As was reported late last year, the Department of Labor (“DOL”) in 2018 published an Opinion Letter (FLSA2018-27), effectively rescinding the agency’s 80/20 tip credit rule. In general, the tip credit rule permits employers in tip-producing industries, such as the restaurant industry, to compensate employees at a minimum rate of $2.13 per hour, and to take a credit against the tips an employee receives. An employer is additionally responsible for the remainder of an employee’s wages, if any, between what the employee earned in wages and tips combined, and the federal minimum wage. READ MORE
Uncertainty continues for the EEOC’s attempt to expand the collection of employers’ pay data. Last Monday, the D.C. District Court in National Women’s Law Center v. Office of Management and Budget, No. 17-cv-2458 (TSC) (D.D.C. Mar. 4, 2019), reinstated the EEOC’s revised EEO-1 form that increases employers’ obligation to collect and submit pay data. READ MORE
On December 21, 2018, the Department of Labor issued two opinion letters regarding the Fair Labor Standards Act (“FLSA”). The first opinion letter explains that an employer failed to comply with the FLSA’s overtime requirements when it designated a standard regular rate of pay for overtime purposes and the actual regular rate of pay exceeded that amount. The second opinion letter found that certain members of a religious organization were not employees under the FLSA, but, even if considered employees, qualified for the ministerial exception. This blog post explores both letters. READ MORE
2018 saw some major developments in employment law, particularly in California. The California Supreme Court embraced the ABC test for independent contractors in Dynamex, and rejected the de minimis doctrine for Labor Code claims in Troester. While 2019 has already brought legislative changes through the #metoo laws effective January 1, attention should also be on cases before the California Supreme Court. These cases may present new challenges for all employers, but particularly for media companies and employers doing business across state lines. The Court’s decisions in these cases have the potential to increase employers’ exposure to liability. We highlight some such cases here. READ MORE
You may be asking yourself: How is it already almost 2019?! With the New Year fast approaching, for those employment law enthusiasts out there, here are some legal issues that you want to keep in mind as you look back on 2018 and forward to 2019:
Year-End Bonuses: Employers distributing holiday bonuses, holiday gift cards, year-end merit bonuses, and other types of compensation to nonexempt employees should consider whether the compensation must be included in a nonexempt employee’s “regular rate” of pay when calculating overtime. The Code of Federal Regulations carves out some specific types of pay that need not be included in an employee’s regular rate of pay. For example, Section 778.211 excludes purely discretionary bonuses and section 778.212 excludes gifts for Christmas and other special occasions. So, an employer giving employees gift cards for the holidays or other special occasions is not required to incorporate the value of those gift cards into an employee’s regular rate of pay as long as the amounts “are not measured by or dependent on hours worked, production, or efficiency.” See 29 C.F.R. § 778.212(a); 29 U.S.C.A. § 207.
On December 10, the California Supreme Court issued an impactful decision for the healthcare industry. In Gerard v. Orange Coast Memorial Medical Center, the unanimous Court endorsed the Hospitals’ meal break policy, over which the parties had battled for more than a decade.
The policy permitted employees who worked shifts longer than 10 hours to voluntarily waive one of their two meal breaks, even if their shifts lasted more than 12 hours. The Plaintiffs alleged the meal period waivers they signed were illegal because under the California Labor Code, waivers were not permissible for shifts greater than 12 hours.
On November 8, 2018, the Department of Labor published an Opinion Letter (FLSA2018-27) reissuing its January 16, 2009 guidance (Opinion Letter FLSA2009-23) and reversing the agency’s Obama-era position on the 20% tip credit rule. The letter marks another significant shift in Department of Labor policy, and among the first major changes in federal tip credit policy over the last decade. READ MORE
Some positive news for those employers that retain independent contractors. On October 22, 2018, the California Court of Appeal for the Fourth Appellate District, held that the Dynamex “ABC” test (which we previously discussed here) to determine whether an independent contractor is an employee, only applies to wage order claims. But the case is a mixed bag and is a reminder that post-Dynamex, hiring parties bear a heavier burden to overcome the presumption that all workers are employees.
The case is Jesus Cuitlahuac Garcia v. Border Transportation Group, LLC, et al., involving plaintiff Jesus Garcia (“Garcia”), a taxi driver, who brought a wage and hour lawsuit against Border Transportation Group (“BTG”), with whom he drove taxi for several years. The trial court granted summary judgment for BTG, applying the decades-old multifactor S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989) test and finding Garcia was an independent contractor, not an employee entitled to wage order protection. The trial court’s reasoning included that Garcia controlled the means and manner of his work and “could and did market his business in his own name.”
Garcia appealed, during which time the California Supreme Court decided Dynamex, adopting the “ABC” test to determine whether a worker is an employee. Under this test, a hired individual is presumed an employee and the burden lays entirely on the hiring party to rebut that presumption by showing:
- that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
- that the worker performs work that is outside the usual course of the hiring entity’s business;
- that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Turning first to Garcia’s wage order claims, the court focused on the “C” prong and found that BTG failed to carry its burden to show Garcia actually “provided services for other entities ‘independently’ of his relationship with BTG.” The court rejected BTGs reliance on Sebago v. Bos. Cab Dispatch, Inc., which focused the inquiry on whether the worker is permitted to establish an independent business operation. The court noted that Dynamex requires an “existing, not potential showing of independent business operation.” The court reversed summary judgment on the wage order claims.
But in positive news for hiring parties, turning next to Garcia’s non-wage-order claims, the court held the ABC test did not apply, and upheld summary adjudication as to those claims. The court explained that the Supreme Court did not reject the more flexible, multifactor Borello test in all instances, and that Borello applies when a cause of action is predicated solely on the Labor Code, while the ABC test is properly limited to wage-order claims. The court reasoned that the Supreme Court “recognized that different standards could apply to different statutory claims…” and emphasized that “primacy of statutory purpose” should resolve “the employee or independent contractor question.” The court found “no reason to apply the ABC test categorically to every working relationship, particularly when Borello…remains the standard for worker’s compensation.” And because the parties did not identify a “a basis to apply Dynamex to [the] non-wage-order claims,” the court concluded that Borello “furnished the proper standard as to those claims” without analyzing their primary statutory purposes.
Orrick will continue to track interpretations of the Dynamex case as they are published. For the latest employment law updates, subscribe to the Orrick Employment Law and Litigation Blog.
 Garcia’s non-wage-order claims included wrongful termination in violation of public policy, failure to pay overtime, and waiting time penalties.
Last week, the Financial Industry Regulatory Authority (“FINRA”) filed its first disciplinary action involving cryptocurrencies, conforming with its stated 2018 goal of monitoring and supervising the largely unregulated cryptocurrency market. FINRA’s actions reflect a long-anticipated and increased scrutiny on entities—including employers—dealing with cryptocurrency.
In the September 11 disciplinary complaint, FINRA alleged that a former Massachusetts broker, Timothy Tilton Ayre, committed securities fraud by avoiding registration requirements and selling an unregistered, cannabis-focused cryptocurrency security called HempCoin. Ayre purchased HempCoin in June 2015 and immediately advertised as “the first minable coin backed by marketable securities.” Ayre transformed the cryptocurrency into a security tied to his company, Rocky Mountain Ayre (“RMTN”), valuing each HempCoin as 0.1 shares of RMTN and trading over the counter. Investors mined over 81 million HempCoins through late 2017. However, Ayre failed to register HempCoin with the U.S. Securities and Exchange Commission (“SEC”).
FINRA’s action, coupled with recent joint statements by the Commodity Futures Trading Commission (“CFTC”) and the SEC addressing plans for heightened oversight of virtual currency regulation, reflect potential obstacles entities may face in dealing with cryptocurrency, or blockchain technology more broadly.
Growing start-ups or legacy companies with new industry sectors should be particularly mindful of the novel and transformative legal issues related to these emerging areas. For instance, although blockchain technology is generally expected to make data more secure, employers should continue to monitor their use of this technology for data privacy concerns related to information storage and programs for employment-related decisions. Further, employers should note that cryptocurrency is not currently recognized as legal tender in the United States.
The Federal Labor Standards Act (“FLSA”) mandates “payments of the prescribed wages, including [minimum wage and] overtime compensation, in cash or negotiable instrument payable at par.” 29 CFR § 531.27(a). The phrase “payable at par” allows cryptocurrencies to be a lawful method of payment under the FLSA, but employers should proceed with care if considering whether to use cryptocurrency to pay employee wages, particularly due to challenges with minimum wage and overtime calculations. Indeed, the legal designation for tax purposes is also unsettled: the SEC classifies cryptocurrency as a security; the CFTC says cryptocurrency is a commodity; and since 2014, the IRS has defined cryptocurrency as taxable property.
Given these ambiguities and emerging issues, employers dealing with cryptocurrency and incorporating blockchain technology into their practices should be aware of the potential legal implications and oversight in areas beyond the traditional employment law arena.