THE NEW YEAR MAY BRING A BROADER SCOPE TO TITLE VII AND GREATER POTENTIAL LIABILITY TO EMPLOYERS

 Does Title VII of the Civil Rights Act only apply when workplace discrimination is an “ultimate employment decision” or does any disparate treatment based on an employee's sex, race or other protected class violate the law, even if there is no tangible harm?

That is the question the United States Supreme Court will be answering in 2024, after having heard oral arguments in Muldrow v. City of St. Louis, Missouri in December 2023.

If the Court ultimately holds that Plaintiffs are not required to show an “ultimate employment decision,” employers can expect an increase of claims that would not previously have survived to trial. Such a decision would also broaden the types of conduct that could expose employers to liability under Title VII.

The Facts of the Case

The case being considered concerns Jatonya Muldrow, a police sergeant with the City of St. Louis. She claimed she was discriminated against based on her sex when she was transferred out of a police intelligence unit, even though the transfer did not result in any changes to her pay, benefits, rank, or working conditions. A federal District Court ruled against Muldrow, and the U.S. Court of Appeals for the Eighth Circuit affirmed the dismissal, holding that a transfer was not a materially adverse employment decision under Title VII. “Materially adverse” or “ultimate employment” decisions typically involve employment actions such as terminations, demotions, failure to hire or a failure to promote.

However, following the Eighth Circuit appellate ruling against Muldrow, two other Circuit Courts held that Title VII has no such requirement, most notably in the en banc Fifth Circuit decision, which involved scheduling policies for female detention officers. The Fifth Circuit ruled that the phrase “ultimate employment decision” was too limited, appears nowhere in the plain language of Title VII, and ignores the broad remedial scope of the law. The Supreme Court’s expected ruling in Muldrow will resolve this circuit split.

At oral arguments on Dec. 6, counsel for Muldrow argued that establishing discrimination as to a term, condition, or privilege of requirement is all that Title VII requires and there is no requirement to show the materiality or severity of the harms caused. The City of St. Louis responded that Congress did not intend Title VII to address trivial issues where there was no “significant material objective harm.” The questions posed by the Justices seemed to suggest a majority are favorable to Muldrow’s position.

A Supreme Court ruling that eliminates the “ultimate employment decision” requirement would be expected to increase the number of workplace discrimination claims filed with the Equal Employment Opportunity Commission and a corresponding increase in civil litigation against employers. While waiting for the Supreme Court to issue its decision, employers would be well advised to update their anti-discrimination policies and training.            

Please contact Mark Fijman  if you have questions on this or need advice or guidance. 

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.

“TIP CREDIT” IS A DOUBLE-EDGED KNIFE FOR RESTAURANT EMPLOYERS

In the restaurant business, using the “tip credit” method of paying employees under the Fair Labor Standards Act (“FLSA”) is analogous to a kitchen worker chopping vegetables with an extremely sharp chef’s knife.  If handled properly, it’s an extremely useful tool for restaurants to manage high up-front labor costs.  If handled carelessly, it can result in expensive litigation and high-dollar liability. 

A national steakhouse chain recently agreed to pay $995,000 as part of a settlement to resolve claims it failed to properly pay servers and other employees who received tips. For smaller businesses with less resources, mistakes with tip credit can result in catastrophic liability.  Likewise, the continued use of tip credit by the restaurant industry and other hospitality businesses is under attack by the current U.S. Department of Labor.

The Basics

In most instances, employers are required to pay nonexempt workers at least the minimum wage of $7.25 per hour. However, the FLSA allows an employer to satisfy a portion of its minimum wage obligation to a “tipped employee” by taking a partial credit, known as a “tip credit,” toward the minimum wage based on the amount of tips an employee receives. 29 U.S.C. 203(m)(2)(A). This allows paying a subminimum wage, as low as $2.13 per hour, provided that the employer makes up the difference with tips earned by and paid to the employee. Under the FLSA a “tipped employee” is defined as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”

Compliance with tip credit can be complex and mistakes are common. Failure to abide by the extremely strict rules can invalidate the employer’s entitlement to the tip credit and make the restaurant liable for unpaid wage claims, liquidated damages and attorneys’ fees.  The basic requirements for restaurants to use the tip credit include:

•    The employer must notify workers in advance that: (a) the employer intends to utilize the tip credit and treat tips as satisfying part of the employer’s minimum wage obligations and (b) if the amount of tips plus hourly wages does not match or exceed the applicable minimum wage, the employer must make up the difference. The FLSA does not require this notice to be in writing, but it is a best practice to do so and have the employee agree by signing a form.

