The transportation industry has always been on the leading edge of interstate and international commerce. Operating across multiple jurisdictions frequently entails thorny compliance issues. A federal district court in California issued a ruling last week in a class action case that provides some welcome guidance for businesses in California whose employees work both inside and outside the state. The issue in the case, Wright v. Adventures Rolling Cross Country, Inc., No. C-12-0982 EMC (N.D. Cal.), was whether employees of a California tour operator were covered by California’s wage and hour laws while working abroad. Judge Chen of the Northern District of California held that while work performed inside California by a California resident is covered by the California Labor Code and its associated Wage Orders, work performed principally outside the state is not. The Court accordingly dismissed all claims based on work performed outside California. The decision is consistent with a prior ruling from the Central District of California in Sarviss v. General Dynamics Info Tech., Inc., 663 F.Supp.2d 883 (C.D. Cal. 2009). While the decisions in Wright and Sarviss are helpful, we expect to see employees continue to claim that California’s wage and hour laws (and those of other states) apply extraterritorially. We will continue to follow and report on developments here.
The Department of Labor ("DOL") released it 2012 budget, setting forth a $12 billion discretionary budget authority and aims increase enforcement of the Fair Labor Standards Act ("FLSA") and Family and Medical Leave Act ("FMLA").
The DOL's Wage and Hour Division ("WHD') is seeking $237.7 million and 1,839 full-time equivalent employees. The DOL said it wants an increase of $6.4 million and 57 full-time equivalent employees to support greater enforcement of the FLSA's overtime provisions and the FMLA.
Additionally, the WHD seeks $3.8 million and 35 full-time workers for increased enforcement on the worker misclassification front. Overall, the 2013 budget proposal calls for some $14 million to fight misclassification, including $10 million for grants for states, according to the DOL.
The Occupation Safety and Health Administration's ("OSHA") proposed 2013 budget requests $565.5 million and 2,308 workers, representing a small increase — $680,470 and three employees — from the budget enacted in fiscal year 2012.
The Equal Employment Opportunity Commission ("EEOC") is seeking a $373.7 million budget for the 2013 fiscal year, up from $360 million in 2012.
The National Labor Relations Board ("NLRB") ruled on January 3, 2012, that employers may not force employees to sign arbitration agreements that waive (prohibit) class actions and class arbitrations over issues involving pay and other working conditions. The decision seeks to distinguish the Supreme Court's ruling in AT&T Mobility v. Concepcion last April, which provided that the Federal Arbitration Act ("FAA") preempts state laws and court decisions that invalidate bans on class arbitration.
The Board found that the FAA did not override the National Labor Relations Act, which provides workers the right to unionize and take part in joint action. Specifically, the NLRB ruled that employers who force their employees to sign, “as a condition of employment, an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial,” are engaging in an “unfair labor practice” in violation of the National Labor Relations Act.
The decision will affect trucking and other transportation carriers in at least two ways. Unionized carriers may now face the prospect of class (fleetwide) arbitration of grievances that a collective bargaining agreement might previously have limited to individual arbitration proceedings. Carriers will want to review the wording of the grievance provisions in their collective bargaining agreements.
For non-unionized carriers, the NLRB decision provides an added reason to hesitate before requiring employee-drivers or contractors to sign agreements to arbitrate disputes. Transportation carriers already miss out on the preemptive effect of AT&T Mobility to the extent their arbitration agreements are deemed to be contracts with transportation workers, which are expressly exempted from the FAA, the statute on which that Supreme Court decision was based. Now the NLRB decision adds a possible federal-law basis on which employee-drivers – or contractors successful in persuading a court to reclassify them as employee-drivers – may try to argue a right to use a carrier’s arbitration agreement to institute a class arbitration.
The Board did not ban agreements that require employees to arbitrate in order to settle workplace issues, but held that such agreements must provide a way for workers to bring class or collective claims in court or arbitration.
In the Board decision, D.R. Horton, Inc. and Michael Cuda, Case 12-CA-25764 (Jan. 3, 2012), the respondent-home builder was ordered to stop “maintaining a mandatory arbitration agreement that waives the right to maintain class or collective actions in all forums, whether arbitral or judicial.”
A number of new California employment laws are set to take effect January 1, 2012. Many of these new laws will have a significant impact on businesses operating in California. The following is a summary of a few of the more notable laws taking effect in the New Year:
Wage Theft Prevention Act
Effective January 1, 2012, California Labor Code 2810.5 will require that employers provide the following information, in writing, to new employees upon hire:
1. The rate or rates of pay and the basis for pay, i.e., whether the employee will be paid by the hour, shift, day, week, salary, piece, commission, or otherwise. The rate information must also include overtime rates.
