The 2024 DOL FLSA Independent Contractor Rules: Similar to the Fourth Circuit’s Existing Standard

Effective July 1, 2024, the Department of Labor’s new independent contractor rules provide guidelines for distinguishing between employees and non-employee independent contractors, for purposes of the overtime and minimum wage requirements of the Fair Labor Standards Act. As explained below, the DOL rules closely parallel the test that the Fourth Circuit has historically applied in FLSA cases. 

Statutory and Regulatory Background

The FLSA requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. 29 U.S.C §§ 206-207. The FLSA also imposes recordkeeping requirements on employers. 29 U.S.C. § 211. These requirements raise questions about what it means to be an “employer” or an “employee,” and, more specifically, about the nature of the employment relationship that falls within the scope of the FLSA’s minimum wage and overtime requirements. 

The FLSA itself defines these terms broadly, but without great clarity. Section 203 of the FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee[.]” 29 U.S.C. § 203(d). The FLSA defines the term “employee” to generally mean “any individual employed by an employer.” 29 U.S.C. § 203(e). And it defines “employ” as “includes to suffer or permit to work.”  29 U.S.C. § 203(g). 

In FLSA cases, disputes often arise as to whether a worker is an “employee,” entitled to minimum wages and overtime under the FLSA, or a non-employee “independent contractor” to which the FLSA does not apply. Sometimes, workers are misclassified as independent contractors, when under the FLSA they are really employees. 

The Fourth Circuit’s Employee / Independent Contractor Test

The Fourth Circuit has historically assessed whether a worker is an employee or a non-employee independent contractor using a six-factor “economic realities” test. The factors are:

(1) the degree of control that the putative employer has over the manner in which the work is performed; 

(2) the worker’s opportunities for profit or loss dependent on his managerial skill; 

(3) the worker’s investment in equipment or material, or his employment of other workers; 

(4) the degree of skill required for the work; 

(5) the permanence of the working relationship; and 

(6) the degree to which the services rendered are an integral part of the putative employer’s business.

Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298 (4th Cir. 2006). “These factors are often called the ‘Silk factors.’ No single factor is dispositive; the test is designed to capture the economic realities of the relationship between the worker and the putative employer.” Id. (Derived from United States v. Silk, 331 U.S. 704, 67 S. Ct. 1463 (1947)).

The 2024 DOL Employee / Independent Contractor Test

The DOL’s 2024 employee / independent contractor regulations adopt a totality of the circumstances, economic realities test that is consistent with the historical Fourth Circuit test:

Of particular note, the regulations set forth in this final rule do not use “core factors” and instead return to a totality-of-the-circumstances analysis of the economic reality test in which the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity.

Employee or Independent Contractor Classification Under the FLSA, 89 Fed. Reg. 1638 (Jan. 10, 2024) (Amending 29 C.F.R. § 795).

The 2024 DOL factors closely parallel the Silk factors discussed above and historically applied by the Fourth Circuit. Shortened, they are:

(1) Opportunity for profit or loss depending on managerial skill, 

(2) Investments by the worker and the potential employer,

(3) Degree of permanence of the work relationship,

(4) Nature and degree of control,

(5) Extent to which the work performed is an integral part of the potential employer’s business, and 

(6) Skill and initiative. 

29 C.F.R. 795.110. “Additional factors may be relevant in determining whether the worker is an employee or independent contractor for purposes of the FLSA, if the factors in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the potential employer for work.” Id. Thus, like the Fourth Circuit, the DOL embraces an economic realities test that balances the relevant factors. 

And like the Fourth Circuit explained in Schultz, the ultimate inquiry in using the factors is still “whether the [workers] were, as a matter of economic reality, dependent on the business they served, or, conversely, whether they were in business for themselves.” Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298 (4th Cir. 2006). See also Employee or Independent Contractor Classification Under the FLSA, 89 Fed. Reg. 1638 (Jan. 10, 2024) (Amending 29 C.F.R. § 795) (“The ultimate inquiry is whether, as a matter of economic reality, the worker is economically dependent on the employer for work (and is thus an employee) or is in business for themself (and is thus an independent contractor).”)

Thus, the DOL’s 2024 FLSA independent contractor test is similar to the economic realities test historically applied in the Fourth Circuit. Both tests consider the same basic factors in their totality.

Special thanks to Hannah Wyatt for her work on this post!

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Muldrow v. City of St. Louis: Revised Standard of Harm in Discrimination Cases

In Muldrow v. City of St. Louis, 144 S. Ct. 967 (2024), the Supreme Court held that an employee challenging a job transfer under Title VII must show that the transfer brought about “some harm” with respect to an identifiable term or condition of employment, but that harm need not be significant. The case is important because it departs from the traditional view that an adverse employment action in discrimination cases generally requires a pecuniary harm. The revised “some harm” standard also calls into question the traditional standard for hostile work environment harassment established in Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57, 106 S. Ct. 2399 (1986) and Harris v. Forklift Sys., 510 U.S. 17, 114 S. Ct. 367 (1993), which included a “severe or pervasive” treatment element. Meritor Savings Bank and Harris call for a showing of pervasiveness or severity to establish discriminatory harassment. Since harassment is a type of discrimination, however, Muldrow’s recent decision that “some harm” suffices to show a discriminatory action under Title VII may call into question the Harris standard for harassment. .

