FIFTH CIRCUIT SERVES RESTAURANT EMPLOYERS A SECOND CHANCE FOR INJUNCTION AGAINST DOL’S NEW “TIP CREDIT” RULE

 

In a win for restaurant employers using “tip credit” to pay employees, the U.S. Court of Appeals for the Fifth Circuit ruled that a Texas District Court erroneously denied a preliminary injunction against enforcement of a rule that causes “irreparable harm” to employers. In the 2-1 opinion, the Fifth Circuit panel reversed the decision against the Restaurant Law Center and Texas Restaurant Association in the groups’ action against the U.S. Department of Labor (DOL), and sent the matter back to the lower court for further proceedings consistent with its ruling.

Generally, employers are required to pay nonexempt workers at least the minimum wage of $7.25 per hour. However, the Fair Labor Standards Act (FLSA) allows an employer to satisfy a portion of its minimum wage obligation to a “tipped employee” by allocating a partial credit, known as a “tip credit,” toward the minimum wage based on the amount of tips an employee receives. This allows the employer to pay a direct cash wage as low as $2.13 per hour, provided they make up the difference with tips earned by and paid to the employee. Tip credit is used extensively in the restaurant and hospitality industries to manage high up-front labor costs. However, proper compliance with tip credit can be complex and mistakes are common.  

In 2021, the Biden Administration’s DOL introduced a new rule that further complicated the use of the tip credit method for employers. Under the “80/20” and “continuous 30-minute” provisions, if an employee spends more than 20% of their time or 30 continuous minutes doing non-tip-producing work, the employer cannot utilize tip credit and is required to pay at least the full minimum wage. DOL makes clear its hostility to the tip credit method of payment and its intent to discourage its use and vigorously investigate any allegations of noncompliance.

In February 2022, the U.S. District Court for the Western District of Texas denied a motion for a preliminary injunction filed by the Restaurant Law Center and Texas Restaurant Association. In its ruling, the District Court did not reach the merits of their claims against the rule, but instead held that Plaintiffs “had failed to show they were irreparably harmed by the costs of complying with the new rule” and found the additional costs of time monitoring and recordkeeping were “purely speculative.” “overstated,” and “unspecific.”

The Fifth Circuit panel majority held that the District Court ignored well-established precedent that “non-recoverable compliance costs for ongoing managements costs to ensure compliance with the 80/20 and continuous 30-minute provisions are usually irreparable harm.” The opinion noted that Plaintiffs’ witnesses testified that managers must incur an additional 8-10 hours of time a week to comply with the rule, and the DOL conceded that compliance costs nationwide would be $177 million annually. 

The majority strongly described the DOL’s arguments that the new rule did not impose new recordkeeping requirements on employers as “meritless.” The court stated:

To claim the tip credit, employers must “ensure that tipped employees are not spending more than 20 percent of their time on directly supporting work, or more than 30 minutes continuously performing such duties.” We cannot fathom how an employer could honor these specific constraints without recording employee time. What if an employer is investigated by the Department or sued by an employee for wrongly claiming the tip credit? Without time records, how could an employer defend itself?

***

In the same vein, the Department also claims that “employers need not engage in ‘minute to minute’ tracking of an employee’s time in order to ensure that they qualify for the tip credit.” No explanation is given (nor can we imagine one) why an employer would not have to track employee minutes to comply with a rule premised on the exact number of consecutive minutes an employee works. The Department also assures us that a “30-minute uninterrupted block of time . . . can be readily distinguished from the work that surrounds it. Maybe so, but that does not remove an employer’s need to account for blocks of employee time, especially if an employer is accused of violating the rule.

Finding that the restaurant Plaintiffs met their burden of showing irreparable harm, the case will return to the the District Court to determine if the Plaintiffs can meet the remaining tests for a preliminary injunction and succeed on the merits of the case.

In October 2022 while the appeal was pending, the case was reassigned from Judge Robert Pitman to Judge David Ezra. Prior to the Fifth Circuit ruling, both the DOL and the restaurant Plaintiffs filed motions for summary judgment which have yet to be ruled upon.

Please contact Mark Fijman or any member of Phelps’ Labor and Employment team if you have questions or need compliance advice or guidance on labor and employment issues in the restaurant or hospitality industry.