2. Any allowances claimed as part of the minimum wage, including meal or lodging allowances.
3. The regular payday designated by the employer.
4. The name of the employer, including any "doing business as" names used by the employer.
5. The physical address of the employer's main office or principal place of business. The mailing address must also be provided if it differs from the principal physical address.
6. The telephone number of the employer.
7. The name, address, and telephone number of the employer's workers' compensation insurance carrier.
8. Any other information the Labor Commissioner deems material and necessary.
These requirements apply to all non-exempt, non-union employees, and the duty to disclose this information continues after hiring. When any of the information listed in this statute changes, employers must notify employees in writing within seven calendar days of the change. The California Labor Commissioner posted a template for the required notice on the California Department of Industrial Relations’ web site: http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html
Retention of Payroll Records
California also changed the time frame that payroll records must be kept under Cal. Labor Code section 1174 from two to three years (we recommend four years because there is a four-year statute of limitations for many Labor Code violations).
Misclassification of Independent Contractors
California Senate Bill 459, signed into law by Governor Jerry Brown on October 9, 2011,
penalizes employers who willfully misclassify workers as independent contractors. The law defines “willful misclassification” as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The law makes it illegal to charge a willfully misclassified worker a fee or to make pay deductions where such a fee or deduction would have violated the law if the worker had not been misclassified.
Employers in violation of the law are subject to civil penalties between $5,000 and $15,000 for each violation, in addition to any other penalties or fines permitted by law. Violators may also be ordered to display (either on the employer’s website or, if there is none, at every location where a violation occurred) a notice for an entire year advising, among other things, that (1) the employer has committed a serious violation of the law by engaging in the willful misclassification of employees; (2) the employer has changed its business practices in order to avoid committing further violations; and (3) any employee who believes that he or she is being misclassified as an independent contractor may contact the California Labor and Workforce Development Agency (“LWDA”).
Under other similar California statutes that prohibit “knowing,” “intentional,” and “voluntary” violations, courts have found that actions taken on the basis of a good faith belief in their legality do not give rise to liability. It is unclear whether this “good faith” defense will apply under the new misclassification law. Regardless, employers must be cautious when classifying employees as independent contractors, and must be able to explain and demonstrate the validity of the classification.
Restriction on Use of Credit Checks
Starting in 2012, California employers may not, subject to certain exceptions, use consumer credit reports to evaluate candidates for employment. The use of credit reports to screen candidates for the following types of positions is not prohibited:
- Managerial positions covered by California’s executive exemption
- Positions involving regular access to certain personal financial, proprietary, or trade secret information
- Positions involving regular access to at least $10,000 of money belonging to the employer or its clients or customers
- Positions in which the applicant would be a signatory on the employer’s financial accounts or would have authority to transfer money or enter into financial agreements for the employer
- Positions for which credit information is required to be disclosed by law
Workers Compensation Notices
Among other amendments to California’s workers compensation laws, new legislation now requires that workers compensation notices posted by employers include the website address and contact information for employees to obtain further information about the workers compensation claims process.
These and several other new laws add additional layers of compliance for California employers already struggling to persevere in an extraordinarily difficult business climate. We recommend California employers take time to review their employment policies and practices to ensure compliance with California’s employment laws, both new and old. Questions should be directed to Jim Hanson, Chris McNatt, Bob Browning, and Adam Smedstad.
Employers waiting for the California Supreme Court to clarify California’s meal and rest break rules in the case of Brinker Restaurant Corp. v. Superior Court, No. S166350 may have to wait a little longer. The case is expected to resolve the contentious question of whether California employers must ensure that employees take thirty-minute off-duty meal breaks or just make them available to employees. Oral argument was held November 8, 2011. Under the Supreme Court’s rules, a decision was expected by mid-February, 2012, 90 days after the argument. On December 2, 2011, however, the Supreme Court agreed to accept additional briefing addressing whether a ruling on the so-called “rolling 5” issue will apply retroactively or only to future violations. As a result of this additional briefing, it is possible, although uncertain at this time, that the Supreme Court could issue a decision as late as April, 2012, 90 days following the completion of this additional briefing.
The “rolling 5” issue addresses the time meal breaks must be provided during a workday. California law generally requires that employers provide employees a 30-minute off-duty meal break whenever they work five hours or more, and another 30-minute meal break where work shifts exceed 10 hours. The “rolling 5” issue in Brinker is whether employees are entitled to one break during work shifts up to 10 hours long and a second break for shifts over 10 hours (the defendant’s position), or whether employees cannot work for more than five hours without a break (the “rolling 5” position advocated by the plaintiffs). The Brinker plaintiffs contend that an employer must schedule meal breaks near the middle of shifts to avoid work periods in excess of five hours or pay the hour premium if an employee works more than 5 hours without a break.