Statutory Background

Title VII of the Civil Rights Act of 1964 makes it unlawful for an employer “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s . . . sex.” 42 U.S.C. § 2000e–2(a)(1). While a discriminatory adverse employment action is one route to establish Title VII discrimination, the Supreme Court has also interpreted this prohibition to encompass claims based on a discriminatory hostile work environment, rather than solely economic or tangible discrimination. The Harris Court elaborated on the previous Supreme Court ruling in Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57, 106 S. Ct. 2399 (1986) in describing hostile work environment discrimination:

As we made clear in Meritor Savings Bank, this language is not limited to ‘economic’ or ‘tangible’ discrimination. The phrase ‘terms, conditions, or privileges of employment’ evinces a congressional intent ‘to strike at the entire spectrum of disparate treatment of men and women’ in employment, which includes requiring people to work in a discriminatorily hostile or abusive environment. When the workplace is permeated with ‘discriminatory intimidation, ridicule, and insult’ that is ‘sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment,’ Title VII is violated.

Harris, 510 U.S. at 21.

As discussed below, this “severe or pervasive” standard may be called into question by the Muldrow decision.

Facts

Muldrow addresses whether the transfer of an employee could qualify as Title VII discrimination when her rank and pay did not change, but her responsibilities did. Slip op. at 2.

In short, Muldrow was a sergeant with the St. Louis Police Department who was transferred to a different department against her wishes. Id. She was transferred because her new superior explicitly wanted to replace her with a man, which he thought to be a better fit for the division’s “very dangerous” work. Id. The transfer was approved, and while her rank and pay remained the same, her “responsibilities, perks, and schedule did not.” Id.

The question for the Supreme Court in Muldrow was thus what level of harm must a plaintiff show to successfully challenge a job transfer as discriminatory under Title VII.

The Court’s Decision

The Muldrow Court reversed the decision of the lower court, finding that there is no heightened threshold of harm requirement imposed by Title VII, and that there need only be some “disadvantageous” change in an employment term or condition. Slip op. at 5.

The Court explained that the language of Title VII, i.e. “discriminate against,” refers to “differences in treatment that injure” employees. Id. The Court further explained, “To make out a Title VII discrimination claim, a transferee must show some harm respecting an identifiable term or condition of employment.” Id., at 6. A plaintiff does not have to show “…that the harm incurred was significant … Or serious, or substantial, or any similar adjective suggestive that the disadvantage to the employee must exceed a heightened bar.” Id., at 6. The Court also explained that while “discriminate against” means to treat worse, imposing a threshold for the level of harm needed to show discrimination would be inconsistent with the text of the statute:

There is nothing in the provision to distinguish, as the courts below did, between transfers causing significant disadvantages and transfers causing not-so-significant ones. And there is nothing to otherwise establish an elevated threshold of harm. To demand “significance” is to add words—and significant words, as it were—to the statute Congress enacted. It is to impose a new requirement on a Title VII claimant, so that the law as applied demands something more of her than the law as written.

Slip op. at 6.

Accordingly, the Court held that the lower courts erred in reading a heightened standard of harm into their analysis, and that if Muldrow’s allegations are proven, then she was in fact left worse off several times over. Id. at 10-11. The Court therefore remanded the case for further proceedings under the “proper Title VII standard,” which does not demand that the plaintiff demonstrate her transfer caused “significant” harm. Id.

Analysis

In sum, Muldrow held that an employee challenging a job transfer under Title VII must show that the transfer brought about “some harm” with respect to an identifiable term or condition of employment, but that harm need not be significant. This case marked a departure from the traditional view that an adverse employment action under Title VII required a pecuniary harm. It also calls into question the traditional “pervasiveness or severity” standard in discriminatory hostile work environment cases. 

Muldrow held that a plaintiff must show “some harm,” but is not required to show a heightened level of harm to make out a discrimination claim, as Title VII is intended to address any harmful discriminatory treatment, not just treatment that causes significant harm. Thus, a plaintiff need not necessarily suffer an economic loss to make out an adverse employment action. This revised standard may also suggest that a workplace permeated with discriminatory intimidation, ridicule, and insult that alters the conditions of the plaintiff’s employment and creates an abusive working environment could be enough to establish a hostile work environment under Title VII, so long as the plaintiff can show some harm.

Special thanks to Hannah Wyatt for her work on this post!

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

FLSA Seasonal Amusement or Recreational Establishment Exemption: Seasonal Operations and Seasonal Receipts Tests

The Fair Labor Standards Act requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. However, the law contains several exceptions or “exemptions” from these requirements. This post will focus on the exemption for employees of seasonal amusement or recreational establishments under 29 U.S.C. § 213(a)(3). The Department of Labor Fact Sheet #18 is an excellent resource for information about this exemption. Some DOL implementing regulations relevant to the seasonal amusement or recreational establishment exemption are generally located at 29 C.F.R. §§ 779.385, 779.23, 779.203, and 779.302-311.

