Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act now permits back-of house employees to participate in mandatory tip pools, provided no tip credit is taken against minimum wage.  The Consolidated Appropriations Act, 2018 budget bill effectively amends the FLSA to clarify two important points: back of house employees MAY participate in certain tip pools however supervisor/manager/owners MAY NOT participate in tip pools.

How does that affect employers doing business in California?

Labor Code section 351 permits mandatory tip pooling for an employee who provides “direct table service” or who is in the “chain of service.”  In 2009, the court in Etheridge v. Reins International California, Inc. (2009) 172 Cal.App.4th 908, 922 held that kitchen staff contribute to the “chain of service” and could receive tips under section 351.

In 2011, the DOL issued a regulation prohibiting back of house employees from participating in tip pools regardless of whether a tip credit was taken.  There was litigation over whether the DOL had authority to issue such a regulation, however the Ninth Circuit in Oregon Restaurant and Lodging Association v. Perez, 816 F.3d 1080 (9th Cir. 2016) held that the DOL acted within the scope of their power, effectively invalidating Etheridge and Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010).

Now that the DOL regulations have been reversed by the recently passed budget bill and FLSA amendment, it seems as though the holdings of Etheridge and Woody Woo are back, clearing the way for back of house employee inclusion in tip pools.

But, we are exercising caution before advising clients to change their tip pools.  Still pending is an appeal to the Supreme Court in the Oregon Restaurant and Lodging Association case as well as a still valid DLSE Opinion Letter from September 8, 2005 that does not include kitchen staff as part of the “chain of service.”  Making changes to your California tip pool at this juncture seems premature as we don’t want you to be the test case.

I am heading to Las Vegas for the annual Cornell HR in Hospitality Conference, from March 27-29th.  I am particularly excited for the session on Hospitality Included – One Year In, featuring my partner, Carolyn Richmond, who Co-Chairs our Hospitality Practice Group and practices in New York. Carolyn is also presenting on two wage-and-hour issues: The “Unconference”: FLSA Legal Think Tank and The New Wage and Hour Regulations.

Cornell HR in Hospitality Conference

I will be participating in the 8th Annual Cornell University Executive Summit on Wednesday, where I get to debate the most topical HR issues facing hospitality today with other employment law attorneys and top executives. Stay tuned for my annual top ten lessons learned from the Conference.

I hope to see you there!


Many employers have taken steps to comply with the US Department of Labor’s Final Overtime Rule that was set to take effect on December 1st. But yesterday, a District Court judge in Texas issued a temporary injunction barring the rules from taking effect nationwide. You can read our take on the issue here.

Copyright: rangizzz / 123RF Stock Photo
Copyright: rangizzz / 123RF Stock Photo

With briefs due next week, we anxiously await the California Supreme Court’s review of the de minimis doctrine.  Under the doctrine, employers are not obligated to pay employees for small increments of off-the-clock time spent preparing for or ending a shift, provided such time amounted to approximately 10 minutes or less of work.

12350701 - blue clock face, close upWhile we wait to hear the CA Supreme Court’s take on this, it’s worth noting that even under the FLSA, courts nationwide have had varied results on what constitutes non-compensable time under the de minimis doctrine. Many of the recent cases involve minimal time spent checking e-mails or texts that are work-related. And while courts employ a fact-specific analysis of employment policies and practices, the following factors will weigh against a finding that the time is de minimis:

  1. If the time is a regular and necessary component of the work day or work week;
  2. Employer compulsion to complete the tasks at issue; and
  3. If the time can be recorded easily for payroll purposes

My colleague Mark Tabakman spoke about this topic today and offered the following advice to employers:

  • Consider eliminating or limiting access to work-related email and systems for non-exempt workers during non-work hours
  • Develop a comprehensive policy requiring non-exempt employees to record their after-hours time with a clear process for reporting such time
  • Train managers on how and when to communicate with non-exempt staff after hours
  • Pay for after-hours work performed, while utilizing disciplinary measures if the after-hours work was unauthorized

Until we have more consistent application from the courts, this issue continues to be a ticking time bomb for employers.

The Department of Labor has proposed a rule to raise the minimum salary workers must earn to qualify for “white collar” exemptions from $23,660 per year to $50,440 per year. According to the announcement, the proposed rule would move nearly 5 million workers from exempt (i.e. salaried) to non-exempt status (i.e. hourly and overtime-eligible). In California, employers typically ignore the DOL overtime rules since the CA requirements are more demanding. If you comply with the state rules, you more than satisfy the federal requirements. Will this new rule change that?

The answer is an unequivocal “maybe.” CA is considering increasing the state minimum wage to $13 per hour effective July 1, 2017. The bill, SB 3, has passed the Senate and is being considered by the Assembly. If it passes and becomes law, the minimum salary for exempt status in California would increase to $54,080 (2 times the state minimum wage).

Copyright: bowie15 / 123RF Stock Photo
Copyright: bowie15 / 123RF Stock Photo

So if the DOL’s proposed rule takes effect before SB3, you could have a situation where employees meet the state exemptions test, but not the federal. If that happens, employees making less than $50,440 would be non-exempt, those making over $54,080 could be exempt, and those in between could be in a hybrid class where the state exemption applies and the federal does not. Employees in the last category would presumably be entitled to weekly, but not daily overtime and would not be entitled to meal and rest periods. What could be simpler?

UPDATE: SB 3 didn’t pass out of the State Assembly.

Employers have until October 1, 2013 to notify employees that health insurance coverage may be available through an exchange. Even though the exchanges are not yet fully operational, employers must provide a notice to each employee, regardless of whether they’re enrolled in a plan or are employed full-time. Employers must also give the notice to new hires.

Our colleague Keith McMurdy has prepared this summary of the requirements. You can also stay current on future developments by following his Employee Benefits Legal Blog.

Style: "Ektachrome"

While they’ve been engaging in the practice for years, California employers finally have a published appellate decision allowing them to round off workers’ time entries. According to See’s Candy Shops, Inc. v. Superior Court, filed October 29, 2012, the practice is allowed as long as the net effect doesn’t penalize employees.

Federal law permitted the practice under the Fair Labor Standards Act, but we’ve long known that complying with federal law isn’t enough for California employers (white-collar exemptions being one glaring example).

See’s used a Kronos timekeeping system that rounded employees’ time to the nearest 6-minute (or tenth of an hour) increment. An employee sued saying the practice unlawfully deprived him (and the class members he intended to represent) of wages earned.

The trial court was receptive to plaintiff’s argument, but the appellate court was not. According to the appellate court, as long as the “policy is neutral, both facially and as applied, the practice is proper.”

The decision is a huge relief for employers that don’t follow their workers around with a stopwatch to record every fraction of a second worked.