Monday, November 27, 2017

The Supreme Court Denies Certiorari of Ninth Circuit Ruling that Mortgage Underwriters are Non-Exempt Employees

Today, the Supreme Court of the United States summarily denied certiorari to an appeal from a recent Ninth Circuit decision, McKeen-Chaplin v. Provident Savings Bank, 862 F.3d 847 (9th Cir. Jul. 5, 2017), which held that mortgage underwriters did not qualify as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA).

The Ninth Circuit’s ruling in McKeen-Chaplin, clarifies the legal analysis for evaluating whether an employer has met the second prong of the administrative-exemption test. The administrative-exemption test requires administrative employees to have as their primary duty “the performance of office or non-manual work related to the management or general operations of the employer or the employer’s customers.” 29 C.F.R. § 541.200. Notably, the Ninth Circuit utilized the “administrative / production dichotomy” to determine whether the employer met the second prong of the FLSA’s administrative exemption. Under the administrative / production dichotomy framework, “whether [an employee’s] primary duty goes to the heart of internal administration—rather than marketplace offerings” is the crucial test. Thus, if an employee’s duties focus on the core business of a company, e.g., an underwriter working on a bank’s mortgage products, then the employee is not administratively exempt, and is entitled to overtime. Bryan Schwartz Law previously blogged about McKeen-Chaplin here.

In arriving at its decision, the Ninth Circuit relied heavily upon reasoning in Davis. v. J.P. Morgan Chase & Co., 587 F.3d 529 (2nd Cir. 2009) cert. denied sub nom., a Second Circuit ruling which applied the administrative-production dichotomy to find mortgage loan underwriters were production employees. Bryan Schwartz Law previously blogged about Davis, here.

Employees who produce a company’s core products or services, as opposed to performing “work related to the management or general operations of the employer,” should not be denied overtime based on the FLSA’s administrative exemption.

If you believe your employer has incorrectly classified you as an exempt administrative employee and deprived you of overtime pay even though you produce the core goods or services of your employer, then please contact Bryan Schwartz Law.

Tuesday, November 7, 2017

Preliminary Injunction Against Trump’s Transgender Service Ban Shows How Federal Courts Are Our Last Line of Defense Against Discriminatory Executive Orders

The first 10 months of the Donald Trump Administration have been a sort of stress test for the resilience of the American constitutional system and the institutions charged with upholding it. We have seen an acting Attorney General resign rather than implement a plainly unconstitutional “Muslim ban,” and top Pentagon officials walk back Trump’s most belligerent threats of a nuclear attack against North Korea. But no institution has served a greater role in curbing the worst impulses of the Trump presidency than the federal courts, which have been repeatedly confronted with the Trump Administration’s cynical and authoritarian efforts to violate our core liberties and constitutional values: equal protection under the law, freedom of speech, and freedom of religion, to name a few.

In the most recent example, the U.S. District Court for the District of Columbia last week granted a preliminary injunction against the enforcement of President Trump’s Memorandum, which sought to ban all transgender individuals from serving in the U.S. military, effective March 2018. Under the Obama Administration, the Department of Defense went through a lengthy deliberation process and announced in June 2016 that transgender Americans could serve openly in the U.S. military, and that transgender recruits would no longer be turned away. The effect of the District Court’s Order is to preserve that status quo, such that current transgender troops will not be discharged in March and transgender recruits may join the military as soon as January.

In a detailed opinion, the Court determined that the Plaintiffs – current and aspiring transgender service members – were likely to succeed on their Fifth Amendment equal protection claims. The Court first determined that the Memorandum’s effect of disfavoring a class of historically persecuted individuals warranted heightened scrutiny. Then the Court concluded that the government could not meet such a standard, noting the unusual circumstances surrounding the announcement of the ban (i.e., it was announced via a series of Presidential tweets), the lack of factual support for the reasons proffered in favor of the ban, and the fact that the military itself had recently rejected those same reasons. The guiding principle in rejecting the ban is that “the Constitution’s guarantee of equality must at the very least mean that a bare desire to harm a politically unpopular group cannot justify disparate treatment of that group.” This principle has been applied to protect maligned groups from “hippies” (U.S. Dep’t of Agriculture v. Moreno) to the mentally disabled (City of Cleburne v. Cleburne Living Center) to lesbians and gays (Romer v. Evans, Lawrence v.Texas, and U.S. v. Windsor). In short, Trump cannot prevent trans soldiers from serving their country simply because he, and his base, do not like trans people.

