ARE YOU READY FOR THE NEW FLSA REGULATIONS?
It is going to happen in 2016. You should be prepared to implement the changes as early as the second quarter of next year.
As we reported in our last bulletin, the Department of Labor intends to increase the minimum salary level of $23,660 for an employee to be exempt to $50,440 –obviously a dramatic overnight increase. This new salary minimum will apply nationwide and will not vary geographically, even though the cost of living in some parts of the country is lower than others. What’s more, the new regulations are also likely to provide that the minimum salary level will go up every year based on a measure of the increase in cost of living. A change to the duties one must perform to qualify for an exemption is also under consideration. However, it is much less certain that the new regulations will tinker with this aspect of the law.
The exact effective date of the new regulations has not been announced. The comment period has closed. It will take some time for the DOL to review all of the public comments and decide upon the final version of the regulations. We think the final version could be announced as early as the first quarter of 2016. When the DOL last revised the FLSA regulations, it gave employers three months notice of the effective date. Therefore, it is reasonable to assume that the new regulations could go into effect as early as the second quarter of 2016.
What should you do to prepare? The first step is to determine whether you have any exempt (salaried) employees who make less than $50,000 a year. If you do, you will have some decisions to make. Your options will be (1) change that employee to an hourly, non-exempt status, (2) increase that individual’s salary so that it exceeds the minimum threshold, or (3) reorganize job duties such that you no longer need the position.
With a significant change in the law looming, employers have a ready explanation for changes to their current pay practices. For example, if you have positions in your organization that you are treating as exempt, but your ability to prove the exemption is on shaky ground, now is a great time to make a change.
Changes to the exempt status of employees can be hand-wringing decisions for employers. That is, if employees are switched from exempt to non-exempt, they often wonder why and assume that their employer must have been doing it illegally all along. Otherwise, the employer would not make a change. The new regulations provide an opportunity to do an across-the-board review of an employer’s pay practices. That is the silver lining in an otherwise bad development for employers.
Our labor and employment lawyers are ready to answer your questions regarding the new regulations and to provide assistance in reviewing your pay practices for FLSA compliance.
YOU MAY BE A “JOINT EMPLOYER” AND NOT EVEN KNOW IT
If your company utilizes the franchisor-franchisee, contractor-subcontractor, parent-subsidiary, or a host of other common business relationship models you will want to pay close attention to the National Labor Relations Board’s recent “joint employer” decision. In Browning-Ferris Indus. of California, the NLRB reversed 30 years of Board precedent and established a new standard for determining whether two separate employers can be considered joint employers under the National Labor Relations Act. By expanding the scope of who is considered to be a joint employer, the NLRB has blurred the lines between primary and secondary employees and, as a consequence, has subjected countless businesses to new joint-bargaining obligations, potential joint liability for unfair labor practices, increased economic protest activities, and easier unionization.
The NLRB’s ruling is a sharp departure from the previous standard in which a company was only found to be a “joint employer” of employees who were under its actual and direct control. Companies that did not have the power to set hours, wages, or job responsibilities for subcontracting or secondary employees could not be held responsible for the labor practices of those employees. However, under the new standard announced in Browning-Ferris, a company is considered a joint employer if it simply exercises “indirect control” over a worker’s wages and working conditions or if it has “reserved authority” to do so. In other words, the mere potential to exercise control over workers can lead to joint employment, even if that control is not exercised.
With this new standard, employers may now face exposure to collective bargaining obligations for employees supplied by staffing agencies and may potentially be held responsible for labor violations committed by their contract employees and franchisees. In addition, strikes, boycotts and picketing by unions will now have an expanded scope. For example, if a franchisor and franchisee are shown to be “joint employers” it will be permissible for a union that has a labor dispute with the franchisee to strike or picket the franchisor under the new standard.
In the wake of Browning-Ferris, employers should consider reviewing their contracts and relationships with staffing agencies, franchisees, and other companies to determine if they inadvertently contain provisions that reserve the right to control certain aspects of those workers’ terms and conditions of employment. Care should be taken to evaluate the risks and the benefits associated with maintaining that right to control given the new legal standard for joint employer liability. For some companies, eliminating the right to control will be an easy decision whereas other companies may find it impractical. Given this significant change in the law, consulting with counsel to reduce the likelihood of being found a joint employer is advised.
U.S. DEPARTMENT OF LABOR INCREASES SCRUTINY OF INDEPENDENT CONTRACTOR CLASSIFICATION
Following recent Department of Labor guidance, most workers will qualify as employees, and a smaller number of workers will likely qualify as “independent contractors.” The new guidance issued July 15, 2015, by the Department of Labor, Wage and Hour Division, narrows the meaning of “independent contractor” under the Fair Labor Standards Act. This is an effort by the Department of Labor to ensure that more workers receive workplace protections such as minimum wage, overtime, unemployment, and workers’ compensation.
