Wage and Hour Issue Articles

Effective October 1, 2021, Connecticut employers will be required to inform applicants of the wage range of the job applied for upon the applicant’s request, or prior to, or at the time the applicant is made an offer of compensation, whichever is earlier. In addition, employers must provide similar information to current employees regarding the employee’s position upon hire, a change in position within the company, or the employee’s first request for the information. A copy of the law can be found here.

“Wage” is defined as compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission, or other basis. “Wage range” means the range of wages an employer anticipates relying on when setting wages for a position, and may include reference to any applicable pay scale, previously determined range of wages for the position, actual range of wages for those employees currently holding comparable positions, or the employer’s budgeted amount for the position.

The current law banning employers from prohibiting employees from disclosing their wages, or inquiring about the wages of another employee, remains in place. Also, the current law that prevents an employer from inquiring about a prospective employee’s wage and salary history, or the value of the applicant’s compensation structure, continues in effect.    

Job applicants and employees may bring a civil action within 2 years of any alleged violation. Damages include compensatory and punitive damages, along with attorney’s fees.           

Aside from the disclosure of wage ranges, the new law widens the test for gender based pay discrimination by substituting the standard of “equal pay for equal work,” with “equal pay for comparable work.”  

Under the new rule, if an employee can show gender based unequal pay for comparable work, when considering the skill, effort, responsibility, and working conditions of the two jobs, the burden shifts to the employer who must show the difference is based on a seniority system, merit system, a system that measures earnings by quantity or quality of production, or a differential system based on a bona fide factor other than sex, including but not limited to education, training, credentials, skill, geographic location, or experience. Any factor relied on by the employer cannot be based on or derived from a sex-based differential in compensation, and must be job related and consistent with business necessity. The employer’s defense shall not prevail where the employee demonstrates that an alternative employment practice exists that would serve the same business purpose, without producing the pay differential, and that the employer refused to adopt the alternative practice.

Employees may file a complaint with the labor commissioner, and barring investigation, can then file a court action.

Several months ago, the U.S. Supreme Court held that service advisors employed by car dealerships are exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”). Encino Motorcars, LLC v Navarro (4/2/18). It also held that the FLSA’s overtime exemptions should be read “fairly” and not “narrowly,” which may reduce the number of employees eligible for overtime pay in all industries.

Beginning in 1961, Congress exempted all employees working at car dealerships from overtime requirements. In 1966, it narrowed the exemption to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership. Service advisors were considered exempt under the 1966 language. In 2011, however, the Department of Labor (“DOL”) issued a new rule that removed service advisors from the exempt group, suddenly making them eligible for overtime pay. The change was based on DOL’s newly formed concept that service advisors should no longer be considered exempt because they did not sell cars or perform actual maintenance services on a vehicle.

Based on the 2011 rule, a group of service advisors in California sued their employer for back overtime pay. After extended litigation, the Ninth Circuit ruled for plaintiffs based on the 2011 rule change, legislative history, and its theory that FLSA exemptions should be narrowly interpreted.

In reversing the Ninth Circuit, the Supreme Court held that although service advisors are not engaged in selling automobiles or directly involved in servicing cars by performing mechanical work, they are integral in selling auto repair services.  The Court likened them to partsmen, who the parties agreed were exempt. Neither partsmen nor service advisors sell vehicles, nor do they spend time under the hood performing direct mechanical services. Instead, both respectively support the servicing of automobiles by selling parts (partsmen) and particular services (service advisors).

While the ruling has a direct impact on auto dealerships, it also has more widespread application. The Court expressly rejected the Circuit Court’s reasoning that FLSA exemptions should be read narrowly. Instead, it articulated a “fair reading” standard. This may help employers argue that other exemptions should be read more broadly and that some current non-exempt positions should instead be considered exempt, making them no longer eligible for overtime pay.

More recently, the Second Circuit Court of Appeals, which covers Connecticut, became the first federal appellate court to rely on Encino when it ruled in favor of two employers by applying a “fair reading” standard in interpreting the FLSA’s exemption covering door to door salespersons, Flood v. Just Energy Marketing Corp (9/19/18), and limousine drivers, Munoz-Gonzalez v DLC Limousine Services (9/19/18).

