Don t Let Wage and Hour Issues Eat Your Lunch: Practical Tips for Restaurants to Pay People Correctly and Keep Lawyers and DOL Away

Transcription

1 Don t Let Wage and Hour Issues Eat Your Lunch: Practical Tips for Restaurants to Pay People Correctly and Keep Lawyers and DOL Away Paul DeCamp Washington, D.C Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com

2 Practical Tips for Restaurants Stay Current on Tip Pooling Rules. Keep an Eye on DOL Regarding 80/20. Be on Guard for Off-the-Clock Activity. Consider Arbitration & Class Waivers Prepare for the Overtime Rule (Again). Watch Out for Problem Deductions. Have Strong Policies, and Train Often Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 2

3 Tip #1: Stay Current on Tip Pooling Rules. We spoke about this issue last year. Restaurants with table service know that under federal law, if they take a tip credit, they can require tipped employees to share tips only with other tipped employees. I.e., kitchen staff and supervisors / managers may not receive a share of the tips, nor may the restaurant keep the tips. A number of states have further restrictions, such as prohibiting mandatory tip pools of any type, or excluding certain front-of-house roles from a tip pool. If you have expediters or other employees who work in the back-of-house or heart-of-house roles, plaintiffs lawyers will be very interested in your practices Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 3

4 But What If You Don t Take a Tip Credit, and You Pay All Employees at Least Full Minimum Wage? : DOL said that the same limits apply on tip pools that apply if you take the tip credit. 2012: 2010: The Ninth Circuit decided in Cumbie v. Woody Woo, Inc. that the FLSA s tip pooling restrictions apply only if an employer takes a tip credit, upholding a tip pool that included back-of-house employees because the restaurant did not take a tip credit. 2013: 2011: DOL issued regulations purporting to overturn Cumbie. 2016: The National Restaurant Association, several state associations, an Oregon restaurant, and a server filed a lawsuit challenging DOL s 2011 regulation. A federal district court in Oregon agreed with our lawsuit and struck down the regulation. On appeal, a divided panel of the Ninth Circuit reversed, concluding in Oregon Restaurant & Lodging Ass n v. Perez that the regulation is lawful in light of DOL s broad authority to regulate under the FLSA Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 4

5 Tip #1 (continued) The court then denied rehearing en banc, with ten judges dissenting vigorously from the denial of rehearing, reasoning that the court s decision conflicted with Supreme Court decisions and created two different circuit splits. There are now two certiorari petitions pending before the Supreme Court challenging the Ninth Circuit s ruling: Wynn Las Vegas, LLC v. Cesarz (No ) and National Restaurant Ass n v. Department of Labor (No ) Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 5

6 Tip #1 (continued) The Tenth Circuit has since weighed in on the issue, expressly rejecting the Ninth Circuit s reasoning and holding in Marlow v. New Food Guy that DOL s 2011 regulations are illegal. DOL s response to our certiorari petition is due on: February 23, 2017 March 27, 2017 May 11, 2017 July 10, 2017 September 8, 2017 November 7, 2017 February 7, 2018 April 9, Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 6

7 Tip #1 (continued) On December 5, 2017, DOL published a Notice of Proposed Rulemaking indicating an intention to withdraw the portions of the 2011 regulations at issue in Oregon Restaurant & Lodging Ass n v. Perez. The Department has serious concerns that it incorrectly construed the statute in promulgating its current regulations.... The Department also has independent and serious concerns about those regulations as a policy matter. (Emphasis added.) The comment period for this rulemaking closed on February 5, 2018, with the public submitting more than 375,000 comments. We anticipate a Final Rule sometime between April and June. In the meantime: you probably shouldn t adopt a tip pool that includes backof-house employees if you don t already have one, but if you already have one then you probably shouldn t abandon it right now either Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 7

8 Tip #2: Prepare for the Overtime Rule (Again). Didn t we just go through this in ? In May 2016, DOL issued a Final Rule that would, among other things, raise the minimum salary for the executive, administrative, and professional exemptions from $455 per week ($23,660 per year) a level last updated in 2004 to $913 per week ($47,476 per year). The executive exemption is the main exemption restaurants use for managers and supervisors. DOL set the effective date of the new standard at December 1, There were legal challenges, and on November 22, 2016 just nine days before the rule was to go into effect a federal judge in Texas issued a preliminary injunction barring DOL from going forward with the rule based on a determination that the rule was likely unlawful Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 8

