Top Wage and Hour Developments U.S. Employers Need to Know

U.S. Supreme Court Determines Employees Not Entitled to Compensation under FLSA for Time Passing Through Post-Shift Anti-Theft Screenings

In Integrity Staffing Solutions Inc. v. Busk, the U.S. Supreme Court held employees were not entitled to compensation under the FLSA for time spent passing through security check points after their shifts.

In this case, two warehouse employees responsible for packaging and shipping products to customers filed a class action seeking compensation for time spent in mandatory, post-shift security screenings.

In a unanimous decision reversing the Ninth Circuit, the Court stated that under the Portal-to-Portal Act, post-shift duties that are not integral and indispensable to the employee’s principal activities are non-compensable under the FLSA. The Court found that the employer’s requirement to be screened for security reasons after a shift was over was not integral to the duties of packaging and shipping products, and were more akin to waiting in line to receive paychecks after a shift had ended.

The Court also rejected the Ninth Circuit’s focus on whether the time spent was required by or a benefit to the employer, stating the FLSA uses a different standard for compensability, i.e., whether the activity is integral and indispensable to the work. The Court also rejected arguments out of hand that an employer had a duty under the FLSA to limit the time spent in such check points to a de minimus amount of time, stating that was a bargaining issue between the workers and the employer but does not make the time compensable under the FLSA.

Planning Tip

This is welcome news for employers and provides an employer-friendly standard for compensable post-shift duties under the FLSA such as anti-theft and security screenings.

Pending claims around the country are now likely to be dismissed, and U.S. employers can now re-visit their compensation practices for post-shift duties using the Court’s standard as a guidepost.

Nationwide employers should take note of state law requirements for compensability, however, as some states have their own labor laws that can require payment for any time spent on activities required by the employer, even if they are post-shift activities.

Paid Sick Time Laws Continue to Sweep the Nation

Paid sick leave laws have gained momentum in 2014 nationwide. From 2006 to 2014, numerous states and localities passed paid sick leave laws, including San Francisco, Oakland, Seattle, California, Connecticut, and New York City. In 2014 alone, twelve states or localities passed paid sick leave laws, including California and Massachusetts (State-wide), and Oakland and Berkeley, California. Some states have refused to endorse paid sick leave, adopting laws that prohibit local governments from establishing the right to paid sick leave, such as Florida, North Carolina, Arizona, and Pennsylvania. Because of efforts from grass-roots organizations, employers should expect numerous states and localities to address paid sick leave in the near future.

Perhaps the biggest challenge for multi-jurisdictional employers will be dealing with the laws’ various differences. Many of the laws differ in key areas, such as which employees are covered, how much sick time employees accrue, what sick leave can be used for, and whether sick leave can carry over from year to year. For instance, covered employees in Connecticut accrue one hour of paid sick leave for every forty hours worked, while covered employees in California and Massachusetts accrue one hour of paid sick leave for every thirty hours worked. Accordingly, employers with locations in multiple jurisdictions with paid sick leave laws may have to craft separate sick leave policies for each location.

Moreover, some locations will be governed by multiple paid sick leave laws. For example, employers who already provide paid sick leave under San Francisco’s ordinance, which was passed in 2006, will not necessarily be in compliance with California’s paid sick leave law. These employers will need to consider separate or harmonized policies that comply with the applicable local ordinance and state law.

As an alternative, employers can adopt an ERISA plan that covers PTO and sick leave benefits, by following certain regulatory protocol under ERISA. When done correctly, this can allow employers to have one uniform nationwide policy and preempt these various state and local sick pay ordinances. Click here to read more on ERISA governed PTO and sick pay policies.  

Planning Tip

Employers should continuously monitor whether any of the jurisdictions in which they operate have passed paid sick leave laws. Most paid sick leave laws are broader in use, carry-over, and accrual rights than common PTO policies.

Given the differences in the laws, employers should review their policies, will likely need to broaden them in some way, and may need to craft separate sick leave policies, possibly for each location subject to a paid sick leave law.

State / City Minimum Wage Increases

In the U.S., the movement to increase the minimum wage for hourly-paid workers is seeing results at the state and local levels. 2014 brought several increases to the State-wide and local minimum wages.  Nationwide, on November 4, 2014, voters in four states and one city – Alaska, Arkansas, Nebraska, South Dakota, and San Francisco – approved ballot measures to gradually increase the minimum wage. Several U.S. cities have already passed minimum wage ordinances, including Chicago and SeattleMichigan had already approved a state-wide minimum wage increase to $8.15 per hour, taking effect on September 1, 2014. Minnesota raised the State’s minimum wage up to $9.50 per hour by 2016.  California’s state-wide minimum wage increased to $9.00 per hour this year, which included a corresponding increase in the minimum salary for exempt administrative, executive, professional, and computer software employees. 

