APPLIES TO All Employers

EFFECTIVE August 23, 2024

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look The S. Court of Appeals for the Fifth Circuit overturned the Department of Labor’s (DOL) 2021 regulation regarding how employers pay wages for workers who receive tips. Determining whether a job is a tipped occupation requires a look at the job as a whole, rather than looking at individual tasks under that occupation.

Discussion:

In a long-awaited decision, the U.S. Court of Appeals for the Fifth Circuit has overturned the Department of Labor’s (DOL) 2021 regulation regarding how employers pay wages for workers who receive tips. The Fifth Circuit entered an injunction vacating the DOL’s rule making it unenforceable against employers nationwide.

 

History of the DOL Final Rule

 

Under the Fair Labor Standards Act (FLSA), a business can use a “tip credit” when paying an hourly employee who regularly receives tips. The law provides that an employer can pay a tipped employee $2.13/hour and allow the tips that the employee receives to make up the difference of the $7.25/hour minimum wage under the FLSA. This means that if employees do not receive enough tips to bring their hourly pay up to the minimum wage, the employer must make up the difference in wages.

 

Over several years, the DOL has issued various regulations to address the idea that many tipped employees also regularly do work that does not generate tips. In 2021, the DOL issued a Final Rule that confirmed the pre-existing 80/20 rule – allowing an employer to use the tip credit and pay a lower hourly rate only if the employee did non-tipped work for 20% or less of the work time – and went on to instruct that the tip credit did not apply to any continuous amount of non-tipped work over 30 minutes in a daily shift. Instead, for work done over that split, the employer had to pay the full minimum hourly wage.

 

Fifth Circuit Interpretation

 

Shortly after the 2021 Final Rule was issued, various business associations brought suit alleging that the rule was in violation of the direct text of the FLSA. Litigation interpreting the validity of the Final Rule has continued over several years; however, following the Supreme Court’s recent decision to overturn the 1984 Chevron case, the Fifth Circuit determined that they were now required to “independently interpret the statute and effectuate the will of Congress.”

 

In Restaurant Law Center v. U.S. Department of Labor, the court concluded that the rule was arbitrary and capricious because it draws an impermissible, arbitrary line between tip-producing and tip-supporting work, conflicting with the statutory scheme that Congress established under the FLSA. In doing so, the court turned to the definition of a tipped employee under the FLSA: “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” In doing so, it looked at the ordinary meaning of “engaged in” and “occupation” as those terms were defined in 1966 when the tip credit was added to the FLSA. The court concluded that “engaged in an occupation” closely resembles “employed in a job.” Ultimately, the court held that the plain text requires a look at the job as a whole to determine whether it is an occupation that receives tips, rather than looking at individual tasks under that occupation.

 

The court also indicated that the original 80/20 rule, without the 30-minute limitation, does not meet the intent of the FLSA for the same reasons. However, the ruling did not address the validity of the dual-jobs regulation that preceded the original 80/20 rule. Specifically, in 1967, the DOL issued an interpretive regulation which addressed situations where an employee regularly engages in distinct occupations for the same employer, and allowed tipped employees to “occasionally” perform non-tipped duties. Because the dual-jobs regulation focuses on “whether the employee performs tasks unrelated to his or her tipped occupation,” rather than the “amount of time” spent on untipped tasks, the court distinguished it from the 80/20 rule.

 

This leaves employers in an ambiguous position as they are left to determine when employees are engaged in tipped occupations. Even the court acknowledged that the statute itself is ambiguous, implying that there is a “line-drawing problem” with the language of the statute. However, the court also acknowledged that the DOL has tools at its disposal to define tipped occupations, such as O*NET, which provides a “fixed list of duties that tipped employees are required by their employers to perform as part of their work.” Going forward, employers should evaluate employee jobs to determine whether they are tipped, consistent with this ruling as well as applicable state law, which may have different rules around how tipped employees must be paid.

Action Items

1. Review tip credit practices for compliance.
2. Consult with legal counsel when evaluating proper compensation practices for employees who receive tips as part of wages.

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase

APPLIES TO All Employers with Employees in CA

EFFECTIVE As Indicated

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look PAGA representatives do not have standing to intervene in other PAGA representative lawsuits. PAGA penalties do not apply to public entities.