Remaining to be seen is the impact state laws may have on any future attempts to broaden the FLSA’s exemptions. As such, employers should consult with counsel before reclassifying jobs, as damages, including backpay liabilities, can be significant.          

A recent series of guidance documents released by the U.S. Department of Labor (“DOL”) clarified a number of important issues including the treatment of service worker tips, payment for time spent on FMLA related breaks, and pay for travel by employees without regular work hours.

Tip Pooling

On April 6, 2018 the DOL issued Field Assistance Bulletin No. 2018-3 , which discusses the rights surrounding the ownership of customer tips. Previously, employers were prohibited from imposing a tip pooling arrangement covering tipped and non-tipped employees, even if the tipped employees received the full minimum wage as opposed to the lower tip credit wage. For example, employers could not require that restaurant waiters share their tips with cooks, hosts, or dishwashers, even if those waiters were already paid the full minimum wage.

Now, waitstaff can be required to share tips with non-tipped employees, provided the waitstaff is paid the full minimum wage, without counting the value of the tips. Where the lower tip credit wage is paid, sharing tips with employees who are not customarily and regularly tipped is still unlawful.

Unchanged is the requirement that managers and supervisors may never share in the tip pool, regardless of whether the full or tip credit wage is paid to non-exempt employees. For purposes of the law, a manager or supervisor is defined using the Fair Labor Standard Act’s definition of “Executive.” That is someone whose primary duty is management of the company, or of a customarily recognized department or subdivision; and who customarily and regularly directs the work of two or more other employees; and who has the authority to hire or fire other employees, or whose suggestions and recommendation in matters of hiring, firing, advancement or any other change of status is given particular weight.

Employers may continue to deduct credit card processing fees associated with the processing of credit card tips.

Employers who violate the law by keeping any portion of the tips paid by customers are subject to disgorgement of all unlawfully kept tips, an equal amount in liquidated damages, and where the violation is repeated or willful, civil penalties of up to $1,100.

While the DOL guidance only covers federal law, and although Connecticut generally follows federal law in this area, prudence suggests that Connecticut employers monitor any contrary interpretations that may be issued by state courts or agencies.

Paid Breaks

On April 12, 2018, the DOL issued Opinion Letter FLSA 2018-19 , which clarified how employees taking short breaks (up to 20 minutes) for FMLA covered reasons are to be paid. Normally, under the FLSA, breaks of up to 20 minutes must be paid because they are considered “for the benefit of the employer” as they “re-energize” employees to perform future work.

Left unclear was whether short breaks taken for FMLA covered reasons must be paid. In its letter, the DOL clarified that FMLA related breaks are non-compensable because the FMLA states that any FMLA related leave is unpaid, and the break itself is primarily “for the benefit of the employee” to accommodate his/her serious health condition.

A key point, however, is that employees taking short breaks under the FMLA may not be treated worse than other employees. Therefore, if the employer permits all employees to take two 15-minute paid breaks per day, and the FMLA covered employee needs four such breaks, then two of the four breaks must be paid.

Travel Time Pay

The DOL issued a second Opinion Letter FLSA 2018-18 on April 12, 2018 covering pay for employees travelling on company business who lack regular work hours. Typically, when an employee travels on company business they must be paid for all hours spent traveling that correspond to their regular work hour schedule, even if the travel occurs on a weekend. For instance, if an employee works Monday to Friday, 8 a.m. to 4 p.m., and then travels on Saturday from 10 a.m. to 2 p.m., they must be paid for those 4 hours on Saturday.

When, however, the employee has no set schedule it becomes harder to determine whether the employee was traveling during regular work hours and thus eligible for pay, or outside such hours, which are then non-compensable, provided the employee performs no work during those hours. In this situation, the employer may rely on the following methods to determine whether the time is paid.

The employer may: (1) review an employee’s work record to determine their “typical work hours” during the most recent month; (2) if the “typical work hours” cannot be determined then the employer may rely on the average start and end times during the prior month; and (3) if in the rare case a determination under (1) or (2) cannot be made, the parties must negotiate and reach agreement on a reasonable amount of compensation for the travel time.