Meanwhile, five California cities, including Berkeley, San Francisco, San Jose, Oakland, and Richmond adopted or increased their city-wide minimum wages.  The cities of Los Angeles and San Diego are also considering whether to raise the wage floor.  

Planning Tip

Employers should continue to monitor developments at the state and local levels to ensure compliance with changing minimum wage laws. Many states have adopted increases which are scheduled to take effect throughout 2015.

Failure to Post FLSA Notice of Rights Posted Tolled FLSA Claims

In Cruz v. Maypa, the Fourth Circuit held the FLSA's statute of limitations may be tolled where an employer fails to provide employees notice of their rights under that statute. In Cruz, the Plaintiff traveled from the Philippines to the United States to work as a domestic employee.  According to the Plaintiff, upon her arrival, her employer confiscated her passport and thereafter, required her to work seven days per week, 18 hours per day at a rate of $8 to $15 dollars per hour.  Plaintiff further maintained that her employer never allowed her a day off to visit her family and threatened deportation should she leave their employ.

Five years after ending her employment, Plaintiff filed a lawsuit in the Eastern District of Pennsylvania alleging violations of the FLSA and other laws.  The district court dismissed Plaintiff's claims as time barred under the FLSA's three-year statute of limitations for willful violations.  On appeal, Plaintiff argued that because her employer did not display notice of her FLSA rights in their home, the FLSA's statute of limitations should be tolled.  In doing so, Plaintiff urged the Court to apply the notice rule it adopted in a previous case, Vance v. Whirlpool, 716 F.2d 1010 (4th Cir. 1983), wherein the Court held the 180-day filing deadline under the ADEA could be tolled due to an employer's failure to provide notice of rights as required under the statute.   Due to the similarity between the notice requirements under the ADEA and the FLSA, the Fourth Circuit extended the application of Vanceto Plaintiff's FLSA claims.  

Planning Tip

Based on this decision, employers must be careful to provide up to date and accurate posters and notice of rights throughout their facilities. 

Employers should also ensure that their handbooks and policies provide employees with accurate information regarding their statutory employment rights.  Failure to do so could expose employers to FLSA and other statutory claims that occurred well outside of the statute of limitations period.

Raising the Pleading Bar for FLSA Cases

In Landers v. Quality Communications, Inc. et al., the Ninth Circuit held that, in a complaint under the FLSA for minimum or overtime wages, a plaintiff must allege at least a specific week that he or she was entitled to, but denied, minimum or overtime wages.  Relying on the U.S. Supreme Court decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) andAshcroft v. Iqbal, 556 U.S. 662 (2009) the Court found that, while detailed factual allegations are not required, a plaintiff cannot merely state conclusory allegations that simply recite the statutory language. 

In Landers, the plaintiff alleged that he and similarly situated employees were not paid overtime for work in excess of 40 hours per week and that the failure to pay overtime and/or minimum wages was willful, but failed to allege any details regarding a specific workweek when he allegedly worked in excess of forty hours and was not paid overtime for that specific workweek and/or was not paid minimum wages. 

The Court said that, at a minimum, a plaintiff must allege at least one workweek when s/he worked in excess of forty hours and was not paid for the excess hours in that workweek, or was not paid minimum wages. Because Landers failed to meet this standard and refused to amend his complaint, the Court held that the dismissal of his case by the district court was proper.  

Planning Tip

This case is good news for employers when faced with an individual or collective FLSA complaint.  Employers now have another defense against baseless or perfunctory FLSA wage complaints, or those brought by employees who may not have suffered actual harm. This heightened pleading requirement also helps employers to identify and remedy any underpayments early on in litigation.