The courts have so far risen to the task of protecting these and other fundamental rights – blocking policies fueled by nothing more than bare hatred of Muslims, or immigrants, or LGBTQ individuals, among others. This was no guarantee: throughout their history, the federal courts, up to the Supreme Court, have repeatedly endorsed discrimination against unpopular groups, bowing to popular will or their own private bias in upholding Jim Crow laws (Plessy v. Ferguson), Japanese internment (Korematsu v. U.S.), and sodomy bans (Bowers v. Hardwick). The Supreme Court has sometimes later reversed course: rejecting “separate but equal” in Brown v. Board of Education, and recognizing a right to same-sex consensual sexual intimacy in Lawrence v. Texas. This history reminds us that we cannot take the courts for granted, or assume that they will consistently protect society’s most vulnerable.

So far, Trump has been his own worst enemy in the series of judicial challenges to his discriminatory executive orders. Courts had little trouble finding that the Muslim ban was fueled by discriminatory animus given Trump’s extensive campaign rhetoric and tweets indicating a desire to harm Muslims by virtue of their faith. In rejecting the transgender service ban, the Court determined that Trump’s sudden announcement of the ban via Twitter tended to support that it was motivated by a desire to harm a politically unpopular group (at least among his own base) than any rational policy objective.

Beyond Trump’s inability to keep his mouth shut or his fingers away from his cell phone, his policies have also failed as a result of his Administration’s resistance to established procedures and its shoddy lawyering. For instance, in reference to the transgender service ban, the Court noted that it “by no means suggests that it was not within the President’s authority to order that additional studies be undertaken and that this policy be reevaluated. If the President had done so and then decided that banning all transgender individuals from serving in the military was beneficial to the various military objectives cited, this would be a different case.”

Although it seems unlikely that Trump will suddenly exhibit the discipline required by his office,  the extent to which courts have relied on the Administration’s missteps to overturn discriminatory policies suggests that we cannot simply assume courts will continue to do so, should Trump demonstrate a modicum of self-control. Further studies would be unlikely to support the President’s overblown, discriminatory rhetoric, so a transgender ban (for example) would be unlikely to succeed, all things being fair and equal, even if championed by a more competent administration – but only if people of conscience, including attorneys, continue to fight vigorously for America’s constitutional and statutory guarantees.

Moreover, while the federal courts have been preventing the worst of Trump’s abuses from coming to fruition, the Trump Administration has been working at a breakneck pace to fill the large number of judicial vacancies (more than 150) that remained unfilled at the end of the Obama presidency. Filling these vacancies with opponents of basic civil rights for LGBTQ individuals has been one of the few “successes” of the Trump presidency. Among the 50 or candidates Trump has nominated to lifetime federal judicial appointments include Jeff Mateer, who in 2015 referred to transgender children as proof of “Satan’s plan.” Another, John K. Bush (who has already been confirmed to a seat on the Sixth Circuit), had a previous side career as a right-wing blogger who derided LGBTQ individuals and promoted conspiracy theories about President Obama’s citizenship.

Thus, although the courts have largely risen to the extraordinary challenges posed by Trump’s discriminatory policies, that job will become increasingly difficult as Trump’s own judges come to represent a significant portion of the federal bench. If we expect the courts to keep up, we must remain vigilant and strenuously oppose those of Trump’s judicial appointees who will rubber-stamp the unfit President’s agenda. 