9 Tip #2 (continued) DOL appealed the injunction to the Fifth Circuit. The parties briefed the appeal, and after the change of administration DOL s reply brief abandoned any defense of the $47,476 salary level in the regulation, instead focusing on defending only DOL s authority to impose some salary threshold. In July 2017, DOL issued a Request for Information asking the public to comment on such topics as: The methodology DOL should use to update the salary threshold; Whether the threshold should vary based on size of employer, census region, state, metropolitan statistical area, or other factors; Whether DOL should adopt a duties-only test for exempt status; Whether and how to include bonuses in the salary threshold; and Whether and how to adjust the threshold automatically Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 9

10 Tip #2 (continued) The comment period closed on September 25, 2017, with DOL receiving more than 214,000 comments. On August 31, 2017, the same federal judge in Texas issued another ruling, this time entering summary judgment in favor of the plaintiffs in the lawsuits and concluding that the 2016 rule violates the FLSA. The court determined that although DOL has the authority to use a salary threshold as part of the exemption analysis, a level that would exclude 4.2 million people who otherwise perform duties consistent with the exemptions exceeds the power Congress gave to DOL. DOL then abandoned its appeal of the preliminary injunction ruling. On October 30, 2017, DOL appealed the summary judgment ruling and then promptly asked the Fifth Circuit to stay all action on the appeal pending the outcome of the rulemaking process. The Fifth Circuit has stayed the case Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 10

11 Tip #2 (continued) The current regulatory agenda projects a Notice of Proposed Rulemaking in October The current expectation is a modest increase in the exemption threshold to somewhere in the neighborhood of $32,000 to $37,000. The proposed rule will have a comment period, followed by issuance of a final rule. The likely effective date of the final rule is sometime in mid-tolate So... what are you doing to prepare? 2018 Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 11

12 There Are a Number of Things That You Can and Should Do Now to Get Ready for the Coming Rule. 1 Decide Which Employees You Will Maintain as Exempt After the New Salary Threshold Goes Into Effect. A. Take a look at your current employee census and identify currently exempt employees who may end up below the new salary threshold. B. For roles within shouting distance of the new threshold, especially ones with not many employees, you may want to consider raising them to the new threshold in order to maintain exempt status. C. For roles that straddle the new threshold, you can: i. Raise people below the threshold up to the new level; ii. Split the role into an exempt and a non-exempt position; or iii. Reclassify the role to non-exempt. D. View the new rulemaking as an opportunity to reassess the status of roles where exempt status may be less clear Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 12

13 There Are a Number of Things That You Can and Should Do Now to Get Ready for the Coming Rule. 2 For Employees Who Will Become Non-Exempt, Plan Carefully for What Their Post-conversion Pay Will Be. A. Will the goal to be to have them work roughly the same number of hours they do now, for roughly the same total pay? B. If so, do you really know how many hours they currently work? Consider having them report their time so that you have a robust data set to use in modeling their non-exempt pay. C. Will the goal be to reduce or to eliminate overtime for these employees? i. Potential cut in pay, and resulting morale and turnover consequences. ii. May give rise to a need to find other staff to cover certain hours. D. Consider longer-term viability of scheduling with built-in overtime Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 13

14 There Are a Number of Things That You Can and Should Do Now to Get Ready for the Coming Rule. 3 Develop Your Implementation Plan. A. Timing, including complying with state laws requiring advance notice of changes in pay, as well as ensuring that any changes are in effect at least one full week before the effective date of the new rule. B. Messaging, including finding positive ways to present reclassification (i.e., overtime-eligible ). C. Think through all the potential ripple effects of either raising salaries or reclassifying currently non-exempt employees. i. Pay compression; ii. Certain activities not previously compensated separately may now require pay and count toward overtime (e.g., travel, training, conferences); iii. Effects on recruiting / retention Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 14

15 Tip #3: Keep an Eye on DOL Regarding 80/20. We spoke about this issue last year as well. To recap, the issue is the position DOL has taken since 1988 that employees receiving a tipped wage cannot spend more than 20% of their time on sidework, or else the employer loses the ability to take the tip credit for any time spent on sidework. DOL s view hinges on the Field Operations Handbook, which purports to interpret DOL s dual jobs regulation, which in turn addresses employees performing nonoverlapping jobs in tipped and non-tipped occupations. We saw a major wave of class and collective actions across the country after Fast v. Applebee s Inc. in the Western District of Missouri in 2007, subsequently affirmed by the Eighth Circuit, endorsed DOL s position. 80% of time 20% of time 2018 Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 15

16 Tip #3 (continued) DOL further modified its FOH in 2012 without disclosing these changes publicly until 2016 in ways that make it even more difficult to take a tip credit for certain activities tipped employees perform. Last year, the matter came before the Ninth Circuit in nine consolidated appeals after a federal judge in Arizona accepted our argument that DOL s 80/20 position is contrary to the FLSA. Three days before oral argument, DOL sent the court a letter informing the court that it was, in effect, disavowing the 2012 changes to the FOH. In Marsh v. J. Alexander s LLC, the divided Ninth Circuit concluded that DOL s FOH is not entitled to any deference on this issue. The court rejected 80/20 and remanded the various cases in order to allow the plaintiffs the opportunity to allege claims based solely on the dual jobs regulation, as distinct from the FOH Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 16

