Last month, the U.S. Department of Labor (DOL) Wage and Hour Division’s Payroll Audit Independent Determination (PAID) program went into effect. The pilot program allows employers to quickly pay back wages to workers in full for any accidental overtime or minimum wage violations of federal law under the Fair Labor Standards Act (FLSA). We previously wrote about what questions the PAID program left open (here), and, at least for now, the question of how this would affect New York state law has been closed shut.

Shortly after the federal PAID program went into effect, New York Attorney General Eric Schneiderman released a strong statement to employers in New York that his office would “continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID program.” He reasoned that State investigations into wage and hour violations would continue because “the PAID program allows employers to avoid any consequences for committing wage theft.”

New York and Federal law not only require employers to pay employees any unpaid wages, but the laws establish additional liquidated damage penalties on top of any unpaid wages. Employers who enroll in the PAID program may avoid Federal FLSA liquidated damages, but AG Schneiderman’s statement ensures that this won’t be the case for New York state labor law violations and vowed to continue bringing lawsuits for wage and hour violations under New York state law. Guidance on the U.S. DOL’s Wage and Hour Division’s website doesn’t provide any help, either, stating that any releases signed by employees in exchange for payment would be “limited to the potential violations for which the employer had paid back wages.”  In other words, any release of claims under the Federal PAID program likely would not cover New York Labor Law claims, and the New York Attorney General Schneiderman has made it clear that his office would investigate “to the fullest extent of [state] law.”

New York employers are officially on notice. By opting in to the Federal PAID program, New York employers may inadvertently open the back door to a New York State wage/hour investigation. Before making the decision to self-report, any employer with employees in the state of New York is urged to seek legal advice.

During a Congressional hearing on March 6th, Labor Secretary Alexander Acosta unveiled a six-month pilot program intended to encourage employers to self-audit and self-report accidental violations of the Fair Labor Standards Act (“FLSA”). Under the program, called Payroll Audit Independent Determination (PAID), the Wage and Hour Division (WHD) of the U.S. Department of Labor will attempt to facilitate settlement agreements between employers who self-report and affected employees.  Employers who qualify for PAID and agree to pay back wages due will not be subject to liquidated damages or civil penalties and attorneys’ fees (all of which an employee could get if he or she files a lawsuit) under the FLSA.  Affected employees will have the right to choose whether to accept back payment in exchange for a release of claims.

There are several open questions about PAID that employers should keep in mind at this time. First, what effect, if any, will an employer’s participation in PAID have on potential claims under applicable state and local law, even if a settlement is reached?  Second, will employees apprised of potential violations by WHD be inclined to accept a settlement agreement that does not include liquidated damages or interest?  Third, is there anything preventing such employees from using the information gleaned from a self-reporting employer to file a lawsuit?  Fourth, will the information and data employers provide to the WHD be discoverable and deemed an admission in future lawsuits, especially by employees who choose not to participate?  Finally, it is not clear whether and to what extent WHD will examine a self-reporting employer’s records for violations in addition to what is self-reported, and whether employers should open themselves up to that scrutiny.

All of these open issues will likely limit the amount of employers who voluntarily self-report wage and hour violations during the six-month pilot period. After PAID’s six-month pilot period is complete, the Labor Department will evaluate the program’s effectiveness and determine whether to continue with the program in its current form, make necessary changes or end the program entirely.

Earlier this month, US employers received important news just as the season of hiring summer interns is set to begin. The Department of Labor (“DOL”), through Fact Sheet #71, clarified its position regarding unpaid internships and officially adopted the “primary beneficiary test” for determining whether interns are considered employees under the Fair Labor Standards Act[1] (“FLSA”).  The FLSA requires employers to pay employees for their work, but if an intern or student is not considered an employee, then the employer is not required to compensate them.

Specifically, the “primary beneficiary test” balances the following seven factors:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Unlike the prior DOL test which, through six enumerated factors questioned whether the employer received an “immediate advantage” from the intern’s work, this is a flexible test. No one factor is determinative and the test is dependent on the unique circumstances of each case, reflecting the economic realities of the individual intern-employer relationship.  In fact, the DOL noted that the change would hopefully provide investigators with “increased flexibility to holistically analyze internships on a case-by-case basis” and “eliminate unnecessary confusion.”

Now that the DOL has embraced the standard adopted by the 2nd, 6th, 11th, and most recently the 9th Circuit, employers finally have guidance on how to structure their internship programs so that interns are not deemed employees under the FLSA.  Along with balancing different factors when evaluating the intern-employer relationship under the FLSA, some states, such as New York, have additional wage laws which cannot be overlooked.

