Articles Posted in Compensation, Wages and Overtime

Over the last few years, we have written about misclassification issues arising out of the use of unpaid interns to perform work.  A recent case from a New York State court has just made it more difficult for such interns to assert class action claims for unpaid wages.  In Rodriquez v. 5W Public Relations, (N.Y.S. Supreme Ct., N.Y. Cty, Index No. 156571/14, July 26, 2016), a putative class of individuals sought to recover unpaid wages from 5W Public Relations, LLC and its CEO for work they performed as unpaid interns.  In seeking class certification, the plaintiffs were required to show, among other things, that common questions of law or fact predominated over any questions affecting only individual plaintiffs.  Such a showing would be necessary to permit the plaintiffs to sue as a class, instead of individually.

The plaintiffs argued that common questions of law and fact predominated because all of the putative class members were required to agree to a universal employment agreement; performed similar work; were all subject to the identical employee handbook policies; and were all uniformly misclassified as interns not entitled to minimum wage.  The court denied the plaintiffs’ motion for class certification despite that the interns appeared to all be subject to the same policies and work, because, according to the court, “the question of whether defendants’ internship program created employment relationships [could] only be answered with individualized proof as opposed to generalized proof.”  In other words, although the interns were all part of the same internship program and subject to the same policies, their individual circumstances would need to be considered on the ultimate issue of whether or not they were really employees.  The court did not state the precise test it would ultimately  apply in determining whether the interns were really employees, but stated that any such test would balance a number of factors that took into account both the benefit of the work to the employer and the individual intern’s experiences.

The court provided the following non-exclusive list of factors that would be relevant in determining whether an intern was really an employee entitled to wages:

Today, the U.S. Department of Labor (USDOL) issued its Final Rule modifying overtime requirements under the Fair Labor Standards Act (“FLSA”).  The Final Rule makes material changes to the application of overtime exemptions, and will take effect on December 1, 2016.

In 2014, President Obama directed the Secretary of Labor to simplify and modernize the overtime rules to make them easier for employees and employers to understand and apply.  As we previously wrote, in July 2015 the USDOL issued its proposed rule changes to the “white collar” exemptions to overtime pay, which apply to Executive, Administrative, Professional, Outside Sales and Computer Employees.  The proposed rules addressed the salary basis test but not the duties test, both of which need to be satisfied in order for the exemption to apply.  The USDOL requested comments from the public on its proposed changes to the salary basis test and on whether the USDOL should consider changes to the duties test as well.

By the time the comment period ended on September 4, 2015, the USDOL had received approximately 270,000 comments on the proposed rules.  Among the concerns expressed was that the USDOL sought a substantial increase in the minimum salary threshold from $455 per week ($23,660 per year) to $970 per week ($50,440 per year), with automatic annual revisions/increases.

As the end of the year rapidly approaches, new statutes affecting employers and employees are set to become effective.  Among them is a New York City ordinance, titled “Mass Transit Benefits Law,” which requires every employer with twenty or more full-time employees in New York City to offer those full-time employees the option to use pre-tax earnings to purchase “qualified transportation fringe benefits,” except for qualified parking.   The law defines “full-time employees” as “employees who work an average of thirty hours or more per week for such employer for such period of time as the commissioner establishes by rule.”  Although final rules have not been published, the proposed rules provide that to qualify as a full-time employee, the employee must have worked an average of 30 hours or more per week in the most recent four weeks, any portion of which was in New York City, for a single employer.”

The law entitles only those employees who are eligible to receive “qualified transportation fringe benefits” under the Internal Revenue Code to be offered the option to purchase them.  Consequently, the ordinance does not require employers to offer such pre-tax transportation benefits to independent contractors, partners and two percent shareholders of S-corporations.  Should the Internal Revenue Code redefine the meaning of qualified transportation fringe benefits at some point in the future, that revision would  apply to the New York City ordinance also.

Temporary help firms are specifically addressed in the proposed regulations , because their employees are generally sent to work at various locations and employers.  According to the ordinance, a temporary help firm that provides a full-time employee to another organization will be the employer for purposes of complying with the statute, even if the organization/client does not have the requisite number of employees to fall within the statute’s coverage.  In determining hours worked each week by an individual employed by a temporary help firm, the employer is required to aggregate the number of hours worked by the employee in the most recent four weeks at all placements.