Thursday, October 19, 2017

New California Laws Expand Parental Leave to Small Employers and Prohibit Questions About Salary History

Last week, Governor Brown signed two bills into law aimed at protecting California families and curtailing gender discrimination. The first, SB 63, expands parental leave for millions of Californians who work for employers with 20 to 49 employees. The second, AB 168, prohibits employers in California from asking job applicants about their prior salary history.

SB 63: New Parent Leave Act

Prior to the enactment of SB 63 (also known as the New Parent Leave Act), the California Family Rights Act (“CFRA”) guaranteed new parents up to 12 weeks of unpaid, job-protected leave to bond with a new child, but only if their employer counted 50 or more employees within a 75-mile radius. SB 63 ensures that workers for employers with at least 20 employees in a 75-mile radius also get 12 weeks of unpaid leave, so long as the worker has been with the employer at least 12 months and has at least 1,250 hours of service during that period.

The leave requirements apply equally to births, adoptions, and foster care placements. Under SB 63, employers are also prohibited from discriminating or retaliating against employees for exercising their right to parental leave.

SB 63 also includes a mediation provision, which permits the employer to compel mediation of any civil action arising under the Act and prevents the employee from filing suit until mediation is completed (the statute of limitations is tolled during the pendency of mediation). Governor Brown declined to sign a similar version of the bill last year because it did not include mediation. The mediation provision is a two-year pilot program, which is set to expire on January 1, 2020.

SB 63’s sponsor, Senator Hannah-Beth Jackson of Santa Barbara, estimated that the bill would expand parental leave protections to 2.7 million parents in California, who were left unprotected by CFRA. The reasons for guaranteeing parents a bare minimum of twelve weeks leave to bond with a new child do not require much explanation. Substantial scientific research indicates that increased bonding time between parents and a new baby creates significant benefits in both the short term – such as reduced infant mortality – and long term – such as positive impacts on brain development.

AB 168: Use of Salary History Prohibited

AB 168 follows in the footsteps of an ordinance passed in San Francisco this past summer (as well as similar measures in New York City, Philadelphia, Delaware, Massachusetts, and Oregon) and aims to combat pay discrimination. The law is based on substantial research indicating that an employer’s reliance on prior salary history to determine compensation has the effect of perpetuating gender-based pay disparities. For instance, a 2013 study by the American Association of University Women concluded that women are paid 6.6% less than men in their first jobs, which could not be explained by factors other than gender. This wage gap only perpetuates and expands over a female worker’s career when a primary determinant of her salary is what she has earned in the past.

Specifically, AB 168 prohibits private and public employers from asking all applicants about their salary history and from relying on salary history to determine what salary to offer the applicant. Employers must also provide applicants with the pay scale for a position, upon request. However, if the applicant voluntarily discloses prior salary history, the employer may rely on that information to determine the applicant’s salary.

The measure complements California’s Fair Pay Act, which was recently amended to prohibit employers from maintaining pay secrecy policies, which have also been shown to perpetuate the gender wage gap.

Both SB 63 and AB 168 go into effect January 1, 2018. If you are an employee in California and you believe that your rights have been violated with respect to parental leave or questions about salary history, please contact Bryan Schwartz Law.

Wednesday, October 11, 2017

California Court of Appeal Holds Employees Not Required to Prove Injury or Intent in a PAGA Representative Lawsuit for Employer’s Itemized Wage Statement Violations.