State News

ILLINOIS

Chicago Increases Minimum Wage

The Chicago City Council approved an ordinance on December 2, 2014, which progressively raises the minimum wage for "covered employees," or those employees who work at least two hours in a two week period in the city of Chicago. The ordinance applies to Chicago businesses that are subject to the city license requirements and employ at least one covered employee. Per the ordinance, the minimum wage, which the Illinois Minimum Wage Act currently sets at $8.25 per hour, will increase as follows:

  • To $10.00 per hour on July 1, 2015
  • To $10.50 per hour on July 1, 2016
  • To $11.00 per hour on July 1, 2017
  • To $12.00 per hour on July 1, 2018
  • To $13.00 per hour on July 1, 2019

Further, starting July 1, 2020 and every July 1st thereafter, minimum wage in Chicago will increase to the greatest of the federal, state, or city minimum wage. Potential increases will be made in proportion to any increases in the Consumer Price Index, but capped at 2.5% per year. Increases shall not occur in any year in which the Department of Employment Security reports that the Chicago unemployment rate was equal to or greater than 8.5% in the preceding year.

The ordinance also increases the minimum hourly wage for employees who receive gratuities. Under the current Illinois Minimum Wage Act, employers can pay tipped employees as little as $4.95 per hour, provided that those employees make at least minimum wage including tips. Starting on July 1, 2015, minimum wage for tipped Chicago employees will increase to $5.45 per hour, and then to $5.95 per hour starting on July 1, 2016. Moreover, beginning on July 1, 2017 and every July 1st thereafter, the tip-credit minimum wage will increase by the same formula and restrictions as minimum wage for non-tipped workers, detailed above.

The ordinance also prohibits discrimination and retaliation against covered employees who exercise their rights thereunder. Such employees will have a private right of action against the employer, and may recover treble damages as well as attorney fees if the employer is found liable. Further, businesses that contravene any provisions of the ordinance may be subject to fines of $500-$1,000 per violation.  

Planning Tip

Employers with tipped and non-tipped hourly workers in Chicago must now comply with this higher minimum wage requirement.  Chicago employers should review their compensation levels to ensure they are complying with this new city law.

CALIFORNIA

California Reverses Trial Court's $90 Million Award to Security Guards for Missed Rest Breaks

On December 31, 2014, in Augustus v. ABM Security Services, Inc., a California appeals court, in an unpublished option, reversed a trial court's order granting summary judgment in favor of the Plaintiffs and requiring ABM Industries to pay approximately $90 million in damages to a class of security guards who alleged they did not receive proper rest breaks.

The security guards alleged that because they remained on-call and were required to keep their radios and pagers on and respond to emergencies when the need arose, the Company failed to relieve them of all duties during their rest breaks as required by California law and therefore owed them an extra hour of pay for each day worked.

The Court of Appeals concluded that simply being on-call when the employee is otherwise permitted to engage, and does engage, in various non-work activities, does not constitute performing "work" under California Wage Order No. 4, which requires the employer to provide rest breaks. The court went on to reject the Plaintiffs' arguments that the employer is required to relieve the employee of all duty on a rest break and relinquish any control over how the employee spends his time and vacated the trial court's judgments. The court held, however, that rest breaks and meal breaks are qualitatively different and remanded the issue of meal subclass certification to the trial court for reconsideration.  

Planning Tip

Companies who require California employees to remain on-call during their paid rest breaks should take note of this decision and can re-evaluate their compensation practices. 

Policies should permit employees to engage in non-work activities during their break time, and employers may be able to otherwise require California employees to be on-call during such paid rest breaks without triggering additional penalty pay.

California State / City Minimum Wage Increases

This quarter brought several increases to the State and local minimum wages across California, and to California's software exemption salary basis:

  • California's Computer Software Exempt Employee's minimum salary increased effective January 1, 2015, up to $41.27 an hour or $85,981.40 annually, reflecting a 2.2% increase in the California Consumer Price Index.
  • Berkeley's minimum wage is $10 an hour effective Oct. 1, 2014. Berkeley's city-wide minimum wage will increase over the next two years on October 1, 2015, to $11 an hour, and on October 1, 2016 to $12.53 an hour.
  • In San Jose, the minimum wage increases to $10.30 an hour on January 1, 2015.
  • San Francisco's minimum wage is $11.05 an hour effective January 1, 2015. The city-wide minimum wage will increase over the next four years on May 1, 2015 to $12.25 an hour, on July 1, 2016 to $13.00 an hour, and a dollar per hour increase each July thereafter through 2018.
  • Oakland passed a new minimum wage of $12.25 per hour effective on March 2, 2015, with annual increases effective January 1st of each year.  The city-wide ordinance also requires employers to provide up to nine paid sick days per year to Oakland employees, which is more generous than the California state-wide paid sick leave law.
  • Richmond's minimum wage is $9.60 an hour effective January 1, 2015.