Section 193 of the New York Labor Law (NYLL) prohibits an employer from deducting amounts from an employee’s wages, except for amounts that are both for the benefit of the employee and are approved by the employee in writing.  In July 2012, we wrote about the narrow scope of permissible deductions under Section 193.  Such charges were generally limited to insurance premiums, pension contributions, union dues and similar payments.  As we wrote in our September 14, 2012 blog, New York Governor Signs Legislation Broadening Scope of Permissible Wage Deductions under New York Labor Law,  section 193 of the NYLL was amended to permit additional types of deductions to which an employee could consent.

Permissible charges under the 2012 amendments included (i) purchases at charitable events; (ii) discounted parking and mass transit charges; (iii) gym dues; (iv) employer-provided vending machine, cafeteria and pharmacy purchases; (v) tuition and boarding fees for educational institutions; (vi) some child-care expenses; and (vii) payments for certain types of housing provided by non-profit hospitals.

In addition, the 2012 amendments provided a mechanism through which employers could recover overpayments and loans to employees through wage deductions.  Prior to the 2012 amendments, employers were barred from recovering overpayments and loans through wage deductions completely, even if the employee consented to them.  The 2012 amendments still require employers to implement a policy and procedural mechanism to recover overpayments and loan payments, which comport with Section 193’s requirements.

Senator Jack Martins, Chairman of the New York State Senate Labor Committee, invited the New York State Restaurant Association to testify at a public hearing today regarding the Fast Food Wage Board process, which resulted in a proposal to gradually increase the minimum wage of fast food workers to $15/hour.  It is expected that the New York State Department of Labor will approve the Wage Board’s recommendations this week.

Among other things, the New York State Restaurant Association will testify that the Wage Board did not include proper representation from the food industry and that none of the Board members had any experience in the restaurant industry.  You can read the New York State Restaurant Association’s proposed testimony here.

This month, the U.S. Court of Appeals for the Second Circuit held in Cheeks v. Freeport Pancake House, Inc. that parties are not permitted to enter into private settlements of wage and hour claims arising under the Fair Labor Standards Act (FLSA) without obtaining approval from the court, if a lawsuit has already been filed, or the United States Department of Labor.

Most cases that are filed in court can be resolved by the mere filing of a stipulation of dismissal.  The Second Circuit, however, ruled that settlements involving FLSA claims must be first approved by either the court or Department of Labor to ensure that the settlement reflects a reasonable compromise of disputed claims.  A consequence of this decision is that proposed settlement agreements will need to be filed publicly with the court for review, meaning that the amounts being paid  will technically no longer be deemed confidential, which might take away one of the employer’s incentives for settling a wage and hour case early.

The United States Supreme Court has never addressed this issue, and the Second Circuit is the first circuit court to do so.  Wage and hour claims resolved under state law statutes are not subject to court or Department of Labor review, unless the state statute at issue requires.  The New York Minimum Wage Act and New York State Department of Labor Regulations do not require court or Department of Labor approval for wage and hour claims arising strictly under New York Law.

In a past blog we wrote about a case in which movie studio interns who worked on the movie, “Black Swan,” claimed that they were misclassified as interns and were really employees, who should have been paid at least the minimum wage and overtime pay for hours worked beyond 40 in a workweek.  On July 2, 2015, the United States Court of Appeals for the Second Circuit, which covers New York, Connecticut and Vermont, ruled that the lower court erred in finding that unpaid interns should have been deemed “employees” for purposes of coverage under the Fair Labor Standards Act (FLSA).  In so doing, the Second Circuit rejected the U.S. Department of Labor’s tests for determining this issue

In Glatt v. Fox Searchlight Pictures, the Second Circuit adopted a new standard for  determining whether an unpaid intern is really an employee entitled to minimum wage and overtime payments.  According to the Second Circuit, “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.”  In resolving this question, the Second Circuit held that courts should weigh and balance the following non-exhaustive list of 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.