Posted on 09/28/2017 at 12:00 AM by Mike Staebell
Every year, Federal Agencies publish their plans to amend or release new regulations in the Unified Agenda of Regulatory and Deregulatory Actions. In July 2017, the DOL’s Wage and Hour Division announced an agenda with three areas of attention: the FLSA White Collar exemption rules (the 2016 version of which have been rescinded by a federal court in Texas), rules relating to tipped employees, and a review of Wage and Hour’s FLSA Section 14(c) program. That latter provision permits, with restrictions, the employment of workers with disabilities at subminimum wages. Section 14(c) is a politically sensitive program that has faced criticism for years. Iowans will not doubt recall the 2009 widely-reported case of Henry’s Turkey Service in Atallissa, Iowa. I served as the manager in charge of the FLSA investigation for the DOL. In that case, 32 workers with disabilities were awarded back pay of $1.7 million for FLSA violations. Although this case prompted national calls to revise the Sec 14(c) program, the DOL has yet to issue a timetable for completion of the review of Section 14(c) nor proposed any changes to the Sec 14(c) regulations.
The DOL is moving forward on the other two announced regulatory changes.
On August 31, 2017, the U.S. District Court for the Eastern District of Texas struck down the U.S. Department of Labor’s White Collar Exemption final rule. That regulation, among other things, would have doubled the minimum salary requirements for workers classified as exempt from overtime under the FLSA’s executive, administrative, professional and computer-related exemptions. The court held that the DOL overstepped its rulemaking authority by increasing the salary threshold to a point that rendered employees’ duties irrelevant.
Even before the court decision, the DOL, on July 26, 2017, the DOL published a request for information (RIF) soliciting public comments on the White Collar overtime exemptions. The DOL’s RIF acknowledged stakeholders’ concerns that “the new salary level [proposed in the 2016 regulations] inappropriately excludes from exemption too many workers who pass the standard duties test” and “would adversely impact low-wage regions and industries.” The DOL seeks comments regarding:
whether the standard salary level set in the rule effectively identifies employees who may be exempt;
whether a different salary level would more appropriately identify such employees;
the basis for setting a different salary level;
why a different salary level would be more appropriate or effective.
The comment period closed September 25, 2017
Although not as widely reported, the DOL has also been challenged in a number of lawsuits for its interpretation of the FLSA tipped employee rules. In July 2017, the DOL announced that it is proposing changes to the FLSA regulations that apply to tips and tip pooling, the common practice of sharing tips among all tipped staff, under the direction of the employer.
Prior to 2011, FLSA regulations stated that a tip pool violates the FLSA if the pool of individuals who shared the tips included "back-of-house" employees such as cooks and dishwashers – positions that generally do not receive tips directly from customers. The pre-2011 regulations were silent, however, as to whether this tip-pooling restriction applies to employers who pay their tipped employees the full minimum wage.
In 2011, the DOL issued a set of controversial rules stating that any tip pool that included back-of-the-house workers violated the FLSA. It was the DOL’s position that tips were solely the property of the employee who received the tip and could not be shared with non-customarily tipped employees (cooks and dishwashers), even if the employee who received the tip was not paid on a tip credit basis and received the full minimum wage in pay from the employer. These regulations effectively extended tip-pooling restrictions to all employers, regardless of whether the employers took advantage of tip credits.
It was no surprise that these regulations led to a spate of lawsuits, with the Circuit Courts splitting on whether or not employers could control the tips received by employees who were paid minimum wage or more by the employer. Legal experts expected that eventually the Supreme Court would have to resolve the split, and to that end, the National Restaurant Association, among others, had asked the Supreme Court to hear an appeal of a Ninth Circuit case that found that employers had no right to control tips earned by any tipped employee. The 2017 DOL proposed rule would rescind the 2011 restrictions on tip pooling for employers that pay tipped employees the full minimum wage. A tipped employee who is paid full minimum wage could be required to share any tips they receive with back-of-the-house staff or any other individual the employer designates as a tip-pool participant. The tip-pooling restriction would remain for employers who take a tip credit for tipped employees.
Employers with tipped employees need to be mindful that until the DOL issues a final rule – a process that could take up to a year-- the 2011 regulations remain in place, as construed by various courts. For now, the DOL's proposal is a good reminder to employers to regularly reevaluate their tip policies and be certain they meet current standards.
The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.
- Mike Staebell