Discussion:

The California’s Private Attorneys General Act (PAGA) continues to be a hot topic for employers. Last month, the California Supreme Court issued two opinions limiting how PAGA impacts employers. On August 1, 2024, in Turrieta v. Lyft, Inc., the California Supreme Court said that an employee who acts as a representative for the State in a PAGA lawsuit does not have the right to intervene in the PAGA lawsuit or settlement of another representative employee. There, employee Turrieta sought to obtain court approval of his PAGA settlement, which would have resolved all PAGA claims that could have been brought against the employer. However, a PAGA plaintiff in another lawsuit against the same employer, with overlapping claims, sought to object to Turrieta’s settlement and intervene in the case. The Court ultimately said that a PAGA plaintiff in a separate lawsuit does not have standing to intervene in another PAGA lawsuit against the same employer.

On August 15, 2024, in Stone v. Alameda Health System, the California Supreme Court said that PAGA penalties do not apply to public entities. Here, a county entity was sued for alleged wage and hour violations under the Labor Code. Default penalties (where the underlying Labor Code violation in the PAGA lawsuit does not have its own penalty) do not apply to public entities because they are not included in the definition of who can be liable. However, the application of nondefault penalties (where the underlying Labor Code violation in the PAGA lawsuit does have its own penalty) was silent as to whether public entities may be liable. The Court ultimately determined that both default and nondefault penalties do not apply to public entities.

Employers should continue to have PAGA claims reviewed by legal counsel to evaluate the appropriate response and litigation strategy.

Action Items

1. Have PAGA claims reviewed by legal counsel.

 

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase

APPLIES TO All Employers with Employees in IL

EFFECTIVE As indicated

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look Illinois amended the Human Rights Act to include new protected classifications and restrictions on the use of AI technology. BIPA reform confirms that multiple alleged collections of an individual’s biometric data constitute a single violation. Employees must meet specific requirements when making requests to review records under Illinois’ Personnel Records Review Act. New protections exist for individuals flagged by an employment eligibility verification system, including federal E-Verify. Pay stubs must meet specific requirements. Employees must be offered paystub records on exit. Employers cannot discharge or discipline employees who refuse to attend mandatory employer-sponsored meetings on political or religious matters.

Discussion

Illinois has passed several significant pieces of legislation that will affect employer obligations and employee rights. Key aspects of each law are discussed below.

 

Amendments to Illinois Human Rights Act

Several laws were signed by Illinois’ Governor that significantly amend the Illinois Human Rights Act.

 

Longer Statute of Limitations Period. Under SB 3310, effective January 1, 2025, the deadline for filing an administrative charge with the Illinois Department of Human Rights based upon employment discrimination, harassment, or retaliation is extended to two years after the date that a civil rights violation allegedly has been committed. Previously, an individual was required to file a claim within 300 calendar days.

 

New Protected Classes.

• Family Responsibility. Effective January 1, 2025, HB 2161 prohibits an Illinois employer from taking adverse actions against an employee, or prospective employee, based upon the employee’s “family responsibilities.” “Family responsibilities” means an employee’s actual or perceived provision of personal care to a family member. Personal care is defined as activities to ensure that a covered family member’s basic medical, hygiene, nutritional, or safety needs are met, or to provide transportation to medical appointments, for a covered family member who is unable to meet those needs themself. Notably, employers are notrequired to make accommodations or modifications to company policies for an employee based upon family responsibilities.
• Reproductive Health Decisions. Effective January 1, 2025, HB 4867 prohibits Illinois employers from unlawfully discriminating against an employee for actual or perceived decisions on reproductive health and welfare. “Reproductive Health Decisions” are defined as “a person’s decisions regarding the person’s use of: contraception; fertility or sterilization care; assisted reproductive technologies; miscarriage management care; healthcare related to the continuation or termination of pregnancy; or prenatal, intranatal, or postnatal care.”

 

Restrictions on the Use of Artificial Intelligence (AI) in Employment Decisions. Under HB 3773, Illinois joins a select group of other jurisdictions taking aim at regulating the use of artificial intelligence (AI) across the employment relationship. Set to go into effect on January 1, 2026, employers will be required to provide notice to employees (including apprentices and applicants for apprenticeship) when an AI tool is used for the purpose of “recruitment, hiring, promotion, renewal of employment, selection for training or apprenticeship, discharge, discipline, tenure, or the terms, privileges, or conditions of employment.”

AI is defined to include content-creating generative AI and more traditional predictive AI, which produces scores, ranks, classifications and other recommendations to assist in decision-making. The amendment does not include job applicants explicitly; however, the text suggests that the scope will extend to job applicants as well. The amendment confirms that employers are liable if the use of AI for any of the purposes listed above results in discrimination against classes of individuals protected by the IHRA.