While the DOL points out these are not the exclusive ways to handle the situation, using one of them will provide a safe-harbor against wage claims.

The Connecticut Supreme Court recently released an opinion making it easier to meet the independent contractor test under Connecticut law.  Southwest Appraisal Group v Administrator, Unemployment Compensation Act.  The Connecticut Department of Labor traditionally followed the ABC test in determining whether a worker was an employee or independent contractor for unemployment compensation purposes.  Part C of the test requires an employer to prove that the worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service provided to the employer.  One element of that test was whether the worker had customers beyond the employer. The Supreme Court, however, has now held that while the number of customers may be considered there is no minimum requirement that a worker have multiple customers to be considered an independent contractor.

More specifically it stated, “we conclude that evidence of the performance of services for third parties is not required to prove part C of the ABC test, but rather is a single factor that may be considered under the totality of the circumstances analysis governing that inquiry.”

In the instant case, the employer was engaged in appraising damage claims for various insurance companies.  To do so, it contracted with various independent appraisers who performed the appraisals on a flat fee basis.  While some of these subcontractors had multiple clients, others worked exclusively for the employer. Regardless of the number of customers each had, they all were required to obtain and pay for a state license, professional liability insurance, and equipment.  The employer did not provide them with any benefits, training, office space, uniforms, or business cards. The appraisers each had their own home office, were given flexibility in performing their duties, and were not subject to tax withholdings. They were issued a form 1099 at year-end, instead of a W-2.  All bore the risk of making a profit or loss.

The lower court had ruled in favor of the Department of Labor, who argued that the appraisers who worked solely for the employer were economically dependent on it, and would not survive without that single client.   Therefore, they were not “customarily engaged in an independent business,” and thus flunked part C of the test.

In reversing the lower court, the Supreme Court noted that part C of the test seeks to discern whether a worker is wearing the hat of an employee of the employing company, or is wearing the hat of his own independent enterprise.”  In making that determination, the ruling makes clear there is no specific requirement that a worker have more than one client. Instead, regulators must use a totality of the circumstances test and consider a number of factors in addition to the number of clients.  These include: (1) the existence of state licensure or specialized skills; (2) whether the putative employee holds himself or herself out as an independent business through the existence of business cards, printed invoices, or advertising; (3) the existence of a place of business separate from that of the putative employer;  (4) the putative employee's capital investment in the independent business, such as vehicles and equipment; (5) whether the putative employee manages risk by handling his or her own liability insurance; (6) whether services are performed under the individual's own name as opposed to the putative employer; (7) whether the putative employee employs or subcontracts others; (8) whether the putative employee has a saleable business or going concern with the existence of an established clientele; (9) whether the individual performs services for more than one entity; and (10) whether the performance of services affects the goodwill of the putative employee rather than the employer.

While the number of customers still counts when making the analysis and becomes more significant when other indicia of independence is lacking, it no longer is a per se requirement of meeting prong C of the ABC test.

Employers should remain cautious, however, when it is the sole employer of the putative independent contractor as federal laws enforced by the U.S. Department of Labor, EEOC, and IRS use different tests that focus more on direction and control, along with the economic realities of the relationship, and those regulators may come to different conclusions when an employer is the worker’s sole source of income.

The U.S. Court of Appeals for the Second Circuit recently ruled that oral and written complaints regarding wages made to supervisors followed by an adverse job action are sufficient to support retaliation claims under the Fair Labor Standards Act (“FLSA”).  Greathouse v. JHS Security, Inc.  Under the FLSA’s anti-retaliation provision it is unlawful to discharge or discriminate against any employee because such employee has filed any complaint related to the FLSA’s provisions.  In previous decisions the Second Circuit held any such “complaint” must be made in writing to a government agency, and internal complaints to supervisors, as well as oral complaints to an agency, were insufficient to trigger protection.  In reversing its position, the Second Circuit relied on guidance from a U.S. Supreme Court decision making oral complaints to an agency sufficient, and sister Circuit decisions making any internal complaint enough to gain protected status.

Under its new ruling, employees are protected from retaliation if they file oral or written complaints to either a government agency or a supervisor.  The complaint must, however, be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for protection.  Mere hallway grumblings are not enough.