A wage statement allows an employee to determine whether her employer has correctly compensated her for her labor, or whether she has been short-changed. California Labor Code section 226(a) seeks to ensure that employees receive accurate wage statements by requiring employers to provide timely, itemized wage statements to their employees. In addition to being timely, wage statements generally must include the following nine categories of information: 
  1. gross wages earned; 
  2. total hours worked (with exceptions); 
  3. the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis; 
  4. all deductions from pay; 
  5. net wages earned; 
  6. the dates of the pay period; 
  7. the name of the employee and only the last four digits of her social security number or an employee identification number; 
  8. the name and address of the legal entity that is the employer (with additional information required for farm labor contractors); and 
  9. all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee (with additional information required for temporary service employers). 
California Labor Code sections 226(e) and 226.3 provide
hefty penalties for wage statement violations.
California has empowered both individuals and the government to bring legal claims for violations of Section 226(a). Because wage statements are critical for determining whether an employee receives fair and adequate pay, California’s statutes provide steep penalties for wage statement violations. 
Individuals have a private right of action for statutory damages under Labor Code section 226(e). Under Section 226(e), individuals may seek statutory damages (sometimes called statutory penalties) if they have suffered an “injury” as a result of their employer’s “knowing and intentional” failure to comply with Section 226(a). An employee who proves she was injured by the knowing and intentional acts of her employer may recover the greater of her actual damages or fifty dollars ($50) for the initial pay period and one-hundred dollars ($100) for each subsequent pay period during which a violation occurs, not to exceed an aggregate penalty of four-thousand dollars ($4,000). Cal. Lab. Code § 226(e).

The state may pursue civil penalties under Labor Code section 226.3, and individuals are empowered to sue for these civil penalties as representative plaintiffs on behalf of the government, pursuant to the Private Attorneys General Act of 2004 (PAGA). If the government’s Labor Workforce Development Agency (LWDA) or a PAGA plaintiff proves the employer violated Section 226(a), the Court may award civil penalties in the amount of two-hundred-and-fifty dollars ($250) for the initial pay period and one-thousand dollars ($1,000) for each subsequent pay period during which a violation occurs. Typically, an employer must have some prior notice of its wrongful practice before the higher, subsequent-violation penalty is imposed. See Amaral v. Cintas Corp. No. 2, 163 Cal. App. 4th 1157, 1209 (2008). 

In a recent decision from California’s First District Court of Appeal, Lopez v. Friant & Associates, LLC, -- Cal.Rptr.3d --, 2017 WL 4251126 (Cal. Ct. App. Sept. 26, 2017), the Court clarified that a PAGA representative plaintiff seeking civil penalties under Section 226.3 must only prove the violation of the requirements in Section 226(a) in order to succeed in his claims. In Lopez, the plaintiff brought a PAGA-only action seeking civil penalties for his employer’s failure to include the last four digits of employees’ social security or employee identification number on 5,776 itemized wage statements, in violation of Section 226(a)(7). Id. at *2. The trial court granted defendant’s motion for summary judgment, concluding that a PAGA plaintiff must show evidence of not only a violation of section 226(a) but also the employer’s “knowing and intentional” violation. Id. at *3. The PAGA plaintiff appealed arguing that he was not required to show either (1) a “knowing and intentional” violation or (2) “injury” within the meaning of section 226(e) to prevail on his PAGA claim. Id. The Court of Appeal looked to the plain language and legislative history of the statute and PAGA, and concluded that the PAGA plaintiff was correct on both positions. Id. **3-9. This ruling knocks out a major defense tactic for employers seeking to overcome claims of itemized wage statement violations in PAGA actions – namely, the notion that the PAGA plaintiff has failed to meet the proof requirements of Section 226(e) – and affirms the robust remedies available for wage statement violations under PAGA.

Statutory penalties under California Labor Code section 226(e) and civil penalties under section 226.3 for PAGA violations have a one-year statute of limitations.

If you believe your employer is failing to provide you with timely and accurate wage statements, contact Bryan Schwartz Law. 

Friday, October 6, 2017

The United States Supreme Court Hears Oral Argument on Individual Arbitration Agreements in Employment Contracts in Epic Systems Corp. v. Lewis and Consolidated Cases

On Monday, the Supreme Court of the United States heard oral argument in one of the most important employment cases in recent history. In Epic Systems Corp. v. Lewis, and consolidated cases, Ernst & Young LLP v. Morris, and N.L.R.B. v. Murphy Oil, Inc., petitioners asked the Court to address whether employees can join together to sue their employer for labor violations, or whether employers may enforce individual arbitration agreements. Transcript available here. Bryan Schwartz Law has previously blogged about the Morris, Lewis, and Murphy Oil cases here, here, and here. Based on the questioning at oral argument, the conservative justices of the Roberts Court appear poised to deliver a victory to big business at the expense of employees.