 

BIPA Reform

Effective August 2, 2024, SB 2979 implements the long-awaited reform to the Illinois Biometric Information Privacy Act (BIPA). The amendments to the law come on the heels of the Illinois Supreme Court decision in Cothron v. White Castle Systems, which found that that each instance of unauthorized collection, storage, and/or use of biometric information without proper consent results in separate “per scan” damages. Now, under the amended law, multiple alleged collections of an individual’s biometric data constitute a single violation, limited to one recovery. The Amendment also makes clear that individuals may execute a BIPA-compliant release using an electronic signature.

 

Updated Wage Statements

Effective January 1, 2025, SB 3208 defines “pay stub” to mean “an itemized statement or statements

reflecting an employee’s hours worked, rate of pay, overtime pay and overtime hours worked, gross wages earned, deductions made from the employee’s wages, and the total of wages and deductions year to date.” Employer must maintain copies of employee pay stubs for at least 3 years after the date of payment.

An employer who provides electronic pay stubs in a manner that a former employee cannot access for at least a full year after separation must offer to provide the outgoing employee with a record of all of the outgoing employee’s pay stubs from the year preceding the date of separation. The offer must be made to the outgoing employee by the end of the outgoing employee’s final pay period. The employer must document in writing the date on which this offer was made and if and how the outgoing employee responded. Employers must also furnish copies of pay stubs to current and former employees within 21 calendar days of a request.

 

Updates to Illinois Personnel Records Review Act

Effective January 1, 2025, HB 3763 will impose new obligations on employees and employers for making and responding to personnel record review requests. For employees, the amended law clarifies that all requests under the Act must be made in writing, which includes electronic communications like text messages or emails. Additionally, each request must:

1. Be made at reasonable intervals, unless otherwise provided in a collective bargaining agreement;
2. Be made to a person responsible for maintaining the employer’s personnel records (e.g., the employers HR department, employee’s supervisor, or to another individual provided for in the employer’s written policy);
3. Identify what personnel records the employee is requesting;
4. Specify if the employee is requesting to inspect, copy, or receive copies of the records;
5. Specify how records should be provided (e.g., in hardcopy or electronic format);
6. Specify whether inspection, copying, or receipt of copies will be performed by that employee’s representative; and
7. If the records being requested include medical information and medical records, include a signed waiver to release medical information and medical records to that employee’s specific representative.

For employers, if a request is submitted in accordance with the above requirements, then employees are entitled to review the following categories of documents:

• Documents that are, have been or are intended to be used in determining that employee’s qualifications for employment, promotion, transfer, additional compensation, benefits, discharge, or other disciplinary action (with limited exceptions);
• Any employment-related contracts or agreements that the employer maintains are legally binding on the employee;
• Any employee handbooks that the employer made available to the employee or that the employee acknowledged receiving;  and
• Any written employer policies or procedures that the employer contends the employee was subject to and that concern qualifications for employment, promotion, transfer, compensation, benefits, discharge, or other disciplinary action.

The Act clarifies that employers must grant at least two requests from an individual or their representative in a calendar year for the inspection, copy, or production of records.  In granting the request, the employer is not obligated to categorize responsive records in any specific manner. An employer may still charge a fee for providing a copy of the requested record; however, there are some new guidelines on how an employer can determine what constitutes a reasonable charge.

 

New Employment Verification Protections

Effective January 1, 2025, SB 0508 will provide new employment protections for individuals flagged by an employment eligibility verification system, including federal E-Verify. Specifically, the bill prevents employers from imposing work authorization verification requirements that are greater than those required by federal law. If an employer asserts that a discrepancy exists in an employee’s employment verification information, the employer is obligated to provide the employee with certain notices, including:

 

• The specific document(s) that the employer deems to be deficient, the reason for deficiency, and upon request by the employee, the employer must give the employee the original document forming the basis for the deficiency;
• Instructions on how the employee may correct the alleged deficiencies, if required to do so by law;
• An explanation of the employee’s right to have representation present during related meetings, discussions, or proceedings with the employer; and
• An explanation of any other rights the employee may have in connection with the alleged discrepancies.

 

In addition to providing these notices, SB 0508 also affords employees additional rights and protections when an employer receives notification from any federal or state agency of a discrepancy in relation to work authorization, including preventing employers from taking any adverse action against the notification of discrepancy.

The law also requires employers to provide notice to each current employee, by posting in English and in any language commonly used in the workplace, of any inspections of I-9 Employment Eligibility Verification forms or other employment records conducted by the inspecting entity within 72 hours after receiving notice of the inspection. If during an inspection the inspecting entity makes a determination concerning the employee’s work authorization documents, the employer is required to send additional notice to the employee of the determination.