• Tipped employees must retain all tips earned by that employee. The restaurant or managers cannot receive any portion of the tips.

• Only employees who customarily receive tips, such as servers, may be paid utilizing the tip credit. Typically, back-of-house workers, such as cooks and dishwashers, cannot be paid using the tip credit.

• The exception to restaurant employees retaining all tips is if there is a valid tip pooling arrangement where all tips are combined and shared among all tipped employees according to a pre-determined formula. A tip pool will be considered invalid if non-eligible workers or managers are allowed to participate.

Hostility to Tip Credit from the U.S. Department of Labor

Compliance with the tip credit has recently become even more problematic. The Biden Administration’s DOL has reinstated the so-called “80/20” rule. Under the reinstated policy, when tipped employees spend at least 20% of their workweek performing duties that support their occupation but do not directly produce tips, their employers are required to pay them a direct cash wage of at least $7.25/hour for that work, instead of a direct cash wage of $2.13/hour, with the remainder made up by tips. Examples of work that is not tip producing might include a server preparing food for a salad bar or cleaning the kitchen or bathroom or a bartender cleaning the dining room. 

The current DOL has made clear its hostility to the tip credit method of payment and its intent to discourage its use, as well as its intent to vigorously investigate any allegations of noncompliance. For this reason, restaurants should make sure they are meeting all of the requirements and potentially consult with counsel on alternative payment methods.

Mandatory Service Charge v. Tip Credit?

A recent decision by the U.S. Court of Appeals for the Eleventh Circuit illustrates how some restaurants may be moving away from using the tip credit method versus a mandatory customer service charge that would go toward paying employee wages and potentially avoid the headaches of tip credit.  

In Compere v. Nusret Miami, an upscale Miami steakhouse added a mandatory 18% "service charge" to customers' bills. It directly collected these payments and redistributed them to certain employees on a pro rata basis to cover the restaurant’s minimum and overtime wage obligations. Unlike tips, the service charge payments never went directly to the wait staff. Employees sued the restaurant, claiming the service charge was in fact, actually a tip.  

The Eleventh Circuit ruled in the restaurant’s favor, finding that because it was a mandatory charge, unaffected by the customer’s discretion.  However, using this method also carries its own complicated requirements and wage issues, and while common in other countries, American restaurant customers do not generally favor mandatory service charges.

Please contact Mark Fijman  if you have questions or need compliance advice or guidance as to labor and employment issues in the restaurant or hospitality industry. 

Avoid These Employment Law “Kitchen Fires” to Protect Your Restaurant and Your Employees

 

With restaurants struggling to return to normal after more than two years of COVID-19 shutdowns and restrictions and employee shortages, the last thing any restaurant owner wants to deal with is a costly lawsuit brought by a either a current or former employee, or potentially worse, by the Equal employment Opportunity Commission (EEOC) or the U.S. Department of Labor.

In this series of articles, first published  as Phelps Dunbar Employment Law Insights, I outline potential employment law “kitchen fires” that restaurant owners should be aware of, and what steps they need to take to avoid lawsuits and the expense and business disruption they can bring.

According to the EEOC, the restaurant industry is the single largest source of sexual harassment claims in the U.S. And it accounts for more than one-third of all sexual harassment claims from women. Recent surveys show 90% of women and 70% of men working in restaurants have experienced some form of sexual harassment from either managers, co-workers or customers. On a regular basis, well-known restaurant companies and celebrity chefs are being hit with sexual harassment claims as well as high-dollar judgments. Part One of the series covers the laws against sexual harassment in the workplace, how to prevent it in a restaurant environment, and how proper policies and training can protect against liability.

