Supreme Court Upholds DOL’s Right to Change FLSA Interpretation without Formal Notice-and-Comment Rulemaking

The United States Supreme Court recently unanimously held that the Administrative Procedure Act (APA) expressly exempts federal agencies, like the Department of Labor (DOL), from formal notice-and-comment rulemaking requirements when they make changes to interpretative rules.

In Perez v. Mortg. Bankers Ass’n, U.S. No. 13-1041, Mar. 9, 2015, the Court examined whether the DOL properly altered its interpretation of the administrative exemption to overtime pay under the Fair Labor Standards Act (FLSA) as applied to mortgage-loan officers. In 1999 and 2001, the DOL’s Wage and Hour Division issued letters opining that mortgage-loan officers did not qualify for the administrative exemption. After issuing new regulations regarding the exemption, the DOL issued an opinion letter in 2006 finding that the officers did fall within the exemption under the new regulations. However, in 2010, the Department altered its interpretation of the administrative exemption and once again concluded that mortgage-loan officers do not qualify for the administrative exemption. The DOL consequently withdrew the 2006 opinion letter without notice or an opportunity for comment.

Without discussing the merits of the underlying interpretation, the U.S. Supreme Court held that the DOL’s process of revising its 2006 interpretation without applying notice-and-comment procedures was proper. The Court explained that the APA specifically exempts interpretative rules from notice-and-comment requirements. As a result, an agency is not required to use notice-and-comment procedures to issue an interpretative rule, and is likewise not required to use those procedures to amend or repeal that rule.

The Court held that such a “straightforward reading” of the APA harmonizes with longstanding principles of administrative law jurisprudence that recognizes that a court lacks authority to impose upon an agency its own notion of which procedures are “best” or most likely to further public good. Rather, the responsibility to impose a notice-and-comment obligation on a federal agency when its changes its interpretation of one of the regulations it enforces, rests with Congress or the administrative agencies. Here, Congress adopted standards that permit agencies to promulgate freely such interpretative rules without such rulemaking requirements.

The Supreme Court further rejected any suggestion of procedural “unfairness” that could arise from an agency opting to issue an interpretative rule, rather than a legislative rule, in order to skirt notice-and-comment provisions. It noted that the APA contains constraints on agency decision-making. Moreover, the Court pointed out that, unlike legislative rules that are subject to the rulemaking procedures, interpretative rules do not have the force and effect of law.

As a result of this decision, we may see the DOL issue more interpretations of its own regulations through administrative interpretations. 

Emily Wilcheck


NLRB Issues New Complaints against McDonald’s as Potential Change in Joint-Employer Status Looms

The National Labor Relations Board has continued to bear down on McDonald’s, issuing 23 more charges and 6 complaints against the fast food giant. This comes on the heels of a similar December crackdown whereby the NLRB brought some 78 charges against both McDonald’s USA and individual McDonald’s franchises as joint-employers.

In regard to these charges, the NLRB stated, “Our investigation found that McDonald’s, USA, LLC, through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees' operations, beyond protection of the brand, to make it a putative joint employer with its franchisees.” Charges brought against McDonald’s include allegations of retaliatory conduct aimed at employees involved in union activity.

As a result of the NLRB’s actions, McDonald’s USA could see itself liable for any illegal practices by any of its 14,000-plus franchises. This approach is a departure from standard NLRB practices, and foreshadows a likely change in the definition of joint-employment. Such a change would likely trigger a wave of nationwide litigation. 

Marcus Pringle


Recent Tide of Class-Action Lawsuits Should Worry Employers Using Background Checks

A new wave of class-action lawsuits should concern any employer that regularly uses background checks in making employment decisions. These lawsuits allege violations of the Fair Credit Reporting Act (FCRA), the federal law that regulates the collection and use of consumer credit information. Many employers are unaware that FCRA also imposes obligations on employers that order background reports, including criminal and motor vehicle record checks, from a consumer reporting agency.

Before the employer may obtain a background report on an employee or job applicant, FCRA requires that the employer provide the individual with a written disclosure in a stand-alone document and obtain the individual’s written permission. Additional steps are required if the employer decides to take an adverse action (such as denial of employment) based on the report’s contents. Before taking the adverse action, the employer must provide the individual with a “pre-adverse action notice” and a summary of the individual’s rights under FCRA. The employer must then provide the individual with a reasonable period of time, generally five business days, to dispute the information in the background report. If the employer still decides to take the adverse action, FCRA requires the employer to send yet another notice.

Common claims by plaintiffs are that employers included extraneous information in their written disclosures, failed to provide a pre-adverse action notice, or failed to wait a reasonable time before taking an adverse action. FCRA allows plaintiffs to recover actual damages, including attorneys’ fees and costs. For willful violations, statuary damages (between $100 and $1,000) and punitive damages are also available. As a result, many of the class-action lawsuits have resulted in multi-million dollar settlements for the plaintiffs.

To mitigate the risk of a lawsuit, employers should review their policies and procedures for conducting background checks of employees and job applicants. We also advise a careful review of the notices and disclosures provided to employees to ensure these documents contain the specific information required by FCRA.

Nathan Pangrace


California Court Addresses Employee Status of Uber, Lyft Drivers

Two suits filed in a California federal court (Cotter v. Lyft, Case No. 13-4065, and O’Connor v. Uber, Case No. 13-3826, U.S. District Court, Northern District of California) will address whether drivers of the popular taxi-alternatives Uber and Lyft qualify as “employees.” If so, they would be entitled to compensation for expenses, which would include gas, maintenance, and cleaning of the vehicles. Currently, drivers for both companies must cover all incidental expenses out-of-pocket, which leaves Uber and Lyft drivers footing the bill for everything from oil changes to car washes.

