Proposal: The US Department of Labor (DOL) issued a proposed rule that would expand federal overtime pay regulations to cover nearly five million additional workers. The rule would raise from $23,660 to $50,440 the minimum annual salary threshold required for employees to qualify under the Fair Labor Standards Act’s overtime exemption for executive, administrative, professional, outside sales and computer employees, known as the “white collar exemptions.” It also would implement a mechanism that would automatically update the threshold salary level on an annual basis. Finally, the DOL solicited public comments on whether changes are necessary to the duties test currently used to determine whether the white collar exemptions apply to any particular employee. The proposed rule was published in the Federal Register on July 6, 2015. Interested parties may submit written comments on the proposed rule at www.regulations.gov on or before September 4, 2015.

Impact: In preparation for implementation of the proposed rule, employers should assess how the increased salary threshold will affect their current workforce and begin developing a plan to roll out any changes, including communications to employees about who will be affected and how. Affected employees and their managers also will likely need to be trained on modified recordkeeping and other timekeeping policies, including policies regarding the use of electronic devices for work purposes during off-duty time. Employers also should remember to review any applicable state overtime laws, which often make fewer employees exempt from overtime pay than the FLSA. Employers also should keep in the DOL’s recently issued guidance that most workers are employees under the FLSA’s broad definitions. The DOL’s position on the breadth of those definitions could impact the proper classification of certain workers as employees rather than independent contractors, thereby making eligible for overtime under the proposed rule.

Ninth Circuit Refuses to Revive “Off the Clock” Overtime and “Meal Break” Class Action

Decision: In Green v. Federal Express Company, a FedEx employee filed a putative class action alleging, inter alia, failure to pay overtime on the grounds that FedEx failed to pay its employees for the time between when the employees “clocked in” to the time they started their scheduled shift and from the time they ended their shift to the time they “clocked out” and for failing to pay employees for working through meal periods. The US Court of Appeals for the Ninth Circuit affirmed the California district court’s denial of class certification, holding that the plaintiff had failed to establish that the employees were under FedEx’s control during the time they were on the clock but not on-shift because she could not establish that FedEx has a uniform policy preventing its employees from using that time for their own benefit. As a result, plaintiff could not satisfy the requirements of Federal Rule of Civil Procedure 23(b)(3), because individual fact inquiries concerning FedEx’s control of each employee would predominate over any common questions. The court also affirmed the denial of certification of plaintiff’s meal break class holding that the only common method of proof offered by the plaintiff—electronic scans of packages during designated meal breaks—did not show that FedEx knew or should have known that its employees were working during break periods because: (i) Fed Ex did not regularly review the electronic date; and (ii) FedEx was not required to police meal breaks, such that it “had no obligation to sift through the volumes of electronic data produced by the scanning devices to determine whether its employees were actually taking their authorized breaks.”

Impact: The Ninth Circuit’s decision reaffirms the strength of employer defenses to class certification in meal period classes under the California Supreme Court’s decision in Brinker. It also reinforces the importance of having legally compliant wage and hour policies and practices. Absent a uniform policy or practice that is legally non-compliant, plaintiffs face an uphill battle in persuading courts that they satisfy the requirements of Federal Rule of Civil Procedure 23, especially the requirement that common issues of fact and law predominate.

Second Circuit Rejects DOL’s Test for Intern Status in Two Unpaid Intern Class Actions and Lists New Factors to Determine Whether Interns Are Really Employees

Decision: In two recent cases, Glatt v. Fox Searchlight Pictures and Wang v. The Hearst Corporation, the US Court of Appeals for the Second Circuit held that unpaid interns are, in many instances, not employees covered by the Fair Labor Standards Act or by New York Labor Law. In so ruling, the Second Circuit declined to adopt the Department of Labor’s rigid six-part test to determine whether interns should be considered employees, and instead adopted the “primary beneficiary test,” which requires courts to assess whether the intern or the employer is the primary beneficiary of the relationship. In adopting this more nuanced test, the Second Circuit instructed that a court must first focus on what the intern receives in exchange for the work, and second on the economic reality between the intern and the employer.

The Second Circuit set forth seven non-exhaustive factors. In resolving the inquiry, courts have to “weigh and balance” the extent to which: (1) the intern and employer clearly understand that there is no expectation of compensation; (2) the internship provides training similar to an educational environment; (3) the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit; (4) the internship accommodates the intern’s academic commitments by corresponding to the academic calendar; (5) the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning; (6) the intern’s work complements, rather than displaces the work of paid employees while providing significant educational benefits to the intern; and (7) the understanding of the intern and the employer that the internship is conducted without entitlement to a paid job at the conclusion of the internship. The court also held that the fact that an employer sometimes uses unpaid interns in place of paid employees, though relevant, was not sufficient to answer the question of whether the intern was an employee entitled to compensation. Under the new test, no single factor is dispositive.

Impact: The standard adopted by the Second Circuit will likely make it more attractive for employers to engage unpaid interns and more difficult for unpaid interns to establish employment status in the Second Circuit. The decision provides valuable guidance to employers with unpaid interns. While the Second Circuit rejected the DOL’s test, the decision still reinforces the need for employers to carefully tailor their internship programs and insure that they are designed and implemented with an educational benefit and so that the intern—not the company—is the “primary beneficiary” of the internship.

California Court Of Appeal Finds That Co-Employers Can Be Liable For Independent Contractor Misclassification If They Have Knowledge

Decision: In Noe v. Superior Court of Los Angeles County, several vendors hired to sell food at various entertainment venues filed a wage and hour class action against AEG (the owner of the venues), Levy Premium Foodservice (the company AEG had contracted to provide food and beverage services at the venues) and four affiliated companies, and Canvas (the entity that had hired the vendors). The vendors brought several causes of action under California’s Labor Code, including an action pursuant to section 226.8 for being misclassified as independent contractors.

The Court of Appeal reversed the trial court’s decision that section 226.8 only applies to employers that make the actual classification decision (in this case, Canvas), and ruled that section 226.8 extends to a joint employer that has knowledge its employees have been misclassified by a co-employer. The Court of Appeal refused to extend section 226.8 liability to co-employers that have no knowledge of the misclassification because, unlike the employers with knowledge of the misclassification, employers without knowledge do not “engage” in the act of “voluntarily and knowingly” misclassifying as is required to be liable under the statute. The Court of Appeal also found, however, that there is no private right of action to enforce section 226.8 and on that ground affirmed the trial court’s summary adjudication of the section 226.8 cause of action.

Impact: Despite the Court of Appeal’s finding that no private right of action exists to enforce section 226.8, individuals or a class can enforce the statute through the Private Attorneys General Act, Labor Code section 2698, et seq. Thus, employers should be wary of their co-employers’ classification activities and take steps to remedy misclassifications of which they become aware, as a violation of section 226.8 does not require an affirmative act on the part of each employer, only knowledge.