Part Two looks at restaurant liability under the federal Fair Labor Standards Act (FLSA). This is the law that requires employers to pay at least minimum wage and time and a half for all hours worked over 40 in the workweek. The FLSA can be a complicated and confusing law, and it is common for employers to make mistakes. Lack of compliance in a restaurant setting with multiple employees can lead to collective actions, which could potentially bankrupt a business. Part Two also looks at recent changes to the “tip credit” method of paying employees, misclassifying employees as exempt “managers,” liability for employees “working off the clock,” child labor laws, and what to do when faced with a Department of Labor investigation.

Part Three examines the federal statutes against employment discrimination on the basis of race, national origin, sex and age, the risks of liability for “English only” policies, and the legal requirement for restaurants to make reasonable accommodations on the basis of religion and disability.

Part Four looks at other easily overlooked employment law kitchen fires, such as a restaurant’s failure to comply with the federal immigration law by correctly completing Form I-9’s for each employee, the potential liability in conducting background checks on potential employees, and how failing to openly display required employment law posters in your restaurant can be a costly and strategic mistake.

In addition to avoiding expensive legal problems, compliance with relevant employment laws might also help to address the restaurant headache of high employee turnover. This series addresses compliance with federal law, but many states have their own varying employment standards. Where appropriate, restaurants should engage counsel for assistance in complying with federal, state and local laws.

Please contact Mark Fijman or any member of Phelps’ Labor and Employment team if you have questions or need compliance advice or guidance.

EEOC ISSUES UPDATED COVID-19 VACCINATION GUIDANCE TO EMPLOYERS

 

The Equal Employment Opportunity Commission (“EEOC”) has released updated and expanded technical assistance addressing frequently asked questions concerning COVID-19 vaccinations in the employment context, and what is permissible under federal equal employment opportunity (“EEO”) laws, such as the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act (“GINA”).

The key updates to the technical assistance are summarized below:

• Federal EEO laws do not prevent an employer from requiring all employees physically entering the workplace to be vaccinated for COVID-19, so long as employers comply with the reasonable accommodation provisions of the ADA and Title VII of the Civil Rights Act of 1964 and other EEO considerations. Other laws, not in EEOC’s jurisdiction, may place additional restrictions on employers.  From an EEO perspective, employers should keep in mind that because some individuals or demographic groups may face greater barriers to receiving a COVID-19 vaccination than others, some employees may be more likely to be negatively impacted by a vaccination requirement.
• Federal EEO laws do not prevent or limit employers from offering incentives to employees to voluntarily provide documentation or other confirmation of vaccination obtained from a third party (not the employer) in the community, such as a pharmacy, personal health care provider, or public clinic. If employers choose to obtain vaccination information from their employees, employers must keep vaccination information confidential pursuant to the ADA.
• Employers that are administering vaccines to their employees may offer incentives for employees to be vaccinated, as long as the incentives are not coercive. Because vaccinations require employees to answer pre-vaccination disability-related screening questions, a very large incentive could make employees feel pressured to disclose protected medical information.

The EEOC has also posted a new resource for job applicants and employees, explaining how federal employment discrimination laws protect workers during the pandemic.

DOL Announces Continuing Standard for when “Telemedicine” is Considered an “In-Person” Visit for Establishing a Serious Health Condition Under the FMLA

The U.S. Department of Labor (“DOL”) has released a new Field Assistance Bulletin (“FAB”) to address an issue arising under the Family Medical Leave Act (“FMLA”) in the midst of the continuing COVID-19 pandemic and the shift to telework. 

 The FMLA provides eligible employees of covered employers with unpaid, job-protected leave for specified family and medical reasons, including a “serious medical condition”, the definition of which can include treatment by a healthcare provider. The DOL regulations provide that “[t]reatment by a health care provider means an in-person visit to a health care provider.” In July 2020, in response to the COVID-19 pandemic, and the increased need for social distancing, the DOL announced that a telemedicine visit by video conference would be considered an in-person visit for purposes of the FMLA, through December 31, 2020. 

