportation workers exception applies not only to transportation employees, but also to independent contractors in those same categories of work. The plaintiff, Dominic Oliveria, worked as a truck driver for New Prime, Inc. After a dispute arose concerning the wages paid to truck drivers, Mr. Oliveria brought a class action lawsuit in federal court.

In response, New Prime argued that Mr. Oliveria’s contract included an arbitration agreement. New Prime asked the court to use its authority under the FAA to force Mr. Oliveria to arbitrate the dispute according to the terms in the contract. Mr. Oliveria argued that the court had no authority to compel arbitration because the transportation workers exception applied.  New Prime maintained that the court had authority because Mr. Oliveria was an independent contractor and not an employee; therefore, the transportation workers exception did not apply. Both the District Court and the First Circuit agreed with Mr. Oliveria that the exception applied.

Likewise, the Supreme Court held that the transportation workers exception applied. The court performed a detailed analysis to determine what the term “contract for employment” meant in 1925, when the FAA was passed. Even though the court recognized that the distinction between employees and independent contractors existed in 1925, it concluded that the phrase, “contracts for employment” meant any contract for “work.” Accordingly, the court held that the exception applied to both employees and independent contractors and the FAA did not apply.

This decision will likely have significant ramifications for transportation industry companies that have arbitration agreements with their independent contractors. Without the confidence of the FAA, transportation companies will have to rely on other legal authority to enforce arbitration provisions. The lawyers at Vandeventer Black LLP are available to assist you regarding all aspects of contractual advice, including drafting enforceable arbitration agreements. For additional information, please contact the authoring attorney.

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U.S. Department of Labor Proposes New Salary Threshold

After much anticipation, the U.S. Department of Labor (DOL) has finally proposed new regulations to increase the salary threshold for the Fair Labor Standards Act (FLSA) “white collar” exemptions. The notice of proposed rulemaking would raise the salary threshold to $679 per week ($35,308 per year).

Since 2004, the FLSA salary threshold for white collar exemptions has been $455 per week ($23,660 per year). For years, many have complained that this amount is too low, resulting in too many employees being classified as exempt under the FLSA and thus not entitled to overtime pay. Under the FLSA, an employee is entitled to overtime pay unless an exemption applies. The most commonly used exemptions are the white collar exemptions—executive, administrative, professional, and a few others—which require that the employee perform certain duties and be paid a salary that equals or exceeds the salary threshold. In 2016, DOL, under the Obama administration, moved to raise the salary threshold to $913 per week, and to make future increases to the threshold automatic. That 2016 rule, however, was enjoined by a federal court hours before it was to go into effect. DOL has now revoked the 2016 rule.

In addition to increasing the salary threshold to $679 per week, DOL’s new rule will allow certain nondiscretionary bonuses and incentive payments to count towards up to 10 percent of the standard salary level. Currently, the salary threshold must be satisfied by salary alone. The new rule also increases the threshold compensation for the “highly compensated” exemption from $100,000 to $147,414. Rather than automatic increases to these earnings thresholds, the new rule simply states that DOL intends to update the earnings thresholds every four years.

DOL’s proposed salary threshold is only a proposal for now. There will be a 60-day comment period, after which DOL may make further adjustments to its proposal. Most likely, the new rule will go into effect in a few months. DOL forecasts that the new rule will make a million more Americans eligible for overtime than are currently.

Employers should act now to determine which employees will become non-exempt under the new rule. The employment law attorneys at Vandeventer Black LLP are available to assist employers in deciding how to address this change.

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