Whether individual arbitration clauses in employment agreements are enforceable will depend on the Court’s interpretation of two federal laws, the Federal Arbitration Act of 1925 (FAA) and the National Labor Relations Act of 1935 (NLRA).

The FAA provides that arbitration agreements “shall be valid,” except, according to a savings clause, “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Arbitration agreements require parties to resolve legal disputes in front of a private arbitrator rather than in a court of law. Employers frequently seek to condition employment on a worker’s agreement to forego class-wide relief if a dispute arises, and instead pursue their claims in individual arbitrations.

Section 7 of the NLRA prohibits employers from interfering with employees’ right to engage in “concerted activities” for their “mutual aid or protection.” 29 U.S.C. § 157. Class actions have long been considered a concerted activity, which permit large numbers of employees who share common disputes with large employers to band together to pursue relief they would otherwise have foregone due to fear of being singled out for retaliation, or because the cost of hiring an attorney for their individual case would dwarf the amount of their individual wage claims. Agreements to arbitrate individually are in tension with the NLRA’s right to “concerted” activity.

During the years John Roberts has served as Chief Justice, the Supreme Court has consistently stretched the FAA to favor big business, and disfavor class actions.[1] In 2011 and 2013, the Supreme Court held that the FAA allows companies to use fine-print arbitration clauses to force consumer and merchant disputes to be arbitrated on an individual basis. See AT&T v. Concepcion, 563 U.S. 333 (2011) (Scalia, J.); American Express v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013) (Scalia, J.). Bryan Schwartz Law previously blogged about Concepcion and Italian Colors here and here. These rulings effectively bar claims by millions of individuals who have each suffered a relatively small injury by a corporation, by baring them from using the class action mechanism.

Unlike consumers or merchants, federal law specifically recognizes a worker’s right under the NLRA to engage in “concerted activity” against employers. In Lewis v. Epic Systems Corp., and Morris v. Ernst & Young LLP, the Seventh and Ninth Circuit Courts of Appeal recognized “concerted activity” as a substantive federal right which would render individual arbitration clauses unenforceable against employees under the FAA’s savings clause. The employers appealed.

In Epic Systems Corp. v. Lewis, and the consolidated cases, petitioners asked the Court to determine whether the FAA gives an employer the freedom to condition employment on an employee’s agreement to proceed individually in arbitration. Put another way, the issue was whether the NLRA gives workers a chance at a more level playing field, by protecting  employees from their employer’s attempts to restrain their ability to act jointly to vindicate rights in an arbitral or other forum.

Oral Argument

Questioning from conservative Justices Roberts and Alito suggests they will back the employers’ arguments that the right to “concerted activity” ends at the courthouse or arbitral forum’s doors. These justices seem satisfied to interpret the FAA to permit companies to use forced individual arbitration to bar workers from coming together in a concerted or joint legal action against their employer. (See Transcript, pp. 5, 34-36, 41-44). They appear inclined to subordinate the purpose of the NLRA to the FAA’s mandate to honor arbitration agreements absent some very specific Congressional command. (See Transcript p. 4). Justice Thomas and the Supreme Court’s newest addition, Justice Gorsuch, were silent throughout the argument, but can be expected to vote with the vocal conservative Justices.