Two Alternative Tests for the Exemption

The FLSA provides an exemption from the law’s minimum wage and overtime requirements (found at 29 U.S.C. §§ 206 and 207, respectively) for employees “employed by an establishment which is an amusement or recreational establishment, organized camp, or religious or non-profit educational conference center”, if either of the following two tests are met. 

  1. The establishment “does not operate for more than seven months in any calendar year,” or
  2. “[D]uring the preceding calendar year, its average receipts for any six months of such year were not more than 33⅓ per centum of its average receipts for the other six months of such year[.]”

29 U.S.C. § 213(a)(3). However, the FLSA also provides a limited exception from this exemption for certain employees of private entities operating in a national park, national forest, or on lands in the National Wildlife Refuge System:

[E]xcept that the exemption from sections 206 and 207 of this title [minimum wage and overtime requirements] provided by this paragraph does not apply with respect to any employee of a private entity engaged in providing services or facilities (other than, in the case of the exemption from section 206 of this title, a private entity engaged in providing services and facilities directly related to skiing) in a national park or a national forest, or on land in the National Wildlife Refuge System, under a contract with the Secretary of the Interior or the Secretary of Agriculture…

29 U.S.C. § 213(a)(3).

Establishment Compared to Enterprise

Because this exemption only applies to employees of certain “establishments”, FLSA regulations on the distinctions between an “establishment” and an entire business or “enterprise” can be relevant. In short, the regulations clarify that an “establishment” refers to a distinct physical place of business: 

As used in the [FLSA], the term establishment…refers to a “distinct physical place of business” rather than to “an entire business or enterprise” which may include several separate places of business. This is consistent with the meaning of the term as it is normally used in business and in government, is judicially settled, and has been recognized in the Congress in the course of enactment of amendatory legislation[.]

29 C.F.R. § 779.23 (emphasis in original; citations omitted). FLSA regulations further provide that the “[a]musement or recreational establishments” referenced in the exemption are “establishments frequented by the public for its amusement or recreation and which are open for 7 months or less a year or which meet the seasonal receipts test provided in clause (B) of the exemption.” 29 CFR § 779.385. Typical examples of such establishments are “the concessionaires at amusement parks and beaches.” Id. 

Application to Multiunit Operations 

This distinction between an establishment and an enterprise, in the context of a business operating at multiple locations, is further detailed in 29 C.F.R. §§ 779.303: 

As previously stated in § 779.23, the term establishment as used in the [FLSA] means a distinct physical place of business. The “enterprise,” … may be composed of a single establishment. The term “establishment,” however, is not synonymous with the words “business” or “enterprise” when those terms are used to describe multiunit operations. In such a multiunit operation some of the establishments may qualify for exemption, others may not. For example, a manufacturer may operate a plant for production of its goods, a separate warehouse for storage and distribution, and several stores from which its products are sold. Each such physically separate place of business is a separate establishment. In the case of chain store systems, branch stores, groups of independent stores organized to carry on business in a manner similar to chain store systems, and retail outlets operated by manufacturing or distributing concerns, each separate place of business ordinarily is a separate establishment.

29 C.F.R. § 779.303 (emphasis added). In other words, a business or enterprise can have multiple establishments, and this exemption may apply to employees at some, but not all, of those establishments. For additional regulations addressing the meaning of “establishment”, see 29 C.F.R. §§ 779.302-311 and 779.203; see also 29 U.S.C. §§ 203(r) and (s) for “enterprise” definitions and tests.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Bartels v. Birmingham: Early Economic Reality Test For Employment Relationship in Music Industry

In Bartels v. Birmingham, 332 U.S. 126, 67 S. Ct. 1547 (1947), the Supreme Court held that members of musical bands were employees of the bands’ leaders, rather than of the operators of the dance halls where the bands played, within the meaning of the Social Security Act. The Court emphasized that, inter alia, the band leader organized and trained the band, that the leader’s musical skill determined the success or failure of the band, and the relationship between the leader and the band members was permanent. The case is important because, inter alia, it applied an “economic reality” test, using the reasoning in United States v. Silk, 331 U.S. 704 (1947), for determining the existence of an employment relationship. This test for determining whether a worker is an employee or an independent contractor, and which entities are employers, came to be applied in cases under the Fair Labor Standards Act. See Schultz v. Cap. Int’l Sec., Inc., 466 F.3d 298, 304–05 (4th Cir. 2006). 

Statutory and Regulatory Background

The FLSA requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. 29 U.S.C §§ 206-207. The FLSA also imposes recordkeeping requirements on employers. 29 U.S.C. § 211. These requirements raise questions about what it means to be an “employer” or an “employee,” and, more specifically, about the nature of the employment relationship that falls within the scope of the FLSA’s minimum wage and overtime requirements. 

The FLSA itself defines these terms broadly, but without great clarity. Section 203 of the FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee[.]” 29 U.S.C. § 203(d). The FLSA defines the term “employee” to generally mean “any individual employed by an employer.” 29 U.S.C. § 203(e). And it defines “employ” as “includes to suffer or permit to work.”  29 U.S.C. § 203(g). 