[1] The “primary beneficiary test” has been adopted in the 2nd, 6th, 9th and 11th Circuits through the following cases: Benjamin v. B & H Educ., Inc., — F.3d —, 2017 WL 6460087, at *4-5 (9th Cir. Dec. 19, 2017); Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528, 536-37 (2d Cir. 2016); Schumann v. Collier Anesthesia, P.A., 803 F.3d 1199, 1211-12 (11th Cir. 2015); see also Walling v. Portland Terminal Co., 330 U.S. 148, 152-53 (1947); Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518, 529 (6th Cir. 2011).

On December 29, California’s Second Appellate District held that employees who settle and dismiss their individual wage claims may not assert claims under the state’s Private Attorneys General Act (“PAGA”) on behalf of other employees. PAGA allows employees to file lawsuits to recover civil penalties for violations of the California Labor Code on behalf of themselves, their fellow workers, and the State of California. To assert PAGA claims, employees generally do not have to meet the rigorous standards required for class certification.

In Kim v. Reins International California Inc., an employee sued his former employer, a restaurant operator, for wage and hour violations under the Labor Code. Mr. Kim sued on behalf of a class of all “training managers” currently or previously employed by Reins, claiming that they were misclassified and thus entitled to overtime, meal breaks and rest periods. The trial court judge dismissed the class claims, and ordered Mr. Kim’s individual wage claims to arbitration, as per the arbitration agreement he had signed during his employment. His PAGA claims, however, were stayed pending the arbitration’s resolution.

During the arbitration process, Mr. Kim settled his individual claims and dismissed them with prejudice. Reins then moved for summary judgment on the PAGA claims remaining in the state court action. The court granted the motion, noting that because Mr. Kim no longer had any viable Labor Code claims himself, he was no longer an “aggrieved employee” and lacked standing to assert a PAGA suit.

The Reins decision provides California employers with another basis for attacking meritless PAGA claims, reinforcing the concept that employees must actually have the same claims as those they purport to represent.

Please contact your Hogan Lovells labor and employment team with any questions concerning the ramifications of this decision for your business.

It’s that time of year for all employers in New York to confirm that their payroll is set up to pay the new minimum wage that went into effect on December 31, 2017. Additionally, in order for exempt employees to remain exempt into the new year, employers will need to ensure that their annual salaries meet the new required minimum salary threshold.

Beginning December 31, 2017, the following minimum wages are in effect:

Hourly Rates:

Employers outside of Nassau, Suffolk and Westchester counties or NYC $10.40
Nassau, Suffolk and Westchester employers $11.00
New York City employers with 10 or fewer employees $12.00
New York City employers with 11 or more employees $13.00

Beginning December 31, 2017, the minimum salary for exemption as an “administrative” or “executive” employee increased as follows:

Salary Rates:

Employers outside of Nassau, Suffolk and Westchester counties or NYC

$780 per week

$40,560 annually

Nassau, Suffolk and Westchester employers $825 per week $42,900 annually
New York City employers with 10 or fewer employees

$900 per week

$46,800 annually

New York City employers with 11 or more employees

$975 per week

$50,700 annually

Remember, under New York’s Wage Theft Prevention Act (“WTPA”), employers are required to give written notices to each new hire with the following information:

  • Rate or rates of pay, including overtime rate of pay if applicable;
  • How the employee is paid (hourly, per shift, daily, weekly, by commission, etc.);
  • Regular payday;
  • Official name of the employer and any other names used for business;
  • Address and phone number of the employer’s main office or principal location;
  • Allowances taken as part of the minimum wage (tip, meal, and lodging deductions); and
  • The notice must be in English and in the employee’s primary language if the Department of Labor offers a translation

If any of the above data changes, employers must give the employee a week’s notice, unless the employee’s new paystub carries the notice. However, employers must notify an employee in writing before reducing his or her wage rate.  Employers in the hospitality industry must give notice every time an employee’s wage rate changes.

New York employers may soon be subject to new scheduling and pay requirements pertaining to their non-exempt employees who work “on-call” shifts. New York Governor Andrew Cuomo recently announced that the New York State Department of Labor (NYDOL) is advancing regulations on “just-in-time” or “on demand” scheduling, which allows employers to schedule employees’ shifts shortly before they start.