 

Required Employer-Sponsored Meetings Banned

Effective January 1, 2025, SB 3649 will prohibit employers from discharging or disciplining employees who refuse to attend mandatory employer-sponsored meetings. The bill seeks to provide “protections from mandatory participation in employer-sponsored meetings if the meeting is designed to communicate an employer’s position on religious or political matters,” as “[e]mployees should not be subject to intimidation tactics, acts of retaliation, discipline, or discharge from their employer for choosing not to participate in employer-sponsored meetings.”

 

SB 3649 broadly defines the topics prohibited in mandatory meetings to include “political matters,” defined as “matters relating to elections for political office, political parties, proposals to change legislation, proposals to change regulations, proposals to change public policy, and the decision to join or support any political party or political, civic, community, fraternal, or labor organization,” as well as “religious matters,” which is defined as “matters relating to religious belief, affiliation, and practice and the decision to join or support any religious organization or association.” The law also provides for an administrative procedure for complaints to be handled by the Illinois Department of Labor.

Action Items

1. Review and revise anti-discrimination and anti-harassment policies to comply with expanded protected classifications.
2. Consult with legal counsel on the use of AI in the workplace.
3. Update employee personnel record review policies and practices.
4. Review employment authorization obligations and update policies and practices for compliance with expanded notice requirements.
5. Update payroll processes to meet pay stub requirements.
6. Update exit procedures to document offering payroll records.
7. Have appropriate personnel trained on updated requirements.

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase

APPLIES TO All Employers with MN Independent Contractors and Employees

EFFECTIVE July 1, 2024

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look HF 5247 severely penalizes employers who misclassify employees as independent contractors. In addition, the bill provides a new test as to whether a construction worker is an independent contractor.

Discussion

HF 5247 increases penalties for employers who misclassify employees as independent contractors. Owners, partners, principals, members, officers, and agents can face individual liability for knowingly or repeatedly engaging in employee misclassification. The penalty can be up to $10,000 for each misclassified individual with each violation counted separately.

In addition, the bill provides a new test as to whether a construction worker is an independent contractor. The requirements are extensive. A construction worker is an independent contractor only if they are operating as a business entity that meets all of the following requirements:

• was established and maintained separately from and independently of the person for whom the services were provided or performed;
• owns, rents, or leases equipment, tools, vehicles, materials, supplies, office space, or other facilities that are used by the business entity to provide or perform building construction or improvement services;
• provides or performs, or offers to provide or perform, the same or similar building construction or improvement services for multiple persons or the general public;
• is in compliance with all of the following:
  • holds a federal employer identification number if required by federal law;
  • holds a Minnesota tax identification number if required by Minnesota law;
  • has received and retained 1099 forms for income received for building construction or improvement services provided or performed, if required by Minnesota or federal law;
  • has filed business or self-employment income tax returns, including estimated tax filings, with the federal Internal Revenue Service and the Department of Revenue, as the business entity or as a self-employed individual reporting income earned, for providing or performing building construction or improvement services, if any, in the previous 12 months; and
  • has completed and provided a W-9 federal income tax form to the person for whom the services were provided or performed if required by federal law;
• is in good standing as defined by section 5.26, if applicable;
• has a Minnesota unemployment insurance account, if required;
• has obtained required workers’ compensation insurance coverage, if required;
• holds current business licenses, registrations, and certifications, if required;
• is operating under a written contract to provide or perform the specific services for the person that:
  • is signed and dated by both an authorized representative of the business entity and of the person for whom the services are being provided or performed;
  • is fully executed no later than 30 days after the date work commences;
  • identifies the specific services to be provided or performed under the contract;
  • provides for compensation from the person for the services provided or performed under the contract on a commission or per-job or competitive bid basis and not on any other basis;
• submits invoices and receives payments for completion of the specific services provided or performed under the written proposal, contract, or change order in the name of the business entity. Payments made in cash do not meet this requirement;
• the terms of the written proposal, contract, or change order provide the business entity control over the means of providing or performing the specific services, and the business entity in fact controls the provision or performance of the specific services;
• incurs the main expenses and costs related to providing or performing the specific services under the written proposal, contract, or change order;
• is responsible for the completion of the specific services to be provided or performed under the written proposal, contract, or change order and is responsible, as provided under the written proposal, contract, or change order, for failure to complete the specific services; and
• may realize additional profit or suffer a loss, if costs and expenses to provide or perform the specific services under the written proposal, contract, or change order are less than or greater than the compensation provided under the written proposal, contract, or change order.

If the above requirements are not met, the construction worker will be found to be an employee. Employers in the construction sector should review and update their agreements for compliance.

Action Items

1. Review the bill here.
2. Review independent contractor classifications with legal counsel.
3. Review independent contractor onboarding procedures.
4. Have appropriate personnel trained on the requirements.

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase