Key Takeaways

  • Wage and hour claims in 2023 have continued to be one of the most expensive employment law risks. Next year will likely be no different, as increased interagency cooperation between the Department of Labor and Equal Employment Opportunity Commission will only increase the number of compliance actions for wage and hour claims.
  • State legislatures have taken an active role in 2023 to regulate wage and hour issues that directly impact employers’ bottom lines and talent recruitment. These issues include setting increased hourly minimum wage rates and requiring employers to post the hourly rates or salaries for open positions. Minimum wage and pay transparency will continue to be a focus for legislatures across the country given the national attention to this space.
  • California’s Private Attorneys General Act (PAGA) has been a logistical and financial obstacle for employers and employers need to know how to navigate this territory.
  • Maintaining compliance with the ever-changing regulations and law governing employee compensation requires a multipronged strategy that BakerHostetler’s Wage and Hour Compliance team is uniquely situated to develop and execute for your business.

As most employers are well aware, wage and hour claims continue to be one of the most expensive employment law risks. In 2022, the 10 largest reported settlements for wage and hour actions totaled $574 million. While the final numbers for 2023 have yet to be tabulated, wage and hour litigation’s financial impact on employers this past year is expected to be similarly substantial. The number of claims filed in federal courts across the country citing violations of the Fair Labor Standards Act (FLSA) will approach 5,700 separate cases, most of which involve unpaid overtime and/or misclassification claims. Employers should expect the number of FLSA cases to increase in 2024 as the Department of Labor (DOL) continues its active enforcement and policymaking roles.

DOL’s Investigation and Prosecution of Off-the-Clock Violations

Off-the-clock violations were the apple of the DOL’s eye in 2023. In the context of remote work structures, the DOL clarified that remote workers’ breaks to go to the bathroom, get a cup of coffee, stretch their legs and other similar activities that last 20 minutes or less must be compensated. The DOL has also been active in investigating and prosecuting off-the-clock work violations in contexts outside the remote work structure. Employers have faced steep penalties for violations ranging from deducting time from employees’ workdays for meal breaks during which these employees were required to remain at their posts to failing to pay hourly employees for work required and performed outside their assigned schedule. Given this trend, employers can expect the DOL to remain laser focused in 2024 on off-the-clock claims.

Increased Interagency Cooperation

On Sept. 14, the Equal Employment Opportunity Commission (EEOC) and the DOL announced that they had executed a memorandum of understanding enabling information sharing, joint investigations, training, and outreach. Pursuant to the terms of their agreement, each agency will make complaint referrals to the other while also sharing complaint and investigative files, EEO-1 reports, FLSA records, and statistical analyses and summaries. Moving into 2024, this agreement with the EEOC will greatly assist the DOL in achieving part of its strategic plan to increase both the amount of back wages recovered for workers and its percentage of compliance actions for what the DOL deems “impactful cases.”

The Salary Basis Test Under Spotlight

The Supreme Court’s decision in Helix Energy v. Hewitt made it clear that employees earning more than $200,000 a year may still be eligible for overtime pay. The Supreme Court held that compensation on a daily rate basis does not constitute a salary for purposes of the FLSA’s overtime exemptions, that require employees be paid on a “salary basis.” The Court reasoned that a strict textual interpretation mandates a steady and predictable stream of pay, and therefore, an employee paid exclusively on a day rate cannot, absent limited circumstances, satisfy the salary basis test. After Helix, federal courts began applying its reasoning to various compensation structures, including those where day rates have been combined with a token salary and those where guaranteed biweekly salaries were calculated based on various hours and rates. Employers with payment structures involving day rates and guaranteed amounts supplemented by additional compensation can expect continued challenges under the Supreme Court’s ruling in Helix.

Increases to the Salary Thresholds for Overtime Exemptions

Not only has the Supreme Court weighed in on what constitutes a salary for purposes of the FLSA’s overtime exemptions, but also the salary thresholds applicable to state and federal overtime exemptions are front and center. On August 30, 2023, the DOL announced the release of a Notice of Proposed Rulemaking that would significantly increase the salary thresholds for the FLSA’s white collar exemptions. The proposed rules seek to increase the weekly salary threshold from $684 ($35,568 annually) to $1,059 ($55,068 annually) – an increase of nearly 55%. Further, the proposed rules also seek to significantly increase the annual salary threshold for the Highly Compensated Employee exemption from $107,432 to a staggering $143,988 – an increase of over 34%.

Some states are also hopping on this bandwagon but at significantly higher salary thresholds than those applicable to the FLSA’s exemptions. Among other states, New York recently passed a bill calling for three consecutive annual increases to the salary thresholds for its white-collar exemptions under state law. Consequently, New York employers should review all their exempt employees to ensure that their salaries satisfy the following minimum requirements:

Year NYC, Westchester, and Long Island Remainder of New York State
2024 $1,200.00 ($62,400 annually) $1,124.20 ($58,458.40 annually)
2025 $1,237.50 ($64,350 annually) $1,161.65 ($60,405.80 annually)
2026 $1,275.00 ($66,300 annually) $1,199.10 ($62,353.20 annually)

Employers in other states should determine whether any salary threshold increases apply to their exemptions as well.

Another Year, Another Dollar – Increases to the Minimum Wage Across the Country

As most readers are aware, there have been rumblings and calls to increase the federal minimum wage to $15 per hour. Although such an increase has not gained traction on a federal level, states throughout the country have already been increasing and will continue to increase their respective hourly minimum wage rates. Below is a sampling of upcoming state minimum wage increases, although there are several others coming down the pike.

Year NYC, Long Island, and Westchester Remainder of New York State New Jersey Maine Florida
2023 $15.00 $14.20 $14.13 $13.80 $12.00 (beginning 9/30)
2024 $16.00 $15.00 Increasing to $15.13 (most employees) Increasing to $14.15 (most employees) $13.00 (beginning 9/30)
2025 $16.50 $15.50 - - $14.00 (beginning 9/30)
2026 $17.00 $16.00 - - $15.00 (beginning 9/30)

Pay Transparency Laws Across the Country

Pay transparency laws have been on the rise over the past several years, with numerous states (e.g., New York, Maryland, Connecticut, Rhode Island, California) and cities (e.g., New York City, Cincinnati, Jersey City) enacting such legislation. Although the specifics may differ slightly from jurisdiction to jurisdiction, generally speaking, these laws require employers to post the hourly rates or salaries for the open position identified within a job posting. These laws are intended to close what have been considered historical wage gaps based on race and gender.

The number of jurisdictions requiring this form of pay transparency is ever increasing, and employers should be aware that such laws may be coming their way. For instance, the legislatures in both Massachusetts and Washington, D.C., are currently working on crafting and passing bills that would require employers’ job advertisements to contain the minimum and maximum salary or hourly pay range for the position in the advertisement. Pay transparency laws have become so popular that more than one in four workers in the United States are now covered by such statutes according to data produced by advocacy organizations. Moreover, data from a major online job site revealed that half of all job listings in the United States now include some sort of compensation information. This rapid change is indicative of how quickly these laws have affected the job search and posting process.

PAGA Pandemonium

United States Supreme Court’s Ruling Concerning Arbitrability of PAGA Claims Severely Limited

In June 2022, in Viking River Cruises v. Moriana, the Supreme Court of the United States overruled the California Supreme Court and the Ninth Circuit and held that pre-dispute waivers of representative claims under California’s Private Attorneys General Act (PAGA) are enforceable. After Viking River, there was hope that California employers would be able to stem the unending tide of PAGA litigation through application of representative action waivers. However, in July 2023, the California Supreme Court issued its ruling in Adolph v. Uber and redefined standing under PAGA. Specifically, Adolph reaffirmed that if an employee proves a single labor code violation, he or she has standing as an aggrieved employee and may pursue PAGA penalties for any violation suffered by other employees, and that a plaintiff’s standing to pursue PAGA claims is not affected by compulsory arbitration. If a PAGA plaintiff establishes she suffered a single Labor Code violation, she can pursue PAGA claims even if she has signed an enforceable arbitration agreement with a representative action waiver. Accordingly, arbitration of a representative plaintiff’s individual PAGA claim may be of minimal benefit unless a complete defense award is likely.

Uncertainty Surrounding PAGA Settlements

In August 2023, the California Court of Appeal issued two opinions that created further obstacles for employers seeking to settle PAGA suits. In LaCour v. Marshalls, the trial court dismissed PAGA claims because they had been released in previous, court-approved settlement. The California Court of Appeal reversed and held that the pre-litigation notice sent to the Labor and Workforce Development Agency in the previous action did not assert sufficient facts to support the broad settlement. After LaCour, there is doubt that employers can negotiate PAGA settlements to cover subsequent claims if those claims were not specifically listed and supported by sufficient factual allegations in the original PAGA notice. Employers are now faced with potential duplicative liability for PAGA claims that they may believe have already been resolved.

In Accurso v. In-N-Out Burgers, California’s favorite burger chain attempted to settle with a PAGA plaintiff with the goal of eliminating five other PAGA suits; however, two of the other PAGA plaintiffs objected and sought to intervene. The Court of Appeal overturned the trial court’s order rejecting intervention, stating: “[I]n situations where PAGA claimants with their own overlapping claims in other pending cases show up and wish to provide input, we see no reason why they should not be given a seat at the table.” This decision broke with precedent, which had precluded intervention from other PAGA plaintiffs based on the understanding that a PAGA plaintiff has “no personal interest in the PAGA claims” that are brought on behalf of the state of California.

California Supreme Court Cases to Watch in 2024

Time Rounding on the Chopping Block

In Camp v. Home Depot, the California Supreme Court will decide whether employers are permitted to use time-rounding practices to calculate employees’ time for payroll purposes. Time rounding has long been permitted under federal law, and the California Court of Appeal for the Fourth District previously held that time rounding is legal in California so long as the policy is neutral on its face and in application. In Camp, the appellate court diverged from long-standing precedent and held neutral rounding is not permissible. Based on the California Supreme Court’s ruling in Donohue v. AMN Services, which prohibited rounding of meal break punches in California, it appears likely that the California Supreme Court will affirm the appellate ruling and declare time rounding violates the California Labor Code. Based on recent cases, there is significant concern that a ruling in Camp could apply retroactively, which means that California employers that currently round employee time could be headed for expensive wage and hour headaches in the future.

Manageability of PAGA Claims May Be a Nonfactor

Trial courts have often relied on their inherent authority to strike or limit PAGA actions if the claims cannot be manageably adjudicated at trial. In Estrada v. Royalty Carpet Mills, the trial court found that the plaintiff’s PAGA claims were unmanageable and were stricken. However, the Court of Appeal disagreed with this premise and concluded that courts have no authority to strike or limit PAGA claims before trial. The California Supreme Court granted review, and a decision is expected in early 2024. Elimination of the trial courts’ ability to strike PAGA claims would remove a key defense employers currently have when facing PAGA litigation.

Conclusion

From California to New York, and everywhere in between, wage and hour violations continue to be a logistical and financial nightmare for employers. Maintaining compliance with the ever-changing regulations and judicial precedent governing employee compensation requires a multipronged strategy that BakerHostetler’s Wage and Hour Compliance team is uniquely situated to develop and execute. Employers should not hesitate to reach out with concerns regarding their pay practices, as every day that goes by without addressing potential violations could very well be costly.