Justice Kennedy seems poised to contort the language of the NLRA to the benefit of employers, too. In the first question of the day, Justice Kennedy suggested the meaning of “concerted action” under the NLRA may somehow exclude class actions. (Transcript p. 5. Justice Kennedy raised a hypothetical of two employees seeking to arbitrate their wage claims. (Transcript pp. 15-16). He implied that employees’ concerted activity rights could be satisfied if each employee hired the same attorney for individual representation – though the whole point of class action is the efficiency of not having countless individual actions seeking the same relief. Justice Kennedy showed no apparent concern for workers’ potential confidentiality concerns, or conflicts of interest that can arise in separate individual representation of numerous employees against a single employer. (Transcript pp. 37). Justice Kennedy suggested, that “many of the advantages of concerted action can be obtained by going to the same attorney” (Transcript p. 39), but this is absurd: corporations and everyone else know that most workers will never step forward individually to prosecute their claims. Companies don’t want to arbitrate at all – they want to eliminate legal challenges by workers, and know the Supreme Court has gifted them a sledgehammer for doing so, with the creative distortion of the FAA to ban group litigation.

Even before Concepcion, Justice Kennedy has been willing to twist the plain language of the FAA to the benefit of employers. In Circuit City Stores, Inc. v. Adams, 532 U.S. 105, he interpreted the FAA to apply to all employment contracts, except for interstate transportation workers, despite the fact that the plain language of the FAA suggests the Act excludes all employees working in interstate commerce. 9 U.S.C. § 1 (“nothing herein contained shall apply to contracts of employment of seamen, or railroad employees, or any other class of workers engaged in foreign or interstate commerce.”) (emph. added).

To the Court’s progressive wing, the resolution of these issues could not be clearer – the NLRA is a Congressional command that falls within the FAA’s express savings clause, and the NLRA prevents employer restraints on employees’ concerted action, including joint efforts to seek labor law remedies.  

Justice Breyer made his view clear that the NLRA requires invalidation of forced individual arbitration agreements in employment contracts, because, under the NLRA, “what the employer cannot stop is joint effort” including bringing legal claims in a class or collective action. (Transcript, pp. 56-57). Enforcing individual arbitration agreements would gut a foundation of labor law that represents “the entire heart of the New Deal.” (Transcript, pp. 7-8).

Justice Ginsberg described as the “driving force” of the NLRA the recognition of an “imbalance” in bargaining power between employers and employees, and explained that the protection of employees’ “concerted activity” was meant to correct that imbalance. (Transcript, pp. 5-6). A worker with small monetary damages can thereby join with other workers sharing similar claims in order to bring a larger claim to recover their damages jointly. (Transcript, pp. 21).

Justice Kagan pointed to the Supreme Court’s prior precedent, federal statutes, and the Constitution in support of the progressive wing’s straightforward position. The Supreme Court in Eastex v. N.L.R.B., 437 U.S. 556, 565-566, 566 n. 15 (1978) recognized that the NLRA protects employees from retaliation by their employers when they resort to “administrative and judicial forums” for their mutual aid and protection. (Transcript, pp. 6-7). Sections 102 and 103 of the Norris-LaGuardia Act of 1932, upon which the NLRA was modeled, state that any contract that prevents concerted activities of workers for their mutual aid and protection “shall not be enforceable in any court.” (Transcript, pp. 18). Once such a basic right has been articulated, as in, e.g., the First Amendment right to free speech, its broad protection may not be easily narrowed in its exercise. (Transcript, pp. 66).  

To Justice Sotomayor, the NLRA is a federal law that invalidates contracts that constrain concerted activity, making forced individual arbitration clauses illegal and unenforceable, in much the same way that “state law concepts like fraud[ and] duress,” invalidate contracts. (Transcript pp. 13-14).

No Proportional Check on Corporate Wrongdoing

The conservative justices of the Roberts Court appear determined to interpret the FAA based on its text, or as Congress intended, but rather by any means available to protect large corporations against consumers, small businesses, and now employees. Berkeley Law’s Dean, and the famed constitutional law scholar Erwin Chemerinsky, has observed that to effectively protect their rights employees need a proportional response to violations by large corporations:

