Wage and Hour Update: Notable FLSA Developments in 2020

The Department of Labor (DOL) and courts across the country were busy in the first half of 2020 providing guidance and opinions addressing the Fair Labor Standards Act (FLSA). Here are some of the highlights:

• New fluctuating workweek (FWW) regulations: On May 20, 2020, the DOL issued a final rule amending the regulations governing the FWW method for calculating overtime under the FLSA. The FWW method permits an employer, under certain circumstances, to pay non-exempt employees half, as opposed to the usual one and one-half, of their regular rate of pay for hours worked in excess of 40 hours in a given workweek Prior to this most recent rule, an employer’s payment of amounts in addition to a fixed salary (such as bonuses, premium payments, commissions, or other similar supplemental payments) ran the risk of invalidating the employer’s reliance on the FWW method. The DOL’s new rule resolves this concern, expressly authorizing supplemental payments utilizing the FWW method, provided the payments are included in calculating the employee’s regular rate of pay for purposes of overtime. However, employers relying on the FWW method must still ensure the FLSA requirements are satisfied and the FWW approach is permitted under applicable state wage and hour law.
• DOL withdraws lists related to retail and service establishments: The FLSA permits retail or service establishments to exclude a commissioned employee from the overtime provisions of the FLSA if the employee earns at least 1.5 times the minimum wage for all hours worked and earns more than 50% of his or her compensation in the form of commissions. Retail and service establishments are defined to include businesses (1) with at least 75% of its annual dollar volume of sales of goods or services (or both) not for resale and recognized as retail sales or services in the particular industry and (2) with a “retail concept,” meaning the business “sells goods or services to the general public,” “serves the everyday needs of the community,” “is at the very end of the stream of distribution,” disposes its products and skills “in small quantities,” and “does not take part in the manufacturing process.” 29 C.F.R. § 779.318(a). Prior regulations contained two non-exhaustive lists of businesses that may qualify as retail and businesses that were not retail. These lists, originally drafted in the 1960s, had not been updated since the 1970s. In May 2020, the DOL withdrew these lists and expanded the scope of businesses that now may take advantage of this overtime exemption for eligible commissioned employees.
• Battles over arbitration and collective action notices continue: As we previously reported in our January edition of Labor and Employment Workforce Watch, courts across the country continue to grapple with the impact of arbitration agreements on FLSA collective action notices. Following the lead of the United States Court of Appeals for the Fifth Circuit, the Seventh Circuit Court of Appeals held in the case of Bigger v. Facebook, Inc., 947 F.3d 1043 (7th Cir. 2020) that individuals with binding arbitration agreements covering the scope of collective action litigation should not receive notice of the action. Nevertheless, district courts outside of the Seventh and Fifth Circuits continue to reach varying conclusions regarding whether to send notice in the face of a valid arbitration agreement, which will inevitably lead to further appellate decisions on this issue. Though the effectiveness of arbitration agreements to limit or avoid class or collective actions is now clear, a handful of recent cases from federal courts in California serve as a cautionary tale for employers. In Abernathy v. DoorDash Inc., 2020 WL 619785 (N.D. Cal. Feb. 10, 2020) and Adams v. Postmates, Inc., 2020 WL 1066980 (N.D. Cal. Mar. 5, 2020) the defendant employers were required to proceed with thousands of individual arbitrations costing millions of dollars in administrative fees, as opposed to a class or collective action in federal court. Employers considering arbitration programs should evaluate the relative risks and benefits of such a program, particularly in light of the Abernathy and Adams decisions.
• Fifth Circuit strikes a blow to employers relying on a day rate to satisfy the “salary basis” test: To rely on the so-called “white collar” exemptions to the FLSA, employers must generally establish that an employee was paid on a “salary basis” within the meaning of the FLSA. Under applicable regulations, “[a]n employee will be considered to be paid on a ‘salary basis’…if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.602(a). Such amount must exceed $684 per week. 29 C.F.R. § 541.600(a). The case of Hewitt v. Helix Energy Solutions Group, Inc., 956 F.3d 341 (5th Cir. 2020) addressed the issue of whether an employee paid a day rate in excess of the minimum guaranteed amount (now $684 per week) could satisfy the “salary basis” test. The Fifth Circuit previously issued (and withdrew) an opinion in Faludi v. U.S. Shale Solutions, L.L.C., 936 F.3d 215 (5th Cir. 2019), opinion withdrawn and superseded, 950 F.3d 269 (5th Cir. 2020) upholding an employer’s use of a day rate to satisfy the salary basis test. Nevertheless, in Hewitt, the Fifth Circuit held that an employee who is paid a daily rate, and not guaranteed a predetermined number of days of work, is not paid on a “salary basis” under the FLSA. The defendants in Hewitt filed a motion for rehearing en banc, with the Independent Petroleum Association of America, the Offshore Operators Committee, and the Texas Oil & Gas Association Inc. joining the request as amici curiae. The Fifth Circuit has yet to rule on the request for rehearing.

The second half of 2020 is bound to deliver further twists to an already complex web of state and federal wage and hour laws. Employers should stay abreast of those changes to avoid non-compliance.