The Brinker plaintiffs’ position on the “rolling 5” issue would have a potentially significant impact on transportation providers operating in California. Under the “rolling 5” theory, if a driver takes a meal break early in the shift, the driver would be entitled to another one five hours later and could conceivably be entitled to three in a 12-hour shift. Incorporating these breaks into a driver’s day would be problematic and would, in our view, adversely impact the carrier’s operations and potentially conflict with the federal Hours of Service Rules and the Federal Aviation Administration Authorization Act (the “FAAAA”). Indeed, as many of the Firm’s clients know, a federal district court in California recently ruled that California’s meal and rest break rules are preempted by the FAAAA as applied to motor carriers. See http://transportationblog.scopelitis.com/blog/transportation-blog/federal-district-court-finds-faaaa-preempts-california-meal-and-rest-break-rules.
We are following the Brinker case closely and will keep you apprised of developments. In the meantime, while a ruling in Brinker could be delayed by this additional briefing, employers operating in California should not wait to adopt written policies advising employees of their meal and rest break rights under California law. Employers should also post a copy of the applicable California Industrial Welfare Commission Wage Order (for transportation providers, IWC Wage Order No. 9) in the same place they post other standard employment notices. Copies of Wage Order No. 9 and other wage orders can be obtained from the Firm. Questions regarding Brinker or California’s meal and rest break rules in general should be directed to Jim Hanson.
Jim Hanson of the firm argued on behalf of Penske that the Federal Aviation Administration Authorization Act preempted the application of California’s meal and rest break laws to Penske’s operations. When Congress enacted the FAAA Act in 1994, Congress found that State regulation of intrastate trucking imposes an unreasonable burden on interstate commerce and thus prohibited the States from enacting or enforcing laws “related to a price, route or service of” any property-carrying motor carriers. Penske demonstrated that complying with the strictures of California’s meal and rest break rules would have impermissibly forced its drivers to “take shorter or fewer routes” in order to ensure that the drivers had “adequate locations” to stop and take the mandated breaks. Penske also demonstrated that the impact of ensuring that every employee took the proscribed breaks at the time required by the statutes, “would require one or two less deliveries per day per driver.”
The Court agreed with Penske’s analysis and found that the FAAA Act preempted California’s meal and rest break laws. Specifically, the Court found that the “length and timing of meal and rest breaks . . . directly and significantly relate to . . . the frequency and scheduling of transportation” and that complying with California’s laws would limit the number of deliveries Penske drivers could make and the routes they could take to make those deliveries.
The Court rejected Plaintiffs’ argument that, because they were only seeking wages as a result of missed breaks, the meal and rest break laws were tantamount to wage laws that should not be preempted. In doing so, the Court noted that it is not the impact of the monetary award on Penske’s operations that preempts the statutes, but “[r]ather, the impact is derived from the imposition of substantive restrictions upon the breaks taken by [Penske’s] drivers and drivers’ helpers, which binds [Penske] to a set of routes, services, schedules, origins, and destinations that it would otherwise not be bound to.” This, the Court found, was the “kind of interference Congress sought to avoid with the preemption clause that specifically prohibits state regulation related to prices, routes, and service.”
Penske’s victory, which is the first of its kind declaring the California meal and rest break rules preempted as applied to motor carriers, should afford truckers operating in California critically important relief. While this unprecedented decision will almost certainly be appealed, we expect the Penske decision to be cited in courts throughout California as persuasive authority in support of the trucking industry’s position on this important issue. The case is Dilts, et al. v. Penske Logistics, LLC, et al., Case No. 08-CV-318 JLS.
Massachusetts Wage & Hour Law Prohibits Set-Offs against Wages Based on Unilateral Determination of Employee Fault
The new law requires notifications to be provided to employees in their native language at the time of hire and on or before February 1 of each year, and requires employers to obtain the employee's signature on the notification. Previously, the law required the notification to include only the rate of pay and regular paydays of the employer. The new law adds several additional requirements to the contents of the notification, including more detail on the basis of pay (e.g., whether the employee is paid on a salary, hourly, piece or commission basis, etc.) and employer specific information such as its address and phone number. Employers are required to retain these payroll records and the signed acknowledgment form for six years.
Under the Wage Theft Protection Act, in the event of a wage payment violation, an employer--which is defined broadly to include individual officers and agents of company--may be liable for up to twice the amount that was due as wages as well as other penalties and legal fees. The law also prohibits retaliation against employees who exercise their rights under the statute.