With the rise of the large corporation in the early twentieth century, courts and legislatures developed class actions as a procedural device to protect individuals from the harms of exploitation by large entities. Courts and legislatures realized that large entities have incentives to engage in widespread but small violations of the law, because corporations know that people cannot afford to sue over a small violation of the law. When individual litigation is not economically rational, the threat of litigation is not an effective deterrent to illegal behavior. Absent a robust government bureaucracy dedicated to enforcing consumer- or employee- protection laws, class actions are an essential aspect of law enforcement. And even the most aggressive enforcement agency cannot deal with even a significant fraction of law violations. Litigation is essential for deterring wrongdoing and class actions suits are necessary when a large number of people suffer a relatively small injury.[2]

If the Supreme Court proceeds as expected, based on Monday’s oral argument, millions of workers will lose an effective means to remedy many violations of their rights. More and more employees will be forced to enter into individual arbitration agreements and face their employers alone.

[1] Jessica Silver-Greenberg & Robert Gebeloff, “Arbitration Everywhere, Stacking the Deck of Justice,” N.Y. Times, Oct. 31, 2015.
[2] Erwin Chemerinsky, The Case Against the Supreme Court, § II.5 (2014).

Monday, October 2, 2017

Appellate Court Hits Tipped Workers

On September 6, 2017, the Ninth Circuit in Marsh v. J. Alexander’s LLC, No. 15-15791 (9th Cir. 2017) dealt a blow to tipped workers. The Court rejected U.S. Department of Labor (DOL) regulatory guidance that would have strengthened tipped workers’ claims to full minimum wage for the hours spent working outside the scope of tipped work. Currently, unlike California law (which rejects such a notion), the federal Fair Labor Standards Act (FLSA) allows employers to reduce a tipped worker’s wages based on what that worker earns in tips, thereby passing the payment of wages to the customer. This wage reduction for employers is called a “tip-credit.” The DOL’s interpretation of this provision would have made it so that the tip-credit would not apply to the hours an employee spent doing non-tipped work. In other words, when a waiter spends time cleaning, taking out trash, folding napkins and other non-tipped work, the DOL interpretation would have considered this type of work a “dual job,” separate from the employee’s tipped work, for which the worker is entitled to receive full minimum wage. The Ninth Circuit disagreed with the DOL’s interpretation, a decision further disempowering low-wage workers.

Tip-credit Explained
The FLSA generally requires employers to pay a cash wage of $7.25 per hour to their employees. 29 U.S.C. § 206(a)(1)(c). But where an “employee engage[s] in an occupation in which he customarily and regularly receives more than $30 a month in tips,” id. § 203(t), his or her employer may pay a reduced cash wage and claim the employee’s tips as a credit towards the $7.25 per hour minimum, id. § 203(m).

As part of the DOL’s clarification of the statutory phrase “more than $30 a month in tips,” the DOL promulgated the “dual jobs” regulation, which maintains that an employee can be “employed in a dual job.”. 29 C.F.R. § 531.56(e). The regulation provides that if the employee is engaged in one occupation in which “he customarily and regularly receives at least $30 a month in tips,” and is also engaged in a second occupation in which the employee does not receive the required amount of tips, then the employer can take a tip credit only for the first occupation. Id. To further clarify enforcement, the DOL provided guidelines in its Field Operations Handbook (“FOH”), of 29 C.F.R. 531.56(e) to interpret the regulation.

The FOH provides that “an employer may not take a tip credit for the time that a tipped employee spends on work that is not related to the tipped occupation.” FOH § 30d00(f) (2016). For example, the FOH states that “maintenance work (e.g., cleaning bathrooms and washing windows) are not related to the tipped occupation of a server; such jobs are nontipped occupations.” Id. As such, the FOH would support the conclusion that the employee is effectively employed in “dual jobs.” The Ninth Circuit, however, takes issue with this interpretation.

The Ninth Circuit points out that the DOL regulation itself provides two examples of situations where an employee is not employed in dual jobs: (1) “a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses”; and (2) a “counterman who also prepares his own short orders or who, as part of a group of countermen, takes a turn as a short order cook for the group.” 29 C.F.R. § 531.56(e). These examples appear to come at odds with the FOH, especially applied to the facts in Marsh.

