California Teachers Seek Rehearing Before Full U.S. Supreme Court Regarding Constitutionality of “Agency Shop” Fees for Non-Union Employees

 Attorneys for the Plaintiff California public sector teachers in the case of Friedrichs v. California Teachers Association have taken the extraordinarily rare step of petitioning the Supreme Court for a rehearing, and have also requested that such rehearing take place after the Court obtains a full complement of Justices capable of reaching resolution by a five-Justice majority.  The request for rehearing was prompted by the Court’s one sentence decision in theFriedrichs  case on March 29, 2016, upholding the judgment of the Ninth Circuit without decision by an “equally divided Court.”  The split decision left intact, for now, the constitutionality of “agency shop” fees for non-union member public employees who are represented by a union.  It had been highly anticipated when the case was heard by the Court in January 2016 that a majority of the Court, including Justice Antonin Scalia, would vote in favor of Plaintiffs to reverse the Ninth Circuit in a 5-4 decision.  Such a decision would have also potentially reversed the Supreme Court precedent upon which the Ninth Circuit’s decision was based, Abood v. Detroit Board of Education.  However, the chances of reversal dimmed with the unexpected death of Justice Scalia a month later. 

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At issue in Friedrichs is the right of public employee unions to require non-union members to pay compulsory “agency shop” fees.    Agency shop arrangements require non-union employees, who are represented by a union that has won the right to bargain for all employees (union members and non-union members) in the bargaining unit, to pay an “agency fee” as a condition of continued employment.  Under Abood, the “agency fee” may be assessed in order to pay for union activity related to bargaining for rights of all employees in the bargaining unit.  However, the “agency fee” assessed cannot be used to pay for a union’s political activity, including lobbying and support of political candidates.  Agency shop fee arrangements are currently permitted in over 20 states, including California, and affect millions of public employees.  The teacher plaintiffs in Friedrichs have asserted that requiring employees who choose not to join the union to pay an agency fee to the union to support even bargaining-related activities violates their free speech rights under the First and Fourteenth Amendment rights.

 

The last time the Supreme Court granted a similar rehearing petition was in 1947.   However, even if the rehearing petition is ultimately denied, several agency fee cases are winding their way through the courts and could eventually be heard by a full Supreme Court.  For now, the result in Friedrichs leaves a question still hanging over the ultimate continued viability of Abood on this important labor relations issue. 

Jayne Benz Chipman

 

Final Regulations from the U.S. Department of Labor Raise Exempt Employee Salary Threshold to $47,476 and Extend Overtime Protections to 4 Million Employees

Yesterday, the U.S. Department of Labor (DOL) released the long-awaited Final Rule on overtime pay applicable to employers across the country, which, when implemented on December 1, 2016, is expected to extend overtime pay protections to over 4 million workers within the first year.

Most significantly, the Final Rule increases the salary level for the white collar exemption to the federal overtime pay requirements under the federal Fair Labor Standards Act (FLSA) to $913 a week or $47,476 annually for a full-year worker. (This is the rare case where federal law is now more favorable to employees than California, as the new salary level exceeds California’s minimum salary level for exempt status, which as of January 1, 2016 is $800 a week and $41,600 annually.) The new FLSA salary level represents a slight reduction from the expected level of $50,440 per year, which was identified by the DOL in its proposed rule last year; however it still more than doubles the previous salary level for this exemption.

The FLSA requires most employees be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half of their regular rate of pay for all hours worked over 40 in a workweek. However, the FLSA provides an exemption from both minimum wage and overtime pay for workers employed in certain jobs, including executive, administrative and professional employees (referred to as the “white collar” exemption). For an employee to be exempt: (1) their job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”); (2) they must be paid on a salary basis not subject to reduction based on quality or quantity of work (“salary basis test”); and (3) their salary must meet a minimum salary level, which after December 1, 2016, will be $47,476 annually for a full-year worker (“salary level test”).

Key Provisions of the Final Rule

  • The new minimum salary level threshold has been set at $47,476 per year.
  • For the first time, employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the salary level, provided such payments are paid on a quarterly or more frequent basis. Employers are permitted to make a “catch-up” payment.
  • Employers must be in compliance with the new regulations by Thursday, December 1, 2016. As the effective date is a Thursday, any salary increases to ensure continued use of the exemption for weekly/biweekly employees must be made for the workweek (or pay period) that includes December 1.
  • The DOL did not make any changes to the existing job duties test to qualify for exemption (although some states, such as California, already have a more stringent standard requiring that more than half the employee’s time be spent performing exempt functions).
  • The compensation level for highly compensated employees (HCE) subject to a more minimal duties test was raised from its previous amount of $100,000 to $134,004 annually (the annual equivalent of the 90th percentile of full-time salaried workers nationally).
  • The salary level will increase automatically every three years, beginning on January 1, 2020.  Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage census region (currently the South), estimated to be $51,168 in 2020. The DOL will post new salary levels 150 days in advance of their effective date, beginning August 1, 2019.

DOL Resources on the Final Rule

The Final Rule is scheduled to be published in the Federal Register on May 23, 2016. The DOL has prepared and posted guidance on the Final Rule on the DOL Wage and Hour Division Webpage on the Final 2016 Overtime Rule, including Fact Sheets for the Non-Profit and Higher Education sectors, as well as for States and Local Governments.

Action Items for Employers

Employers should become familiar with the new regulations, as misclassification of employees as exempt from FLSA overtime requirements is a costly mistake. Employers should conduct an audit of all exempt job positions to identify all of the employees in their organization who currently earn less than $913 per week or $47,476 annually, and calculate the costs involved if the salaries of those positions were increased to the threshold minimum level.