While Bartels and Silk involved cases brought under a different law, the Social Security Act, the “economic realities” test they articulated for determining whether a worker is an employee or an independent contractor came to be applied in FLSA cases. See Schultz v. Cap. Int’l Sec., Inc., 466 F.3d 298, 304–05 (4th Cir. 2006).

Facts

Bartels examined relationships between the operators of dance halls, the leaders of bands that played in these dance halls for “limited engagements”, and the musicians in those bands. 

In a nutshell, the band leaders contracted with various ballroom operators to play at their establishments for a contract price. 332 U.S. 126, 127. Most of the engagements at issue were one-night performances, although some were for performances over several successive nights. 332 U.S. at 127–28. 

As a practical matter, the Court observed that the “leader exercise[d] complete control over the orchestra.” 332 U.S. at 128. The leader set the musicians’ salaries, paid them, and told them what and how to play. Id. He provided the sheet music and arrangements, the public address system, and the musicians’ uniforms. Id. He hired and fired the musicians. The band leader paid for expenses, including agents’ commissions, transportation and other expenses out of the payments received from the dance hall operators. Id. Any extra money left over after the expenditures was “his profit and any deficit his personal loss.” Id. The operators of the dance halls provided the piano but not the other instruments. Id.

The relationship between the parties was complicated, however, by the contracts between the dance hall operators and the union that band leaders and musicians belonged to. 332 U.S. at 128. The Court observed that the form contract stated “that the ballroom operator is the employer of the musicians and their leader, and ‘shall have complete control of the services which the employees will render under the specifications of this contract.’” Id.

The Circuit Court of Appeals had placed great weight on the terms of the contract. It applied the “common law test of control, i.e., that one was an employer if he had the ‘right’ to direct workers in what should be done and how it should be done.” Id. at 129. It concluded that the contract between the parties gave the ballroom operators the “‘right’ to control the musicians and the leader, whether or not the control was actually exercised.” Id. The Circuit Court of Appeals determined that while the contract was not binding on the government, it was binding on the parties, and therefore the leader and musicians were employees of the dance hall operators under the SSA if taxing authorities accepted the arrangement as valid. Id.

The question for the Supreme Court in Bartels was whether the facts showed that the musicians were “employees” of the band leader, or of the ballroom operators, within the meaning of the Social Security Act.

The Court’s Decision

The Bartels Court reversed. It held that the musicians were “employees” of the band leader within the meaning of the SSA.

The Court observed that under Silk, the employment relationship was to be determined a multi-factor test that examined the “economic reality” of the situation:

In United States v. Silk … we held that the relationship of employer-employee, which determines the liability for employment taxes under the Social Security Act was not to be determined solely by the idea of control which an alleged employer may or could exercise over the details of the service rendered to his business by the worker or workers. Obviously control is characteristically associated with the employer-employee relationship but in the application of social legislation employees are those who as a matter of economic reality are dependent upon the business to which they render service. In Silk, we pointed out that permanency of the relation, the skill required, the investment if the facilities for work and opportunities for profit or loss from the activities were also factors that should enter into judicial determination as to the coverage of the Social Security Act. It is the total s[it]uation that controls.…

332 U.S. at 130.

Applying these “economic reality” factors to the facts in Bartels, the Court concluded that the musicians were employees of the band leader, not the dance hall operator:

We are of the opinion that the elements of employment mark the band leader as the employer in these cases. The leader organizes and trains the band. He selects the members. It is his musical skill and showmanship that determines the success or failure of the organization. The relations between him and the other members are permanent; those between the band and the operator are transient. Maintenance costs are a charge against the price received for the performance. He bears the loss or gains the profit after payment of the members’ wages and the other band expenses.

332 U.S. at 132. Thus, the Court reasoned that the totality of the circumstances indicated an employer-employee relationship between the band leader and the musicians. The Court accordingly held that under this analysis — applying the economic reality test described in Silk — the musicians were “employees” of the band leader within the meaning of the SSA.

Analysis

In sum, Bartels held that members of a musical band were employees of the band’s leader, rather than of the operators of the ballrooms where the band played, within the meaning of the Social Security Act. The case is important because, inter alia, it applied an “economic realities” test, using the reasoning in Silk, 331 U.S. 704 (1947), for determining the existence of an employment relationship. This test for determining whether a worker is an employee or an independent contractor, and which entities are employers, came to be applied in cases under the Fair Labor Standards Act. See Schultz, 466 F.3d 298, 304–05 (4th Cir. 2006). 

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Meet Timothy Coffield, Attorney in VA

Tim Coffield is a seasoned attorney based in Charlottesville, Virginia, known for his dynamic legal practice at Coffield PLC. Since founding the firm in 2012, Tim has established himself as a dedicated advocate, offering strategic and personalized legal representation to clients across central and western Virginia.

With a comprehensive background in civil litigation, employment law, civil rights, and estate planning, Tim Coffield has honed his expertise in developing innovative legal strategies tailored to each client’s unique circumstances. He is committed to delivering assertive and client-focused representation, aiming to achieve favorable outcomes in both federal and state courts.

One of Tim’s notable achievements includes his role as Class Counsel in a significant employment equity lawsuit against Panera Bread Company and Panera, LLC, collaborating with esteemed attorneys from Popham Law Firm. This experience underscores Tim Coffield’s proficiency in complex multi-party litigation, mediation, and successful settlement negotiations.

Tim Coffield’s legal prowess extends to various employment-related matters, including discrimination cases, retaliation claims, and disputes over employment contracts. He served as co-class counsel in a nationwide employment class action suit, securing a multi-million dollar judgment for plaintiff employees.

Tim’s academic journey laid a strong foundation for his legal career. He attended the University of Virginia School of Law, where he actively participated in the First Amendment Law Clinic and gained valuable experience interning in the United States District Court for The Eastern District of Virginia. His commitment to public service was evident during his volunteer work with the Legal Aid Society in Charlottesville.

Before starting his legal career, Tim Coffield enriched his skill set as a law clerk at Trout Unlimited, focusing on water conservation issues. His diverse background includes experiences as a wilderness guide, a paralegal, and an educator, reflecting a deep-seated commitment to environmental and social causes.

A dedicated member of professional organizations like the National Employment Lawyers Association and the Virginia Employment Lawyers Association, Tim Coffield remains actively engaged in advancing legal standards and advocating for employee rights.

Tim’s multifaceted journey—from the baseball fields of North Carolina State University, where he pursued degrees in Philosophy and English, to his role as a trusted attorney and founder of Coffield PLC—demonstrates his unwavering dedication to seeking justice and delivering exceptional legal services to his clients.

This piece was originally published on Patch. View the original article here.

Helix Energy v. Hewitt: Day Rates Do Not Meet the Salary-Basis Test Under the FLSA

In Helix Energy Sols. Grp., Inc. v. Hewitt, 143 S. Ct. 677 (2023), the Supreme Court held that the salary-basis test for certain exemptions to the Fair Labor Standards Act is not met when the employee at issue is paid a day rate, even when the day rate exceeds the required minimum weekly salary level. More specifically, the Department of Labor regulation setting out the salary-basis test requires predetermined weekly compensation for the FLSA’s overtime exemption for executive employees. The Court held that this rule applies only to employees paid by the week or longer, and therefore is not met when an employer pays an employee by the day. The case is important because, inter alia, it shows that even highly compensated employees can be entitled to overtime pay if they are not paid on a salary basis. 

Statutory and Regulatory Background – FLSA Exemptions and the Salary Basis Test

Relevant to the decision in Helix, Section 213(a)(1) of the Fair Labor Standards Act provides an exemption from its minimum wage and overtime requirements for employees who qualify as bona fide executive, administrative, or professional employees:

Minimum wage and maximum hour requirements

The provisions of sections 206 … and 207 of this title shall not apply with respect to—

any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools) …

29 U.S.C. § 213(a)(1). 

The Court in Helix Energy further explained that under Department of Labor regulations, an employee is considered a bona fide “executive” under this exemption if the employee meets three tests: 

(1) the “salary basis” test, which requires that an employee receive a predetermined and fixed salary that does not vary with the amount of time worked; 

(2) the “salary level” test, which requires that preset salary to exceed a specified amount; and 

(3) the job “duties” test. 

Helix Energy, 143 S. Ct. 677, 678 (citing 84 Fed. Reg. 51230). 

The Court further observed that the Department of Labor implemented the bona fide executive exemption through two different rules. One is the “general rule for executive employees,” which at the time of the facts in Helix applied to employees making less than $100,000 per year. 29 C.F.R. §§ 541.100; 541.601(a), (b)(1). A different rule sets out the exemption criteria for “highly compensated employees” (HCEs) who at the time of the facts in Helix were employees who made at least $100,000 per year. 541.601(a), (b)(1). (The HCE salary threshold was later increased to $ 107,432. Id.). Helix Energy, 143 S. Ct. 677, 678, 683-84. 

The Court pointed out that the general rule considers employees to be FLSA-exempt executives when they meet the following criteria:

“Compensated on a salary basis” (called the “salary-basis” test); “at a rate of not less than $455 per week” (called the “salary-level” test) (after the facts in Helix Energy, that weekly amount was later increased to $684);

Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;

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 recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

29 C.F.R. § 541.100(a); 143 S. Ct. 677, 678, 683-84. The duties-related requirements in parts 2, 3, and 4 of the general rule are referred to as the “duties test.” Id. 

The Court noted that the HCE rule relaxes only the duties test, while keeping the same salary-basis and salary-level tests. “In the HCE rule, the duties test becomes easier to satisfy: an employee must “regularly perform[ ]” just one (not all) of the three responsibilities listed in the general rule.” 143 S. Ct. 677, 678, 683 (citing § 541.601(a); and 69 Fed. Reg. 22174 (2004) (explaining that the HCE rule uses a “more flexible duties standard” and thus leads to more exemptions)).

Facts

From 2014-2017, Hewitt worked for Helix Energy as a “toolpusher” on an offshore oil rig. Helix paid Hewitt on a daily-rate basis, with no overtime compensation. The daily rate ranged, over the course of his employment, from $963 to $1,341 per day. Under this compensation scheme, Helix paid Hewitt over $200,000 annually. 143 S. Ct. 677, 678, 684.

Hewitt filed suit against Helix for failure to pay him overtime compensation. Helix argued that he was an FLSA-exempt executive or highly compensated employee. 143 S. Ct. 677, 678, 684-85.

In Helix, the question for the Court whether the employee Hewitt was an FLSA-exempt executive not entitled to overtime pay. This question turned solely on whether Hewitt was paid on a salary basis. More specifically, the issue for the Court was whether the salary basis test is met when an employee is paid a day rate that exceeds the minimum weekly salary threshold. 143 S. Ct. 677, 678, 684-85.

The Court’s Decision; Salary Basis Regulations

The Court held that Hewitt was not paid on a salary basis, and therefore was not exempt from the FLSA’s overtime requirements. 

Important to the Court’s decision in Helix, a pair of regulations describe the “salary basis” test in more detail. 

The Court noted that the main salary basis provision, 29 C.F.R. § 541.602(a), states in relevant part:

“An 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. Subject to [certain exceptions], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.”

143 S. Ct. 677, 678, 683 (quoting 29 C.F.R. § 541.602(a)).

The Court further observed that a separate provision, 29 C.F.R. § 541.604(b), focuses on workers whose compensation is “computed on an hourly, a daily or a shift basis,” rather than a weekly or less frequent one. The Court noted that under § 604(b) an employer may base an employee’s pay on an hourly, daily, or shift rate without “violating the salary basis requirement” or “losing the [bona fide executive] exemption” if two conditions are met:

The employer must “also” guarantee the employee at least $455 each week [the minimum salary level at the time] “regardless of the number of hours, days or shifts worked.”

That promised amount must bear a “reasonable relationship” to the “amount actually earned” in a typical week. This “reasonable relationship test” will be met if the weekly guarantee is “roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.”

143 S. Ct. 677, 678, 684 (citing 29 C.F.R. § 541.604(b)).

The Court noted that the “critical question” was “whether Hewitt was paid on a salary basis under § 602(a) of the Secretary’s regulations. 143 S. Ct. 677, 685. This was because Helix acknowledged that Hewitt’s compensation did not satisfy § 604(b)’s conditions: Helix did not guarantee that Hewitt would receive each week an amount (above $455) bearing a “reasonable relationship” to the weekly amount he usually earned. Id. So, the Court observed, “everything turns on whether Helix paid Hewitt on a salary basis as described in § 602(a). If yes, Hewitt was exempt from the FLSA and not entitled to overtime pay; if no, he was covered under the statute and can claim that extra money.” 143 S. Ct. 677, 685.

Examining the text of § 602(a) and the overall regulatory structure, the Court concluded that the answer was “no.” 

The Court first observed that the salary basis test of § 602(a) “applies solely to employees paid by the week (or longer); it is not met when an employer pays an employee by the day, as Helix paid Hewitt.” 143 S. Ct. 677, 685. 

The Court then pointed out that Helix did not pay Hewitt on a salary basis under § 602(a) because he was paid by the day, rather than by the week or longer. “Daily-rate workers, of whatever income level, are paid on a salary basis only through the test set out in § 604(b) (which, again, Helix’s payment scheme did not satisfy).” Thus, the fact that Hewitt was paid on a daily basis meant that was not paid on a salary basis under § 602(a), since his compensation was based on the day, rather than by the week or longer. 143 S. Ct. 677, 685, 685-692.

The Court further explained that these conclusions “follow from both the text and the structure of the regulations.” 143 S. Ct. 677, 685, 686-692. It also addressed Helix’s policy-based objections to this conclusion, such as its operational and cost-based objections from having to pay overtime to highly-paid daily-rate workers, and found that those objections did not justify departing from the text of the rules. 143 S. Ct. 677, 690-692.

Therefore, the Court held that because Hewitt was paid on a daily basis, Hewitt did not meet the salary basis test. As the Court observed, “A daily-rate employee like Hewitt is not paid on a salary basis under § 602(a) of the Secretary’s regulations. He may qualify as paid on salary only under § 604(b). Because Hewitt’s compensation did not meet § 604(b)’s conditions, it could not count as a salary. So Hewitt was not exempt from the FLSA; instead, he was eligible under that statute for overtime pay.” 143 S. Ct. 677, 692. 

Analysis

In sum, Helix held that the salary-basis test for certain FLSA exemptions is not met when the employee is paid a day rate. This is the case even when the day rate exceeds the minimum weekly salary requirement. The DOL regulation setting out the salary-basis test requires predetermined weekly compensation for the FLSA’s overtime exemption for executive and highly compensated employees. The Court held that this rule applies only to employees paid by the week or longer, and therefore the test is not met when an employer pays an employee by the day. The case is important because, inter alia, it shows that even highly compensated employees can be entitled to overtime pay if they are not paid on a salary basis. 

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was previously published on April 14, 2023 at timcoffieldattorney.com

Spouses of Disabled Veterans

Virginia’s Veteran Preferential Hiring Law, Va. Code § 40.1-27.2 (“VPHL,” titled “Preference for veterans and spouses,”) allows employers to choose to grant preference in hiring and promotion to veterans or the spouses of disabled veterans. 

Definition of Disabled Veteran

The VPHL generally defines “disabled veteran” for the purposes of its provisions as a veteran who has been found by the U.S. Department of Veterans Affairs or by a retirement board of a branch of one of the armed forces to have a “compensable service-connected permanent and total disability”:

A. As used in this section, unless the context requires a different meaning:

“Disabled veteran” means a veteran who has been found by the U.S. Department of Veterans Affairs or by the retirement board of one of the several branches of the armed forces to have a compensable service-connected permanent and total disability.

Va. Code § 40.1-27.2(A).

Definition of Veteran 

The VPHL further generally defines veteran as any person who has received an honorable discharge and: 

(i) has provided more than 180 consecutive days of full-time, active-duty service in the armed forces of the United States or reserve components thereof, including the National Guard, or 

(ii) has a service-connected disability rating fixed by the United States Department of Veterans Affairs.

The VPHL that the definition of “veteran” “has the same meaning ascribed to such term in § 2.2-2903.” Va. Code § 40.1-27.2(A). That section therefore provides the relevant definition:

“Veteran” means any person who has received an honorable discharge and (i) has provided more than 180 consecutive days of full-time, active-duty service in the armed forces of the United States or reserve components thereof, including the National Guard, or (ii) has a service-connected disability rating fixed by the United States Department of Veterans Affairs.

Va. Code § 2.2-2903(E). 

General Rule: Permissive Preference in Hiring and Promotion 

The VPHL provides that an employer may grant preference in hiring and promotion to a veteran or the spouse of a disabled veteran:

B. An employer may grant preference in hiring and promotion to a veteran or the spouse of a disabled veteran.

Va. Code § 40.1-27.2(B). While the law states that employers “may” grant such a preference, it does not state that employers are required to do so. 

Relationship to Local or State Equal Employment Opportunity Laws

Finally, the VPHL further provides that granting the preference allowed in hiring or promotion of veterans or spouses of disabled veterans does not violate local or state equal employment opportunity law:

C. Granting preference under subsection B does not violate any local or state equal employment opportunity law.

Va. Code § 40.1-27.2(C).

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was previously published on April 14, 2023 at timcoffieldattorney.net

EEOC v. Abercrombie & Fitch Stores, Inc.: Title VII Gives Favored Treatment to Employees’ Religious Practices

In Equal Emp’t Opportunity Comm’n v. Abercrombie & Fitch Stores, Inc., 575 U.S. 768 (2015), the Supreme Court held that to prove a religion-based disparate treatment claim under Title VII of the Civil Rights Act of 1964, a job applicant need only show that her need for a religious accommodation was a motivating factor in the employer’s adverse employment action. Therefore, the applicant did not need to show that the prospective employer knew that the applicant’s practice was a religious practice requiring accommodation. More generally, the Court also observed that Title VII gives “favored treatment” to religious practices and requires employers to accommodate the same so long as the accommodation does not create an undue hardship for the employer. 

Statutory Background – Title VII and Religious Discrimination

In relevant part, Title VII of the Civil Rights Act of 1964 prohibits two kinds of employment practices:

(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin; or

(2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin.” 

42 U.S.C. § 2000e–2(a). The first category is typically referred to as “disparate treatment” or “intentional” discrimination, and the second category is typically referred to as “disparate impact” discrimination. Abercrombie involved a claim of disparate treatment discrimination based on a job applicant’s religion. 

Title VII defines the word “religion” to “includ[e] all aspects of religious observance and practice, as well as belief, unless an employer demonstrates that he is unable to reasonably accommodate to” a “religious observance or practice without undue hardship on the conduct of the employer’s business.” 575 U.S. 768, 771-72 (quoting 42 U.S.C. § 2000e(j)).

Therefore, Title VII prohibits a prospective employer from refusing to hire an applicant in order to avoid accommodating a religious practice that it could accommodate without undue hardship. 

In Abercrombie, the issue for the Court was whether this rule applies only where an applicant has informed the employer of his need for a religious accommodation. 575 U.S. 768, 770.

Facts

Abercrombie was a clothing company. It imposed a “Look Policy” that governed how its employees dressed. The Look Policy prohibited  “caps” as being too informal for Abercrombie’s desired image. 575 U.S. 768, 770. 

The plaintiff, Samantha Elauf, was a practicing Muslim. Consistent with her understanding of her religion’s requirements, she wore a headscarf. She applied for a position in an Abercrombie store, and was interviewed by the store’s assistant manager. Using Abercrombie’s ordinary system for evaluating applicants, the assistant manager gave Elauf a rating that qualified her to be hired. However the assistant manager was concerned that Elauf’s headscarf would conflict with the company’s Look Policy.  575 U.S. 768, 770. 

The assistant manager consulted with a store manager and then a district manager to clarify whether the headscarf was a forbidden “cap.” She told the district manager that she believed Elauf wore her headscarf because of her faith. The district manager told the assistant manager that Elauf’s headscarf would violate the Look Policy, as would all other headwear, religious or otherwise, and directed the assistant manager not to hire Elauf.  575 U.S. 768, 770.

The EEOC sued Abercrombie on Elauf’s behalf, asserting that the company’s refusal to hire Elauf violated Title VII. EEOC won in the trial court. The Tenth Circuit then reversed and awarded Abercrombie summary judgment. It concluded that ordinarily an employer cannot be liable under Title VII for failing to accommodate a religious practice until the applicant (or employee) provides the employer with actual knowledge of her need for an accommodation. 575 U.S. 768, 770-71 (citing 731 F.3d 1106, 1131 (2013)). 

The Court’s Decision

The Court reversed the Tenth Circuit. It held that to prevail in a disparate-treatment claim, an applicant need show only that his or her need for an accommodation was a motivating factor in the employer’s decision, not that the employer had knowledge of his or her need. 

First, the Court observed that Title VII’s disparate-treatment provision forbids employers to: (1) “fail … to hire” an applicant (2) “because of” (3) “such individual’s … religion” (including religious practice). In Elauf’s case, Abercrombie (1) failed to hire Elauf, and the parties agreed that (if Elauf sincerely believed that her religion so required) Elauf’s wearing of a headscarf was (3) a “religious practice.” Therefore, the Court determined that the only remaining question was whether she was not hired (2) “because of” her religious practice. 575 U.S. 768, 772. 

The Court then discussed the meaning of “because of.” The Court observed that under its decision in University of Tex. Southwestern Medical Center v. Nassar, 570 U.S. 338, 133 S.Ct. 2517 (2013) “because of” refers to the traditional notion of “but-for” causation. 575 U.S. 768, 772-73. It further observed, however, that Title VII relaxes this standard to prohibit even making a protected characteristic a “motivating factor” in an employment decision. 575 U.S. 768, 773 (quoting 42 U.S.C. § 2000e–2(m)). 

The Court explained that the “because of” language in § 2000e–2(a)(1) links the forbidden consideration to each of the verbs preceding it. Therefore, an individual’s actual religious practice may not be a motivating factor in failing to hire, in refusing to hire, and so on. 575 U.S. 768, 773.  

Importantly, the Court found, § 2000e–2(a)(1) does not impose a knowledge requirement on the employer. This makes Title VII different from some other antidiscrimination statutes, which do impose a knowledge requirement. For example, the Americans with Disabilities Act of 1990 defines discrimination to include an employer’s failure to make “reasonable accommodations to the known physical or mental limitations” of an applicant. 575 U.S. 768, 773 (quoting 42 U.S.C. § 12112(b)(5)(A) (emphasis added by the Court). But Title VII contains no such limitation. 575 U.S. 768, 773.

Therefore, the Court determined that Title VII’s intentional discrimination provision “prohibits certain motives, regardless of the state of the actor’s knowledge.” 575 U.S. 768, 773 (emphasis in original). This is because “[m]otive and knowledge are separate concepts.” Id. For example, the Court pointed out that “an employer who has actual knowledge of the need for an accommodation does not violate Title VII by refusing to hire an applicant if avoiding that accommodation is not his motive.” Id. (emphasis in original). And on the other side of the token, “an employer who acts with the motive of avoiding accommodation may violate Title VII even if he has no more than an unsubstantiated suspicion that accommodation would be needed.” Id.

Using this rationale, the Court found a straightforward rule for disparate-treatment claims based on a failure to accommodate a religious practice: “An employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in employment decisions.” Id. 

As an example of this rule, the Court provided a hypothetical where an employer thought (without knowing for certain) that a job applicant may be an orthodox Jew who would observe the Sabbath, and therefore be unable to work on Saturdays. The employer could not, under Title VII, decline to hire the applicant if the employer’s desire to avoid that accommodation was a motivating factor in that decision: “If the applicant actually requires an accommodation of that religious practice, and the employer’s desire to avoid the prospective accommodation is a motivating factor in his decision, the employer violates Title VII.” 575 U.S. 768, 773-74.

Finally, the Court rejected Abercrombie’s argument that in declining to hire Elauf it did not violate Title VII’s intentional discrimination requirement because it was simply applying a “neutral policy” about headwear. The Court observed that religious practices are entitled to “favored treatment” under Title VII:

But Title VII does not demand mere neutrality with regard to religious practices—that they be treated no worse than other practices. Rather, it gives them favored treatment, affirmatively obligating employers not “to fail or refuse to hire or discharge any individual … because of such individual’s” “religious observance and practice.”

575 U.S. 768, 775. 

The Court acknowledged that an employer like Abercrombie is entitled to have a no-headwear policy “as an ordinary matter.” But when an applicant requires an accommodation as an “aspec[t] of religious … practice,” the Court found that it would be no response for an employer to argue that the subsequent “fail[ure] … to hire” was due to an otherwise-neutral policy. Instead, “Title VII requires otherwise-neutral policies to give way to the need for an accommodation.” 575 U.S. 768, 775.

Analysis

In sum, Abercrombie held that to prove a religion-based disparate treatment claim under Title VII, a job applicant need only show that her need for a religious accommodation was a motivating factor in the employer’s adverse employment action. This rule does not require the applicant to show that the prospective employer knew that the applicant’s practice was a religious practice requiring accommodation. More generally, the Court observed that Title VII gives favored treatment to religious practices and requires employers to accommodate the same so long as the accommodation does not create an undue hardship for the employer. 

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Originally published on Tim Coffield’s website.