In the new FAB, the DOL announced this standard will continue into 2021. The Department noted that health care providers are now often using telemedicine to deliver examinations, evaluations, and other healthcare services that would previously have been provided only in an office setting. Given this experience, and continuing the policy adopted in response to the COVID-19 pandemic, WHD will consider a telemedicine visit with a health care provider as an in-person visit provided specified criteria are met. 

To be considered an “in-person” visit, the telemedicine visit must include: 

· an examination, evaluation, or treatment by a health care provider;

· be permitted and accepted by state licensing authorities; and,

· generally, should be performed by videoconference. 

 According to the DOL, communication methods that do not meet these criteria (e.g., a simple telephone call, letter, email, or text message) are insufficient, by themselves, to satisfy the regulatory requirement of an “in-person” visit.

POT ON THE BALLOT COULD PUT EMPLOYER POLICIES OUT OF JOINT AND INTO THE COURTROOM

As this contentious presidential campaign season draws to a close on November 3, 2020, voters in five states also will be casting their ballots on legalization of marijuana. Arizona, Montana, New Jersey and South Dakota will decide whether to approve recreational marijuana, and Mississippi voters will choose whether to approve medical marijuana.

 

 However a recent federal court case in Pennsylvania, demonstrates the pitfalls and legal liabilities that employers can face in a state where marijuana is legal. In Hudnell v. Jefferson University Hospitals, Inc. (E.D. Pa. Sept. 25, 2020), a U.S. District Court allowed an employee fired for testing positive for marijuana to bring a lawsuit against her employer under Pennsylvania’s Medical Marijuana Act (“MMA”). 

 The plaintiff in the case, Donna Hudnell, was hired by Thomas Jefferson University Hospitals (“the Hospital”) as a security analyst in 2016. By 2018, she began experiencing severe back pain that limited her ability to work, walk and sleep. Recreational marijuana is illegal in Pennsylvania, but medical marijuana is legal under the state’s MMA. Patients prescribed medical marijuana are required to be certified by a physician and receive a medical marijuana card. Hudnell’s physician, who also worked at the Hospital, prescribed her medical marijuana to alleviate her back pain. However, her condition worsened and she was approved to work from home in May of 2019.

In October 2019, she asked to return to work and was required under the Hospital’s policies to take a drug test, because she had been out for more than 90 days. She gave the testing nurse copies of all her prescriptions, including her medical marijuana card. The nurse informed Hudnell that the card had expired in August. Hudnell responded she had renewed her card in August but her appointment with her physician for recertification was scheduled for five days later. Her physician at the Hospital re-certified her at that time.

However, the hospital subsequently terminated her under their drug testing policy, because at the time she was tested, and was positive for marijuana use, she did not have a valid and certified medical marijuana card. 

She subsequently sued the Hospital under Title VII of the Civil Rights of 1964, Pennsylvania’s Human Relations Act, and also alleged a claim under Pennsylvania’s MMA. Written into the MMA is a provision that “[n]o employer may discharge, threaten, refuse to hire or otherwise discriminate or retaliate against an employee regarding an employee’s compensation, terms, conditions, location or privileges solely on the basis of such employee’s status as an individual who is certified to use medical marijuana.” 

In regard to Hudnell’s MMA claim, the Hospital asked the court to dismiss the claim on the basis that the MMA did not explicitly provide a private cause of action allowing an employee to file a lawsuit. The Hospital also argued the statute did not apply to her because she did not have a valid medical marijuana card when tested.

 

In ruling against the Hospital and finding Hudnell had a right to sue under the MMA, the federal court determined that there was an implied right of action because, without one, the anti-discrimination provision would have no practical effect, and allowed Hudnell’s litigation against the Hospital to proceed.

The lesson for employers in states that legalize marijuana, is that the language of these statutes can vary widely as to the protections afforded to employees, and employers may have to adjust their policies to comply, including reasonable accommodation under the Americans with Disabilities Act.  Employers may also need to reexamine their drug testing policies and also address safety and discipline issues in regard to employees being under the influence in the workplace.