In the instant case, the employee, a security guard, complained to his supervisor about a series of non-payments, late payments, and unauthorized payroll deductions. The supervisor’s response was that he would be paid when the supervisor felt like it.  The supervisor then pointed a gun at the employee, which the employee took as a sign that he was being discharged. The employee then filed claims of non-payment and retaliation based on the discharge.

The Court’s ruling brings it in line with other Circuits ruling on the issue, as well as the Department of Labor’s position.  It also places FLSA complaints on equal footing with the law regarding retaliation under federal discrimination law, which only requires an employee to oppose discriminatory practices.  Internal oral and written complaints are sufficient to show opposition.

Given this ruling, employers should be prepared to respond to internal complaints claiming violations of the wage laws, and take steps to guard against retaliation toward those making them.

The U.S. Department of Labor recently announced a proposal to expand the number of employees who would become eligible for overtime pay.  Under the Fair Labor Standards Act (“FLSA”) certain employees are exempt from overtime payments if they meet two key tests; the salary basis test, and the duties test.  Under the salary basis test, an employee must currently earn at least $455 ($475 under Connecticut law) per week, and that salary may not fluctuate based on the number of hours worked, except in limited circumstances.  In addition, the employee must also meet the duties test by showing they work in an executive, professional, or administrative position. Each type of position has a specific statutory definition. Outside sales representatives are also exempt, regardless of salary.  Further, under federal law, computer employees meeting the salary test are exempt.

Under the Department’s proposal, the salary test would not be satisfied unless the employee earns $970 per week ($50,440/year) versus the current $455 ($23,660).  Also, a separate highly compensated employee exemption, which is not recognized in Connecticut, is currently met if the employee earns at least $100,000, regardless of the duties performed.  The minimum earnings for the exemption would now increase to $122,148 per year. Both the highly compensated rate and the salary test rate would then increase annually based on inflation.

The government estimates that some 5 million additional employees will become non-exempt and eligible for overtime pay if the rule is implemented.  This means that about 50% of all current exempt employees would become overtime eligible, resulting in increased earnings of about 1 to 1.2 billion dollars more each year for such workers.

A prime motivating force for the change is the lack of real wage growth for a generation of employees.  The current $23,660 rate places a family of four below the federal poverty level, and this is one way to move more people out of poverty conditions.

Independent Contractors

Separately, the USDOL issued an interpretation,  No. 2015-1 , which makes it tougher for employers to prove a worker is an independent contractor under the FLSA.  Historically, the default position has been that workers are employees, unless the employer can prove independent contractor status.  By classifying someone as an independent contractor the employer avoids the FICA match, tax withholding, unemployment taxes, workers compensation coverage, and the payment of minimum wages and overtime.

Traditionally, the courts have used the “economic realities test” to determine employment status under the FLSA.  The test focuses on whether the worker is economically dependent on the employer, or is in business for himself. While the USDOL’s interpretation continues to employ the economic realities test, it does so with an expansive reading of the FLSA’s definition of “employ,” which means “to suffer or permit to work.”  While the law’s definition of “employ” has not changed, the USDOL has taken the position that the definition should be read very broadly, and suggests that most independent contractors today are improperly classified.

Given the USDOL’s position, employers must now be able to prove:

1. The work done by the contractor is not an integral part of the employer’s business;

2. The contractor’s managerial skill impacts the possibility of not only profit, but also of loss.  For example, the contractor’s decision to hire others, purchase materials and equipment, advertise, rent space, and manage time tables may reflect managerial skills that will affect the opportunity for profit or loss.  Merely working more time to get the job done is not considered a managerial skill, but is more akin to a worker working overtime and would not be demonstrative of contractor status;

3. The investment made by the contractor goes beyond the specific job being performed for the employer, and should be in scale with that of the employer.  In essence the contractor’s investment should not be relatively minor compared to that of the employer.

4. The work requires special skill and initiative.  Such skills must go beyond technical ability and also encompass the exercise of business judgment and initiative.

5. The relationship is not one of permanency or indefiniteness.  A person truly in business for themselves normally does not work for a single customer on a continuous or repeated basis; and

6. That the contractor controls the meaningful aspects of the work and is viewed as conducting his own business.  

While these elements have been relied on in the past under the economic realities test, the DOL’s new approach begins with the assumption that the FLSA’s definition of employment, “to suffer or permit to work” must be broadly applied when analyzing each element of the economic realities test to determine whether the worker is really in business for themselves, or is economically dependent on the employer.  Employers should assume that proving independent contractor status will be more difficult in the future, and that the DOL will be much more aggressive in enforcing the law. In fact DOL and the IRS will now work together in a more coordinated effort, and DOL has requested $32 million additional dollars to hire 300 new enforcement officers and support staff.

Aside from these new federal developments, Connecticut employers must still meet a separate test, the ABC test, to pass muster under state law.  The ABC test is comprised of three elements.  Aside from proving the worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service being provided, the employer must also show the worker is free from direction and control in the performance of the service; and that the worker either performs services outside the usual course of the employer’s business, or outside all of the employer’s places of business.  Arguably, this is an even tougher test to pass.

The bottom line is that employers should carefully review any independent contractor relationships it has and verify it can pass both tests, or be prepared to face aggressive regulatory action.

The U.S. Supreme Court recently ruled that time spent by employees waiting to undergo workplace security screenings is not compensable.  Integrity Staffing Solutions, Inc. v. Busk.

 Integrity required employees at its warehouse operations to undergo anti-theft screenings at the end of each shift.  The process took up to 25 minutes each day, during which time the employees received no pay. As a result, the employees filed suit claiming they should have been paid as the screenings were purely for the benefit of the employer, and that the time spent could have been reduced to a de minimis amount had the employer added additional screeners, or staggered shift ending times.

In ruling against the employees, the Court reviewed the history of the Fair Labor Standards Act and the subsequent Portal to Portal Act, which narrowed the definition of compensable work time.  While any time spent performing “principal activities” is compensable, under the Portal to Portal Act, time spent on “preliminary” or “postliminary” activities, which are those performed prior to or after an employee’s “principal activities,”  is non-compensable. To be considered a “principal activity” the work must be an “integral and indispensable” part of the work the employee is hired to perform. Stated differently, to be considered paid time, the activity must be necessary, and if eliminated would prevent the employee from performing the job for which they were hired.

The Court went on to provide examples from prior cases to differentiate paid and unpaid time.  Found compensable was time spent by battery-plant employees showering and changing clothes after their shift because they worked with toxic chemicals, and such showering was an integral and indispensable part of the safe performance of their job.  Also, time spent by meatpackers sharpening their knives was a necessary activity, which if not performed would prevent an employee from performing their central job of butchering animals.

By contrast, time spent clocking in or out, changing clothes or showering where such activities were merely for the convenience of the employee, and waiting for paychecks to be disbursed, has been found to be non-compensable.

Given this background, the Court found that the time spent waiting to undergo security screenings in the instant case was non compensable because the screenings were not an integral and indispensable element of the employees’ principal duties, which were to retrieve and package products for shipment to customers.  In essence, with or without the screenings, the employees could still fully perform their principal warehouse tasks.

The Court specifically rejected the employees’ two main arguments.  Just because the screenings were required by the employer does not convert the time to paid time.  As stated by the Court, applying such a standard would “sweep into principal activities the very activities the Portal to Portal Act was designed to address.”  Further, even if the amount of time could have been reduced by adding screeners or staggering shift times, doing so would not have changed the fact that any time spent in the screening process was unrelated to the principal duties for which the employees were hired.

This case illustrates the need to carefully analyze any non-compensable time spent by employees at work in order to make sure such unpaid time meets the tests enunciated by the Court.

Effective January 1, 2015 the Connecticut minimum wage will increase to $9.15 from the current $8.70 per hour.  Further increases will bring the rate to $9.60 on January 1, 2016, and to $10.10 on January 1, 2017.  Public Act 14-1.  The Act also changes the tip credit for hotel and wait staff to $5.78 for 2015, $6.07 for 2016, and $6.38 for 2017, from the current $5.69.  For bartenders, the tip credit will move to $7.46, $7.82, and $8.23 in each respective year from the current $7.34. Therefore, hotel, wait staff, and bartenders will not see an increase in earnings comparable to non-tipped employees, unless patrons increase their tipping habits.