17 Tip #3 (continued) The Ninth Circuit issued its decision in September Later that month, the plaintiffs petitioned the court for rehearing en banc. That petition is still pending. We have been waiting for the current administration to announce its position on 80/20. There has been much reason for optimism, as DOL has shown great willingness to reject positions taken during the previous administration, including: In early June 2017 rescinding Administrator s Interpretations No regarding distinguishing between independent contractors and employees and regarding joint employment; and In late June 2017 reinstating the opinion letter process, which the previous administration had abandoned in Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 17

18 Tip #3 (continued) DOL can rescind the portions of the FOH that give rise to 80/20, or issue an opinion letter rejecting 80/20, or reissue an opinion letter from 2009 which DOL withdrew shortly after the Obama Administration came into office that in effect rejects 80/20. So far, DOL has done none of these things. Arguably, DOL made things more complicated in January of this year, when it reissued 17 of the 20 G.W. Bushera opinion letters withdrawn during the Obama years, but chose not to reissue three of those letters, including the one that rejected 80/20, FLSA (Jan. 16, 2009). Stay tuned. If DOL does not withdraw the 80/20 guidance, eventually the Ninth Circuit will decide the pending petition for rehearing. If the court denies the petition, the matter may well go up to the Supreme Court. At a minimum, other courts may follow the Ninth Circuit s persuasive panel decision in Marsh and reject 80/ Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 18

19 Tip #3 (continued) While 80/20 continues to work its way through the courts and within DOL, look for ways to mitigate risk: Limit or eliminate sidework before the restaurant opens for business, or pay it at a full minimum wage rate; Consider limiting tipped employees to performing sidework tasks exclusively in the dining room area; and Limit or eliminate sidework after the restaurant closes for the day, or pay it at a full minimum wage rate; Consider not having tipped employees roll silverware, clean bathrooms, or have any role in loading or unloading dishwashers Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 19

20 Tip #4: Watch Out for Problem Deductions. You invite claims, often on a class or collective basis, if you require employees to pay, directly or indirectly, for any of the following: Customer walk-outs; Uniforms; Loans / pay advances / debts. (There are often ways to make this work, but laws in some jurisdictions can be very particular, especially if the money comes out of an employee s pay.) Cash drawer or bank shortages; Broken or damaged plates or other employer property; or 2018 Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 20

21 Tip #5: Be on Guard for Off-the-Clock Activity. It s not just the rogue, time-shaving manager that can get you into trouble. Employees may have their own incentive not to record all of their work. Many restaurants cut employees in order to avoid having to pay extra for overtime. As a result, employees, especially tipped employees, may look for ways to avoid missing out on a busy meal shift by keeping slow times off of their time card, such as: Not clocking in until an employee s first customer arrives; Clocking out during slow times between meal rushes, even though the employee remains at work; or Clocking out before finishing closing sidework. For kitchen staff, the employees may want to work extra hours and be willing to forego premium overtime pay, so they may ask to have some of their time not recorded (e.g., work 46 hours and get paid for 44, with OT) Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 21

22 Tip #6: Have Strong Policies, and Train Often. An ounce of prevention: ensure that you have written policies that clearly comply with the law as to any issues that tend to generate litigation. Make sure that your managers, supervisors, and hourly employees understand these policies. Provide employees with a complaint line they can contact if they have any concerns. Train on these policies regularly, at least once a year and any time there is a new hire or a promotion to supervision / management. Maintain records showing that you have trained employees often on these subjects Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 22

23 Tip #7: Consider Arbitration & Class Waivers. The Supreme Court is currently considering three cases presenting the question whether class and collective action waivers contained in arbitration agreements are enforceable. Some courts have held that they are enforceable, while others have concluded that such agreements violate the National Labor Relations Act. Unless and until the Supreme Court holds that these agreements are unenforceable, consider having all employees sign, as a condition of employment or promotion, an arbitration agreement that requires all claims to be arbitrated individually and waives class, collective, or representative actions. Most plaintiffs lawyers do not even try to fight these waivers any more. The National Labor Relations Board has taken the position that these agreements violate the NLRA, but the current Board may disagree Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 23

24 Questions and Answers. Thank You! Paul DeCamp Epstein, Becker & Green, P.C th Street, N.W. Suite 700 Washington, D.C Epstein Becker & Green, P.C. All Rights Reserved. ebglaw.com 24