The Fair Labor Standards Act defines “employ” as “to suffer or permit to work.” The new guidance instructs employers to apply an “economic realities” test in view of the broad “suffer or permit to work” definition. Under the “economic realities” test, a employer should consider six factors: (1) the extent to which the work performed is an integral part of the employer’s business; (2) the worker’s opportunity for profit or loss depending on his or her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer. No one factor is determinative; all factors should be considered in relation to the other factors. If a qualitative analysis reveals that the worker is economically dependent on the employer, he or she will likely be considered an employee. The guidance specifically states that these factors, rather than the label included in a contract, control the classification of the worker. However, a different analysis may still apply to interns. See Schumman v. Collier Anesthesia, P.A., — F.3d — (11th Cir. 2015).
Companies should review whether current independent contractors will still qualify as such under the new definition. Companies should also maintain records that support their determination, such as business licenses, bids, contracts, work plans, and correspondence.
MY EMPLOYEE FAILED A DRUG TEST AFTER HIS SKI TRIP TO COLORADO, WHAT CAN I DO ABOUT IT?
More and more states like Colorado, Washington, and Oregon are decriminalizing the use of marijuana, either for medicinal or recreational purposes. Although Alabama has not voted to “legalize” the use of marijuana for any purpose, Alabama employers are increasingly presented with the following scenario: an employee fails a drug test; the employee has recently been in a state where marijuana use is “legal;” the employer wants to know whether it may terminate that employee for violation of its drug policy.
A recent opinion issued by the Colorado Supreme Court in Coats v. Dish Network, LLC speaks to this issue. The plaintiff Coats was a quadriplegic employee at Dish Network who obtained a medical marijuana license to treat painful muscle spasms associated with his condition. Coats used marijuana at home, after work to treat his condition. Coats failed a random drug test at work, and informed Dish that he was a registered marijuana patient and intended to keep using marijuana. Dish then terminated Coats’ employment for violation of its drug policy.
Coats filed a wrongful termination suit against Dish under a Colorado statute that prohibits employees from being fired for participating in “lawful activities” outside of work. Coats argued that because the Colorado legislature approved the use of marijuana for medicinal purposes, (and indeed later on for recreational purposes), his use of the drug outside work was protected under the state statute because his activities were lawful under state law. The trial court dismissed Coats’ claims, and both the Colorado Court of Civil Appeals and Colorado Supreme Court affirmed. In its opinion, the Colorado Supreme Court explained that because marijuana is still considered illegal under federal law, its consumption is not a “lawful” activity entitled to protection under the state statute.
While this opinion is not binding on Alabama courts, it should be instructive to Alabama employers faced with a scenario in which an employee fails a drug test after using marijuana in a state that has “legalized” marijuana. As recognized by the court in the Coats case, and despite any state laws to the contrary, marijuana is still listed as a Schedule I controlled substance by the federal government. As a result, its use is not protected under federal laws such as the Americans with Disabilities Act (ADA). Moreover, unlike Colorado, Alabama has no law prohibiting employers from terminating its employees for engaging in “lawful” activities outside work. Rather, the general rule in Alabama is that an “at will” employee may be terminated for any reason—good, bad, or indifferent—with exceptions for discrimination based on age or the employee’s filing of a claim for workers’ compensation benefits.
However, companies with employees in other states should be wary of state laws that may affect their treatment of medicinal marijuana users. Some states, including Arizona, Connecticut, Delaware, Illinois, Maine, Minnesota, Nevada, New York, and Rhode Island, that have passed laws legalizing medicinal marijuana use have expressly included provisions that provide employee protections. Moreover, some states even require an employer to provide accommodations to a medical marijuana patient. It is important to note that states providing employee protections generally only prohibit discrimination based merely on the status of being a qualifying marijuana patient or for failing a drug test after using medical marijuana—not for being under the influence while on the job or failing a drug test after using marijuana for purely recreational purposes. As states’ views on marijuana use evolve, it will be important for employers to monitor legislation to determine if states’ marijuana laws provide for employee protections.
Moreover, employers should be uniform in enforcing their drug policies. For instance, suppose an employee gets hurt at work and files a claim for workers’ compensation benefits. Consistent with company policy, the employer requires the employee to take a drug test, which he then fails. The company terminates the employee, and he later sues over his termination. If the employee can show that the company did not terminate other employees who failed random drug tests but who did not get hurt at work, he may be able to establish a claim for retaliatory discharge under Alabama law. Accordingly, while an employee’s use of marijuana may not be the sole basis for a wrongful termination suit, employers should carefully evaluate the circumstances of each situation before terminating an employee for a failed drug test. If questions arise, employers are advised to contact counsel for advice.