In a move that stands to affect motor carriers, the National Labor Relations Board (the “Board”), on December 22, 2010, published a Notice of Proposed Rulemaking (the “Notice”) in the Federal Register relating to employer obligations under the National Labor Relations Act (the “Act”). The Notice is the fulfillment of the Board’s recent promise to effect policy through rulemaking rather than by statute. The Board issued the proposed rule because the Board believes employees are unaware of their rights under the 75 year old Act.
Under the proposed rule, private-sector employers (including motor carriers but excluding airline and railroad employers) must post a notice of employee rights, including the right to:
- Organize a union to negotiate wages, hours, and other terms of employment.
- Form, join or assist a union.
- Bargain collectively through representatives of employees’ own choosing for a contract with the employer setting wages, benefits, hours, and other working conditions.
- Discuss terms of employment or union organizing with co-workers or a union.
- Take action with one or more co-workers to improve working conditions by, among other means, raising work-related complaints directly with the employer or with a government agency, and seeking help from a union.
- Strike and picket, depending on the purpose or means of the strike or the picketing.
- Choose not to do these activities, including joining or remaining a member of a union.
The notice of employee rights would also expressly inform employees that it is illegal for the employer to:
- Prohibit soliciting for a union during non-work time, such as before or after work or during break times; or from distributing union literature during non-work time, in non-work areas, such as parking lots or break rooms.
- Question employees about their union support or activities in a manner that discourages employees from engaging in that activity.
- Fire, demote, or transfer employees, or reduce hours, change shifts, or otherwise take adverse action, or threaten to take any of these actions, because employees join or support a union, or because employees engage in concerted activity for mutual aid and protection, or because employees choose not to engage in any such activity.
- Threaten to close the workplace if workers choose a union to represent them.
• Promise or grant promotions, pay raises, or other benefits to discourage or encourage union support.
- Prohibit employees from wearing union hats, buttons, t-shirts, and pins in the workplace except under special circumstances.
- Spy on or videotape peaceful union activities and gatherings or pretend to do so.
To the extent an employer’s workforce is mobile or remote, and the employer regularly communicates with employees electronically, the above notice must be communicated in the same way. Currently, only federal contractors are required to post a notice similar to the notice proposed by the Board. The Board has asked for comments on the proposed rule before the Board finalizes the rule, including comments on whether the Board has the power under the Act to create the proposed rule at all. Comments, however, must be submitted within 60 days.
The dispute centers on JetBlue's decision to charge a $2 fee for bag-checking service starting in 2006. The plaintiffs are nine skycaps, airport baggage handlers who are paid less than minimum wage — as little as $2.63 per hour — who worked at the JetBlue terminal in Boston.
The plaintiffs allege that the airline and FSS, the airport staffing agency, improperly took tip credit under the Fair Labor Standards Act to justify paying the skycaps less than minimum wage, since the skycaps are obligated to turn over the $2 fee regardless of whether they collected the charge from the customer, according to court documents.
But the group's attempt to certify a national class failed because the plaintiffs had not presented sufficient evidence that skycaps at other JetBlue airports were similarly situated, the judge said. The plaintiffs failed to present even one skycap who worked at a JetBlue terminal outside Boston and was affected by the check-in fee, according to the court's opinion.
A federal judge presiding over the FedEx Ground Package System Inc. (“FedEx”) multidistrict litigation (“MDL”) proceeding ruled this week that the class of Kansas drivers who originally filed an action against FedEx in a Kansas federal district court are independent contractors, not employees, under the Kansas Wage Payment Act, Kan. Stat. Ann. § 44-313 (the “Wage Act”). In re MDL-1700 FedEx Ground Package Sys. Inc., Employment Practices Litig., No. 3:05-MD-527 RM (MDL 1700) (N.D. Ind. Aug. 11, 2010). The MDL court’s 103-page decision is available here: FedEx MDL SJ Order 8 12 10. The ruling by Judge Robert L. Miller Jr. of the U.S. District Court for the Northern District of Indiana came in response to cross-motions for summary judgment on the issue of the employment status of FedEx’s Kansas drivers. The ruling does not end the FedEx MDL proceeding. Rather, the parties have been directed to file supplemental briefing explaining whether the employment classification issue should come out the same way in the other cases in which similar summary judgment motions regarding driver employment status are pending. Those briefs are due 30 days from date of the Court’s order. We will continue to follow the impact of this decision in the FedEx MDL and in the numerous other similar wage and hour cases filed by independent contractor drivers against transportation providers around the country.