On January 29, 2014, the federal court judge in the Lyft case stated that “people who do the kinds of things that Lyft drivers do here are employees,” strongly implying that the popular taxi alternative will be liable for added compensation to its drivers.

Drivers for the companies are subject to hiring and firing by their respective organizations, and are required to pass background checks and accept a certain number of rides, all factors that would be indicative of an employer-employee relationship. However, neither company appears to require control over where the drivers operate or what time they do so, factors that would tend to show independent contractor status.

The suit could have a wide-ranging impact nationally as both Uber and Lyft have exploded in popularity, with Uber alone valued at nearly $40 billion dollars. Look for similar lawsuits nationwide to erupt if an employment relationship is found to exist between drivers and their respective companies.

Marcus Pringle



House Passes Bill Redefining a Full-Time Employee Under the Affordable Care Act

On January 8, 2015, the U.S. House of Representatives passed a bill changing the definition of a full-time employee under the Affordable Care Act (ACA) from a person who works 30 hours per week to one who work 40 hours per week. This change is significant because the ACA requires businesses with 50 or more employees to offer health insurance to their full-time employees or pay a penalty. The 40-hour per week definition would bring the ACA in alignment with other state and federal laws, such as the Fair Labor Standards Act.

Proponents of the bill, called the Save American Workers Act, argue that the current 30-hour threshold pressures businesses to save money by either reducing employees’ hours to avoid mandatory insurance coverage or laying off employees altogether. The Obama administration strongly opposes the legislation on the grounds that it would reduce the number of Americans with health insurance coverage. Additionally, a recent report by the Congressional Budget Office concluded that the bill would add to the federal deficit by decreasing employer penalties for noncompliance with the ACA and increasing the number of persons receiving government-subsidized health insurance instead of employer-provided coverage.

The bill easily passed the House by a vote of 252-172, but it will face increased opposition in the Senate, where Republicans will need 60 votes to overcome a filibuster by Senate Democrats. Further, President Obama has threated to veto the bill if it passes.

The Save American Workers Act is the latest attempt by House Republicans to chip away at the Affordable Care Act. Since taking office earlier this year, the House has also passed legislation exempting emergency service volunteers and employees that receive insurance from the Veterans Administration from being counted towards the ACA’s 50-employee threshold.

Nathan Pangrace


White House Makes Big Push for Paid Family Leave

On Thursday, January 15, 2015, President Obama called on Congress to pass the Healthy Families Act.  If passed, the Healthy Families Act, as currently proposed, would require companies to give workers up to seven days of paid sick leave a year.  The proposed Act would apply to companies that have at least 15 employees.  Employees at those companies would earn one hour of paid sick leave for every 30 hours worked, up to 56 hours of paid sick time per year. 

Obama also announced that he will take executive action to give at least six weeks of paid leave to federal employees after the birth or adoption of a child.  Obama will grant the paid sick leave to federal employees of the executive branch through a presidential memorandum, a tool similar to an executive order used to direct federal agencies to implement a White House policy.  The program will work by advancing unearned sick time to employees, and will cost $250 million a year to implement.  The move is intended to encourage states and cities to implement similar paid sick leave policies. 

Obama’s actions capitalize on the recent trend of state and local governments to pass workplace regulations on matters like minimum wage and paid leave even as such measures languish in Congress.

In the November elections, ballot measures on sick leave passed in Massachusetts; Trenton and Montclair in New Jersey; and Oakland, California. There are now three states – Massachusetts, California and Connecticut – and 16 cities that offer some form of paid sick leave.  There are currently 43 million private-sector workers in the U.S. who do not have paid leave.

Obama believes that paid leave policies have an economic benefit for employers – that is, businesses with paid leave policies have greater productivity and higher corporate profits.  Critics argue that legislatively mandated leave policies will result in employers off-setting the cost through decreased wages and/or increased prices passed on to the consumer.



Three Ways to Ensure a Safe Start to 2015

With the changing of the calendar comes a new year and new challenges for businesses across the country. Following these three tips is a great way to ensure that 2015 gets off to a safe start for both you and your employees.

Review your OSHA requirements

January 1, 2015 is particularly important from an OSHA standpoint, as it marks the effective date of the new injury and fatality reporting requirements. Under the new rule, employers must report all work-related fatalities within eight hours of their occurrence. Employers must also report all work-related hospitalizations of one or more employees, eye losses, and amputations within 24 hours. It is worth noting that under the new rule, employers do not have to report a hospitalization if it is for diagnostic testing or observation only.

Update your employee handbook

An out-of-date employee handbook can open you up to a host of issues, from wrongful termination and harassment suits to drawing the ire of the National Labor Relations Board. Setting out the policies of your workplace in detail is absolutely vital to the smooth operation of a business and the avoidance of unnecessary litigation. It would be a prudent move to review, revise, and update your employee handbook regularly to better reflect both changes in the law and changes in your business.

Keep abreast of any wage law changes in your state

With a new year come changes to wage laws across the country. If you own a business in Arizona, Colorado, Florida, Missouri, Montana, New Jersey, Ohio, Oregon, or Washington, be advised that your minimum wage increased as of January 1, 2015. Many states implemented minimum wage changes midway through 2014 and into 2015. If you are in the hospitality industry, you should pay particular attention to any revisions related to tipped employee minimum wage, as changes to the standard minimum wage may differ from those for tipped employees.

Marcus Pringle