Marsh Challenge to Tip Credit Application to Non-Tipped Work
In Marsh, plaintiffs argued in reliance on the DOL guidance that certain job-related duties that were not tipped work should be excluded from the FLSA tip credit, and plaintiffs should be paid the minimum wage for the time engaged in these distinct duties. Marsh, No. 15-15791 at 15. Plaintiffs contended that the defendant employer should pay its servers minimum wage – without a reduction for tips - when the servers engaged in duties such as stocking food, taking out trash, sweeping floors, wiping down tables and walls, or other tasks that require no customer interaction. Id.

The Ninth Circuit court disagreed and held that the FOH was not entitled to deference because the “dual jobs” regulation is unambiguous. See Auer v. Robbins, 519 U.S. 452, 462 (1997) (holding that courts should consider agency guidance in cases where the regulation is ambiguous); see also Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 208 (2011). Looking back to the FLSA and the “dual jobs” regulation, the court determined that the dual jobs regulation interprets § 203(t)’s reference to employees “engaged in an occupation” to mean employed in a “job,” not performing an activity. See 29 C.F.R. § 531.56(e) (emphasis added). Furthermore, citing Abramski v. United States (2014), the Court wrote that “nothing in the FLSA’s ‘context, structure, history, [or] purpose’ suggests that Congress intended to use the term ‘occupation’ in § 203(t) to mean discrete duties performed over the course of the day.” Abramski v. United States, 134 S. Ct. 2259, 2267 (2014). Based on the regulation, the Ninth Circuit determined that plaintiffs could not state a claim by alleging that their discrete tasks or duties comprised a dual job.

The Future for Tipped Workers
Marsh illustrates the continuing controversy around the tip-credit provision, including its discriminatory effects and how it continues to push costs of labor onto the consumer. In its interpretation of the tip credit, the Marsh Court limits the ability of the minimum wage to protect the well-being of low-wage service workers, perpetuating a system that has grown the ranks of the working poor. For employees living hand-to-mouth, being paid at least the minimum wage may be the difference between making rent and eviction, eating and starving, providing for children or having them under the care of the state.

Monday, September 11, 2017

Vocational Students Deserve Better

I have been litigating several cases against cosmetology schools which unfairly take advantage of their students to perform unpaid, extensive, revenue-generating work for the schools, peddling branded products, performing services on paying clients, and also, being assigned extensive menial labor in the school salons. These school salons sell cheap haircuts and other cosmetology services to the public, in unfair competition with other low-cost salons - which have to pay their workers' wages. We have sought recovery of the cosmetology students' minimum wages under federal and California law.

After a series of losses in similar cases across the country - and not just in my cases - I went to the Ninth Circuit this morning for what could be our last shot at some justice. The experience reminded me of Jimmy Stewart in Mr. Smith Goes to Washington - except without Clarissa Smith screaming from the audience to try to redeem me -

Here's how I wish I would have concluded my oral argument - I didn't have the time or opportunity to say it:

As I walked to the courthouse early this morning, south of Market Street in San Francisco, I was struck as I have been before by how many people here in the cradle of our tech civilization are left behind, living in poverty on the streets. I don't know each person's story - but how many worked hard, only to be left without wages, without real training, and deep in debt, like the Plaintiffs here? There is so much despair in this tech economy, leaving people behind, that it is shaping elections, moving world events in a dangerous, hopelessness-and-anger-driven direction. Because if you cannot go to school, work hard, and get paid a basic living wage to cover your bills, then the American dream is lost, and our hope is gone.

The federal Fair Labor Standards Act was not designed with a hole in the minimum wage big enough to drive an entire business model through. It was designed, as this Court has said before, to protect "employees" in the broadest sense ever included in any one Act - to provide protection to anyone suffered or permitted to work. If cleaning floors and mirrors, taking out trash, answering phones, selling shampoo and haircuts - are not compensable work - then what is?

The Ninth Circuit has been a bulwark against oppression and injustice before, even in recent days. Let it be so again today.