As the law stands today under the Minimum Wage Order for Miscellaneous Industries, non-exempt employees who report to work for on-call shifts are entitled to a minimum of four hours of pay at the basic minimum hourly wage. According to prior NYDOL guidance, employers may offset these call-in payments with amounts paid above the minimum wage and overtime rates in a given workweek.  For example, if the amount paid to an employee for the workweek exceeds the minimum and overtime rate for the number of hours worked and the minimum rate for any call-in pay owed, no additional payment for call-in pay is required.

Under the newly-proposed regulations, employers will be subject to the following requirements:

  1. Employees who report to work for a shift not scheduled at least 14 days in advance will be entitled to an additional two hours of call-in pay.
  2. Employees whose shifts are cancelled within 72 hours of the scheduled start time will be entitled to at least four hours of call-in pay. Those four hours may be reduced to the number of hours that an employee typically works for a call-in shift if the employee’s total hours worked or scheduled to work are consistent on a week-to-week basis.
  3. Employees who are required to be on-call and available to report for any shift will be entitled to at least four hours of call-in pay.
  4. Employees who are required to contact their employer within 72 hours of the start of a shift to confirm whether to report or not will be entitled to four hours of call-in pay.

The call-in payments described above will be calculated at the minimum wage rate with no allowances for meals, lodging, and utilities. Such payments shall not be considered hours worked for purposes of calculating overtime pay.  Notably, the proposed requirements will not apply to employees who are covered by a collective bargaining agreement that expressly provides for call-in pay.

The proposed regulations appeared in the November 22, 2017 State Register and are subject to a 45-day comment period. We will continue to track the progress of these regulations and update our readers with any further developments.

The home health care industry has been buffeted in the past year by almost constant winds of change and conflicting guidance. Home health care agencies, which provide crucial live-in aides to New York’s most vulnerable, elderly and ill residents, had relied on the New York Department of Labor’s guidance to pay their workers for years. The NYDOL’s policy since 2010 was that “live-in” aides should be paid for 13 hours of a 24 hour shift, as long as those aides were allowed 8 hours of sleep, (5 of those hours must be uninterrupted), and 3 uninterrupted hours for meals. This policy, known in the industry as the “13 hour rule” meant that aides were compensated for hours worked, but agencies were not bankrupted by needing to pay for the full 24 hour shifts.

Since the spring, three New York State Appellate Division cases have ruled that non-residential home health care attendants must be paid for the entire 24 hour shift, even if they take the requisite sleep and rest periods. The three cases, Tokhtaman v. Human Care, LLC, 2017 NY Slip Op 02759 (1st Dept. Apr. 11, 2017); Andryeyeva v. New York Home Attendant Agency, 2017 NY Slip Op 06421 (2d Dept. Sept. 13, 2017) and Moreno v. Future Care, 2017 NY Slip Op 06439 (2d Dept. Apr. 11, 2017) rocked the home health care industry.[1] Violations of the New York Labor Law come with a six-year statute of limitations, so agencies that have been faithfully following the 13 hour rule for the past seven years would nonetheless be hit with lawsuits for enormous amounts of unpaid wages. The result? Many agencies would be bankrupted, many aides would be without employment and many needy New Yorkers would be without care.

After an understandable outcry, the NYDOL issued an amended emergency Wage Order on October 6, 2017. The Wage Order, §142.2.1(b) was amended to include the following clarification:

Notwithstanding the above, this subdivision shall not be construed to require that the minimum wage be paid for meal periods and sleep times that are excluded from hours worked under the Fair Labor Standards Act of 1938, as amended, in accordance with sections 785.19 and 785.22 of 29 C.F.R. for a home care aide who works a shift of 24 hours or more.

The amended Wage Order confirms the industry’s understanding that aides who work 24 hour shifts do not need to be paid for their meal and sleep periods. The federal regulations referenced in the amendments essentially state that employees do not need to be paid for “bona fide” meal and sleep periods (at 30 minutes “completely freed” from duties to eat and 8 hours to sleep, at least 5 of which must be uninterrupted).

What’s next? The Court of Appeals has yet to weigh in on Tokhtaman et. al., and it may clarify or overturn those decisions. At the very least, New York’s highest court will have to decide whether the Appellate Division decisions will apply retroactively, so agencies may still be liable for back pay prior to October 6. The amended Wage Order also does not appear to apply retroactively, so more guidance is required on that front.

We will keep you apprised of news on these fast-moving and high-stakes issues affecting New Yorkers.

[1]  Not all courts agree with this view. In Bonn-Wittingham v. Project O.H.R., Inc., 2017 WL 2178426 (E.D.N.Y. May 17, 2017), the court rejected the reasoning in Tokhtaman because the DOL guidance was not unreasonable such that it should not be given deference.