Learners, beginners and people under 18 may be paid 85% of the minimum wage for the first 200 hours of their employment, or $7.78, $8.16 and $8.59 in each respective year.

Effective January 1, 2015, changes to federal and Connecticut law will impact the compensation of home care workers.  Federal DOL Final Rule Fact Sheet  and  Public Act 14-159.  Home care workers typically provide “companionship services,” including “fellowship” and “protection,” for elderly or disabled persons.  “Fellowship” is defined as engaging the person in social, physical and mental activities, while “protection” means being present in the person’s home, or accompanying them outside to monitor their safety and well-being.  Examples of companionship services include conversation, reading, games, crafts, accompanying a person on a walk, running errands, and attending appointments and social events. Companionship services differ from “care,” which includes assistance with activities of daily living, such as dressing, grooming, feeding, bathing, toileting and transferring.

Home care workers are typically hired directly by the person in need or their family, or through a third party home care agency that directly employs the worker.  A different set of rules now applies to each hiring arrangement.

Under the new rules, where the individual in need, or their family, directly hire the home care worker, the worker need not be paid the minimum wage, or overtime for work in excess of 40 hours in a workweek.  This is because these workers are covered by a special “domestic service exemption” in the federal Fair Labor Standards Act, and under Connecticut law. The special exemption is lost, however, if the employee spends more than 20% of their time performing “care” duties during any workweek.  Also, if the worker performs any household work that primarily benefits other members in the household beyond the person needing help, such as cooking for the entire family or doing their laundry, they must be paid the minimum wage and overtime for that week.  Likewise if the worker performs any “medically related services” such as catheter care, turning and repositioning, ostomy care, tube feeding, or physical therapy, they must be paid the minimum wage and overtime for that week.

When the worker is hired through a third party agency, the agency must now pay the worker the minimum wage and overtime, even if the worker only provides “companionship services.”  In effect, agencies may no longer take advantage of the “domestic service exemption.” That exemption now only applies to workers hired directly by the person in need of care, or their family.

However, agency employers can now count certain hours as non-work time under specific conditions.  Provided the employee is performing “companionship services” and is required to be present at the worksite for a period of not less than 24 consecutive hours, the employee and employer may agree in writing to exclude a regularly scheduled sleeping period of not more than 8 hours from hours worked.  This exception is only permitted if there are adequate on-site sleeping facilities for the employee, and the employee actually sleeps at least 5 hours.  If the sleep period is interrupted by an assignment of work, the interruption shall be counted as work hours. If because of the interruption, the employee fails to get at least 5 hours sleep, the entire 8 hour period must be counted as work time.  Also, even if the employee’s sleep time exceeds 8 hours, only 8 hours may be excluded from hours worked. Where the employee is on-site for less than 24 hours, all hours must count as work time, even if the employee sleeps or engages in non-work activities during the period they are on-site.

These changes are expected to affect about 2 million home care workers who will now receive both the minimum wage, and overtime pay for all hours worked in excess of 40 in a workweek.

Given the complexity of this topic, I’ve prepared a table summarizing the rules:

Type of Employment	Individual Employer (Employed by person needing care or their family)	Third Party Employer (Agency)
Home Care Worker	-As long as worker only provides “companionship services” there is no obligation to pay the minimum wage or overtime -In any week where over 20% of the time is spent providing “care,” the minimum wage and overtime must be paid in that week -In any week in which any time is spent providing “medically related services,” the minimum wage and overtime must be paid -In any week in which any time is spent performing household work primarily benefiting other than the person in need of care, the minimum wage and overtime must be paid	-Must pay the worker the minimum wage and overtime even if they only provide “companionship services” -Can have a written agreement deducting up to 8 hours from work time for sleep each day, if the worker is on site at least 24 hours, and gets at least 5 hours of actual sleep.  Any time spent providing services during the 8 hour sleep period must be paid.
Domestic Live-In (Housekeeper)	-Worker must be paid minimum wage, but not overtime -Can have written agreement deducting a reasonable number of hours for sleep and other personal time	-Worker must be paid minimum wage and overtime -Can have written agreement deducting a reasonable number of hours for sleep and other personal time