EMPLOYMENT LAW AND A NEW ADMINISTRATION

 



One of the biggest employment law developments of 2016 will carry over into 2017 and a new administration.  Employers nationwide spent much of the past year preparing for the December 1, 2016 implementation of the Department of Labor’s (“DOL”) Final Rule, bumping the minimum salary level for white collar exemptions under the Fair Labor Standards Act ("FLSA") from $23,660 annually ($455 per week) to $47,476 annually ($913 per week).  However, just days before this key initiative of the Obama administration was to go into effect, a federal judge in Texas issued a nationwide preliminary injunction, finding the DOL had likely exceeded its authority under the FLSA. While breathing a sigh of relief, employers were left wondering what would happen next.

Current Labor Secretary Thomas Perez has since appealed the decision to the U.S. Court of Appeals for the Fifth Circuit, seeking expedited review.  However, even under the expedited briefing schedule set by the Fifth Circuit, oral argument would not take place until at least February 2017, which would be after Donald Trump takes office.  This would allow the DOL, under Trump’s expected Labor Secretary Andy Puzder, to abandon the appeal.  Puzder, who is the current CEO of the parent company of Hardee’s and Carl’s Jr., has gone on record as to his strong opposition to the DOL’s overtime rule. 

My first prediction of 2017 is the Final Rule and its increased minimum salary requirement never goes into effect. Not surprisingly, Puzder also opposes efforts to increase the minimum hourly wage to $15, claiming such a significant increase would hasten the move to automation in the fast food industry and cost jobs.

In these waning days of 2016, the Equal Employment Opportunity Commission (“EEOC”) offered guidance to employers as to the rights of employees with mental illnesses under the Americans with Disabilities Act, and issued updated enforcement guidelines on national origin discrimination, including question and answer guidance and advice for small businesses.  Generally, national origin discrimination refers to: (a) treating an individual less favorably because he or she is from a certain place or has the physical, cultural, or linguistic characteristics of a particular national origin (ethnic) group; or (b) using an employment policy or practice that disproportionately impacts people on the basis of national origin and is not shown to be job related and consistent with business necessity. 

President Trump also will be putting his stamp on the EEOC.  As previously reported,  over the last eight years, the EEOC has taken a very aggressive posture toward employers, including lawsuits against companies over criminal background checks and separation agreements.  The EEOC’s actions and litigation conduct earned it some harsh words and harsh rulings from a number of federal courts. 

President Trump will select a new EEOC Chairman and a new EEOC General Counsel in 2017, both of whom will set the tone and agenda of the agency going forward.  With the Trump administration’s focus on reducing regulations faced by businesses, one target could be recent major revisions to the Employer Information Report (EEO-1).  With a focus on equal pay issues, the new form will require employers to list employee pay and hours by categories of sex, race and ethnicity.  The regulations are slated to go into effect in March 2018, but under a new administration, could be revised or even abandoned.



Sun Worshipping Atheist Loses Religious Discrimination Suit

In religious discrimination cases under Title VII, courts are often reluctant to “play God” by deciding what is or is not a sincerely held religious belief or practice. The cases usually hinge on whether the employer reasonably accommodated the employee’s religious conflict with a workplace policy, or whether the requested accommodation imposed an undue hardship on the employer.  As noted in my original article “The Employee with the Dragon Tattoo”, even tattoos and piercings have been recognized as sincerely held religious practices.

However, the California Court of Appeals has held that a prison guard’s self-created church of “Sun Worshiping Atheism” is not a protected religion, and the employer had no duty to accommodate the plaintiff’s belief in getting a full night’s sleep by waiving mandatory overtime hours. [Marshel Copple v. California Department of Corrections and Rehabilitation (Cal. Ct. App. 4^th Dist.)]

When hired at the prison, Marshel Copple was told there was mandatory overtime. However, shortly after being hired, he requested to work only 8 hour shifts based on Sun Worshiping Atheism’s religious tenets of praying in the sun, exercising, socializing, getting fresh air, sleeping well and being skeptical in all things.  When the prison declined to accommodate his request, he refused to work three overtime shifts and subsequently resigned, claiming constructive discharge. He filed an EEOC Charge, which was dismissed and and subsequently brought suit under California’s Fair Employment and Housing Act.  Following a summary judgment ruling against him in a lower court, he appealed the adverse ruling.

In affirming the dismissal of the lawsuit, the California appellate court held that religions address “fundamental and ultimate questions having to do with deep and imponderable matters”, and that Sun Worshiping Atheism was simply a practice of living a healthy lifestyle, with none of the trappings of a religion.