DOL Interpretation: FMLA Leave for Child Care Requires No Legal or Biological Relationship With The Child
The U.S. Department of Labor recently issued an Administrator's Interpretation that expands employees’ entitlement to leave under the Family and Medical Leave Act (“FMLA”). The FMLA grants up to 12 weeks of job-protected unpaid leave per 12-month period to certain employees in companies that have 50 or more employees working within a 75-mile radius of the work site. Under Administrator’s Interpretation No. 2010-3, covered employees eligible for leave under the FMLA now include those employees who assume the role of caring for a child, even if no legal or biological relationship exists between the employee and the child.
The interpretation, made for the purpose of clarifying the term “son or daughter” under the FMLA, came after what the DOL called “several requests for additional guidance” to the Wage and Hour Division as to whether an employees without a biological or legal relationship with a child may take FMLA leave for birth, bonding, or to care for the child. In answering the question affirmatively, the DOL attempted to clarify the circumstances that should be considered when determining whether an employee stands in the position of a parent, otherwise known as “in loco parentis.” The interpretation makes clear that, for the purposes of the FMLA, even the existence of a biological parent in the child’s home will not prevent a finding that the child is still the son or daughter of an employee who has no biological or legal relationship with the child, if the employee intends to assume the responsibilities of a parent.
The DOL stated “It is the Administrator’s interpretation that the regulations do not require an employee who intends to assume the responsibilities of a parent to establish that he or she provides both day-to-day care and financial support in order to be found to stand in loco parentis to a child.” The full text of Administrator’s Interpretation No. 2010-3 is available at http://www.dol.gov/whd/opinion/adminIntrprtn/FMLA/2010/FMLAAI2010_3.htm.
On May 12, 2010, Wisconsin Governor Jim Doyle signed into law legislation concerning the misclassification of employees. Effective January 1, 2011, Senate Bill 672 requires the Department of Workforce Development ("DWD") to establish a system ensuring the proper classification of workers under unemployment insurance, worker’s compensation and labor standards laws. The Wisconsin bill is yet another example of the ever changing landscape of independent contractor/employee misclassification issues.
The DWD is charged with, among other things, educating employers, employees and the public about classification of employees and receiving and investigating complaints alleging misclassification. The bill further permits the DWD to require an employer to provide proof of maintaining proper employee records, including wage and hour information, and sufficient worker's compensation coverage for its employees. Failing to provide the requested information may result in the DWD serving a notice on the employer of the DWD's intent to issue an order requiring the employer to stop work at the locations specified in the notice. The employer will then have three business days to provide the requested information, and failure to do so may result in the issuance of an order requiring the employer to stop work at the location. The order is appealable.
- Ensuring that employers keep records that reflect the accurate status of each worker as an employee or non-employee and clarifying that employers violate the Fair Labor Standards Act when they misclassify workers.
- Increasing penalties on employers who misclassify their employees and are found to have violated employees' overtime or minimum wage rights.
- Requiring employers to notify workers of their classification as an employee or non-employee.
- Creating an "employee rights web site" to inform workers about their federal and state wage and hour rights.
- Providing protections to workers who are discriminated against because they have sought to be accurately classified.
The U.S. Department of Labor's Wage and Hour Division has announced a consent agreement with a trucking company for payment of more than $1.8 million in back wages for more than 500 employees, and a 3-year debarment from government contracts. The company, mail hauler MT Transportation & Logistics Services Inc. of Bay Shore, N.Y., and the company's officers were cited in an administrative complaint by the Wage and Hour Division for failing to pay their service employees the legally required hourly rates and fringe benefits. Contractors with the government--and those who service such contractors--should pay careful attention to the terms of the relevant contracts to ensure they are prepared to and do comply with any applicable wage and hour mandates including prevailing wage requirements.
The GAO’s recommendations for executive action included:
- increase DOL’s focus on misclassification of employees during targeted investigations
- encourage sharing of information regarding misclassification between the DOL’s wage and hour division and OSHA (also within the DOL), and that cases outside of DOL’s jurisdiction should be referred to the relevant agency
- establish a joint interagency effort between the DOL, IRS, and other federal and state agencies to address the misclassification of employees as independent contractors
- conduct worker outreach efforts, including the development of a standardized document on worker classification
- create an IRS forum to regularly collaborate with states to identify and address data sharing efforts relating to the QETP initiative
- extend the IRS Classification Settlement Program to include employers that volunteer to prospectively reclassify employees. Additionally, the report included discussion of limiting the “industry practice” prong of the reasonable basis test to establish Section 530 safe harbor.
Additional legislation relating to this report may yet be introduced in the 111th Congress.