In light of the number and type of implicated positions, employers should evaluate options available and develop a proposed course of action. Options may include increasing salary levels to meet the threshold level, evaluating and realigning employee workload, tracking and compensating overtime for all hours worked in excess of 40 per week above a salary, re-classifying employees as non-exempt, reductions in force, or outsourcing certain functions.

Employers should evaluate each impacted position on a position-by-position basis to ensure that positions are properly classified as exempt in the first instance, and any reclassifications take into account both State and federal requirements. Most likely, employers will consider adopting a combination of the above.

The McDonald’s NLRB Case: At The Intersection Of Hot Legal And Political Issues

Despite popular belief, the fate of fast food franchises around the country does not rest in the hands of Lauren Esposito, an unelected administrative judge for the National Labor Relations Board (NLRB).  Whatever decision Judge Esposito reaches, it will be appealed to the full NLRB and then again to a federal appeals court for review.  Continue reading

Hirschfeld Kraemer files amicus brief in suit challenging Department of Labor’s new “Persuader Rule”

The Department of Labor recently issued a final “persuader rule” under the Labor-Management Reporting and Disclosure Act (“LMRDA”).  The new rule expands the reporting and disclosure requirements of firms involved in persuader activities – where an object is to persuade employees concerning their rights to organize and bargain collectively.  Changing a long-standing understanding that indirect activities, such as drafting communication to employees, coordinating meetings and the like for employers involved in union organizing, were not covered by these reporting requirements, the new rules new expressly include planning or coordinating supervisor activity, providing persuader materials and even conducting seminars or training for supervisors or other training activity even where the consultant/lawyer does not directly meet with employees.  Both employers and lawyers would need to file disclosure statements concerning fees, content of consultation and similar information long believed to be privileged.     Continue reading

U.S. Supreme Court Agrees to Review Ninth Circuit Ruling Denying FLSA Exempt Status To Service Advisors at Automobile Dealerships

Navarro v. Encino Motorcars, LLC, is a wage and hour case brought by five service advisors who worked at a California automobile dealership, seeking overtime pay under the Fair Labor Standards Act (FLSA) and state law.  The dealership obtained dismissal of the FLSA claims, citing FLSA section 13(b)(10), which exempts from federal overtime “any salesman . . . primarily engaged in selling or servicing automobiles or trucks.”  But last March, the Ninth Circuit Court of Appeals reversed the dismissal and held that service advisors do not qualify for the exemption.  Its decision was notable because it reversed more than 40 years of case law, and even previous Department of Labor (DOL) interpretations, holding that service advisors qualify for this exemption because they are sales personnel who are primarily engaged in servicing automobiles.  The Ninth Circuit’s principle rationale for finding the exemption inapplicable was a recent change by the DOL in its interpretation of the exemption to exclude service advisors.  The Ninth Circuit held that because the DOL is the agency charged with interpretation of the FLSA, its interpretation of an ambiguous statute is entitled to deference.

The dealership then petitioned the U.S. Supreme Court for certiorari review.  Given the widespread impact of this decision on the industry, which has depended on the exemption for decades, the petition was supported by amici curiae (friends of the court) National Automobile Dealers Association (NADA), California New Car Dealers Association (CNCDA), and automobile dealers associations in each of the other states in the Ninth Circuit, who filed a brief urging the Supreme Court to review the case.  On January 15, 2016, the Supreme Court agreed to review the Ninth Circuit’s decision.  The Supreme Court’s grant of certiorari likely signals its skepticism of the Ninth Circuit’s decision, particularly given the long history of industry reliance on the exemption.  Stay tuned.

Felicia Reid of Hirschfeld Kraemer represents amici NADA, CNCDA and the other dealer associations in the Supreme Court proceedings.

California Court Approves FLSA Formula For Flat Bonuses

The California Court of Appeal provided employers with a small New Year’s gift for 2016: on January 14, in Alvarado v. Dart Container Corporation of California, it affirmed that an employer’s formula for calculating overtime, based upon federal law rather than upon a formula in the California Department of Labor Standards Enforcement (DLSE) Manual, was lawful.  Continue reading

What Does California’s New E-Verify Law Mean For Employers?

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Our blog post on January 5, 2016 summarized California’s new E-Verify law and other updates.  So what should California employers do differently now with respect to I-9s and E-Verify?  Enrollment in E-Verify remains voluntary under federal and California law except for federal contractors with the FAR provision in their contract.  California’s new law (AB 622) added significant penalties at the state level for E-Verify violations in addition to federal penalties.  Continue reading

California To Enact Broad “Fair Pay” Law Today

In an effort to close the wage gap between working men and women, the California legislature recently passed Senate Bill 358 (the “Fair Pay Act”) to amend California’s current equal pay law.  Governor Jerry Brown is expected to sign the bill today, and the amended law will take effect on January 1, 2016.  Public and private employers should take note of the amended law’s most significant changes, which are as follows: Continue reading

The NLRB’s “Radical” Joint Employer Decision Is The Biggest Win For Unions In Years

Yesterday, in Browning Ferris Industries of California, Inc., the National Labor Relations Board (NLRB) overruled 30 years of authority on the issue of joint employers.  In a decision which two Board Members called the “most sweeping of recent major decisions,” a slim 3-2 majority of the NLRB found that any company which has the right, whether used or unused, to “share or codetermine” the terms and conditions of employment are employers subject to its jurisdiction.  This “radical departure” from many years of decisions, if not reversed, will drastically broaden the NLRB’s mandate to thousands of new employers across the country. Continue reading