In my post “Sign of the Beast Hand Scanning Case Provides Valuable Lesson to Employers", I discussed how an employer’s failure to accommodate an employee’s religious beliefs resulted in a high dollar jury verdict for the employee.  In that case, the employee was denied a reasonable accommodation to his religious belief that the technology behind the employer’s hand scanning time clock system had a connection to the “mark of the beast”  as alluded to in the Book of Revelation in the New Testament of the Bible. 

However in a recent similar case, the United States Court of Appeals for the Sixth Circuit found in favor of the employer, where the employee refused to provide a Social Security number because he considered it the “mark of the beast.”  In Yeager v. FirstEnergy Generation Corp. (6^th Cir.), the Sixth Circuit held an employer has no duty to accommodate a religious belief where such an accommodation would violate a federal statute, which in this case, required the employer to collect and report the Social Security numbers of their employees.

Mark Fijman is a labor and employment attorney with Phelps Dunbar, LLP, which has offices in Louisiana, Mississippi, Florida, Texas, Alabama, North Carolina and London. To view his firm bio, click here. He can be reached at (601) 360-9716 and by e-mail at fijmanm@phelps.com

Settlement in HIV Termination Lawsuit Highlights Continuing Employer Confusion over ADA

A nationwide manufacturer and distributor of fruit juice will pay $125,000 to settle a lawsuit brought by the EEOC on behalf of an employee who was terminated after the company learned he was HIV-positive. [EEOC v. Gregory Packaging, Inc. (N.D. Ga.]  The fact that the employer specifically told the man he was being terminated because of his HIV status highlights continuing employer confusion over the Americans with Disabilities Act (“ADA”), even twenty-five years after its passage, and especially as it relates to employees with HIV/AIDS.

The plaintiff in the case was employed as a machine operator at the Newnan, Georgia facility of Gregory Packaging, Inc., a company that sells juice products to school districts and medical institutions. When the employee developed a skin rash unrelated to his HIV, rumors began to circulate among other employees that the employee’s rash was the result of AIDS.  In an effort to quash the rumors, the employee informed his supervisor that while he did have HIV, the skin condition was unrelated, and there was no danger of him transmitting HIV to food products or co-workers.  Despite his good job performance, and no evidence of a health risk, the employee was terminated approximately a month later.  He was informed the reason he was being fired was because he had HIV.

The employee declined a separation agreement offered by the company, which included a release of claims. The Equal Employment Opportunity Commission (“EEOC”) subsequently brought a lawsuit on the employee’s behalf, alleging violations of the ADA and similar claims brought under Georgia state law.  Despite the company’s early efforts to fight the lawsuit, the case was settled pursuant to a court-approved consent order, which provided for the $125,000 payment by the New Jersey based company, and required equal employment opportunity training and reporting to the EEOC.

What is most surprising about this case, is that even before the ADA’s expansion under the Americans with Disabilities Amendment Act (“ADAAA”), it was generally established that a person with HIV/AIDS met the Act’s definition of an individual with a disability.  Furthermore, as noted in EEOC guidelines, even those who are regarded as having HIV/AIDS are protected under the Act, even if they do not have the disease.  The example given by the EEOC is a person being fired on the basis of a rumor that he had AIDS, even though he was not infected.

Employers involved in the food and restaurant industry are often at the focus of these types of lawsuits. As was the case at Gregory’s Georgia facility, the situation is often fueled and exacerbated  by rumors spread by co-workers or customers, and fears of HIV/AIDS being transmitted through an employee’s contact with food products.   

According to the Department of Health and Human Services, HIV/AIDS is not a disease that can be transmitted through food handling. Diseases that can be transmitted by an infected person handling food include (1) noroviruses, (2) the Hepatitis A virus, (3) Salmonella, (4) Shigella, (5) Staphylococcus, and Streptococcus.  For more detailed information, employers in the food service/restaurant industry can find guidance through the EEOC publication “How to Comply with the Americans withDisabilities Act: A Guide for Restaurants and Other Food Service Employers.”

Employer’s also need to be aware that in the context of HIV/AIDS, the ADA also protects employees who do not have the disease, but have an association or relationship with someone who does.  In the EEOC guidelines, examples of employment discrimination against persons with HIV or AIDS include:

•         An automobile manufacturing company that had a blanket policy of refusing to hire anyone with HIV or AIDS.

•         An airline that extended an offer to a job applicant and then rescinded the offer after the employer discovered (during the post-offer physical) that the applicant had HIV.

•         A restaurant that fired a waitress after learning that the waitress had HIV.

•         A university that fired a physical education instructor after learning that the instructor’s boyfriend had AIDS.

•         A County tax assessment office that cancelled training opportunities for an accountant following her disclosure that she had HIV.

•         A retail store that generally rotated all sales associates between the sales floor (where they could earn commissions) and the stock room (where they processed merchandise) except for the sales associate who was rumored to have HIV, who was never rotated to the floor.

•         A call center employee who was denied a promotion to shift manager because his employer believed the employee would be unreliable since he had AIDS.

•         A company that contracted with an insurance company that had a cap on health insurance benefits provided to employees for HIV-related complications, but not on other health insurance benefits.

While the ADA does include a “direct threat” defense in regard to employees who pose a significant risk of substantial harm to the health and safety of the employee or others, the defense  requires medical or other objective evidence, as opposed to subjective beliefs or assumptions based on stereotypes.  However, the take-away from this case is that proper training of supervisors in addressing ADA issues is a much better and less expensive option than having to establish defenses after a suit has been filed.

Mark Fijman is a labor and employment attorney with Phelps Dunbar, LLP, which has offices in Louisiana, Mississippi, Florida, Texas, Alabama, North Carolina and London. To view his firm bio, click here. He can be reached at (601) 360-9716 and by e-mail at fijmanm@phelps.com





EEOC Experiences “Separation Anxiety” in Lawsuit Against CVS

          The details are still yet to be known, but word out of Chicago is that the EEOC has suffered a big defeat in their controversial lawsuit against CVS Pharmacy, over the drug store chain’s use of separation agreements.  Employers commonly use separation or severance agreements when the employment relationship ends. In exchange for some type of payment, the employee agrees to a general release of any potential claims he or she might have against the employer, and possibly other provisions, such as confidentiality and non-disparagement clauses.

As reported in my August 8, 2014 post “Mad Men: The EEOC Advertises its Aggressive Agenda”, earlier this year, the EEOC filed a lawsuit against CVS, claiming the drug store chain’s use of its standard separation agreement demonstrated a pattern and practice of CVS interfering with employees' Title VII in a way that “deters the filing of charges and interferes with employees' ability to communicate voluntarily with the EEOC.” 

The EEOC’s lawsuit was troubling for many in the business community, because employers nationwide commonly use the language being attacked in the CVS agreements. In the event the EEOC were to prevail, it could have result in chaos for many businesses, casting into doubt the validity of such standard severance agreements, and potentially allowing former employees to revive previously barred claims.  

On September 18, 2014, U.S. District Court Judge John Darrah verbally granted CVS’s motion to dismiss based on the EEOC’s failure to state a claim, and an opinion is expected shortly that will give the Court’s basis for dismissing the EEOC’s lawsuit.  CVS has announced it is pleased with the decision and the EEOC is withholding comment until it sees the Judge’s written opinion.

It is not surprising that the EEOC filed the lawsuit.  In its Strategic Enforcement Plan for 2013-2016, the EEOC had announced its intent to target employer policies it claimed discouraged or prohibited individuals from exercising their legal rights, including overly broad waivers or settlement provisions that prohibited filing EEOC charges or providing information in EEOC or other legal proceedings.

In its rush to file a “test” case, the EEOC might have made the error of simply picking the wrong defendant to go after, or not bothering to actually read the agreements in question.  When it filed its motion to dismiss, CVS noted that its separation agreements expressly allowed for employees to participate with and cooperate in any investigation by a government agency, including the EEOC. Specifically, CVS’s agreements expressly note that none of the provisions are:

“[I]ntended to or shall interfere with employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit employee from cooperating with any such agency in its investigation,” provided of course that the employee waives her entitlement to monetary and other relief.

       The decision in the CVS case may not bode well for a similar lawsuit filed by the EEOC in the United States District Court of Colorado.  Some legal commentators have suggested that the EEOC may be trying to use this type litigation to impose new guidelines for such agreements, or perhaps as a prelude to more formalized regulation

Mark Fijman is a labor and employment attorney with Phelps Dunbar, LLC, which has offices in Louisiana, Mississippi, Florida, Texas, Alabama, North Carolina and London. To view his firm bio, click here. He can be reached at (601) 360-9716 and by e-mail at fijmanm@phelps.com