Fair Labor Standards Act

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Last Friday, a Texas federal court struck down the U.S. Department of Labor’s (DOL) 2024 rule raising the minimum salary levels for certain exemptions to the overtime requirements of the Federal Labor Standards Act (FLSA). The decision by Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas to vacate the 2024 rule applies nationwide to all employers and comes weeks before another increase to the salary levels was set to take effect.

Recently, in Johnson v. NCAA, the U.S. Court of Appeals for the Third Circuit held that, depending upon the surrounding circumstances, student-athletes may qualify as employees under the Fair Labor Standards Act (FLSA). This is the latest in a series of court and agency decisions involving student-athletes seeking employee status at their colleges and universities. As we reported in February, the National Labor Relations Board (NLRB) recently ruled that the student-athletes on the Dartmouth College men’s basketball team are “employees” under the National Labor Relations Act (NLRA) and, therefore, were eligible to vote on whether to unionize (see Trustees of Dartmouth College, Case No. 01-RC-325633). This decision, which was issued by Regional Director for Region 1 Laura Sacks, is currently on appeal to the full NLRB. These decisions are likely to encourage additional litigation by student-athletes across the U.S.

Q: Are student athletes considered employees under the Fair Labor Standards Act (FLSA)?

A: Not under current law, but it is widely suspected that before long, courts will deem at least some types of student athletes to be employees under the FLSA. Courts determine whether an employment relationship exists under the FLSA by looking at whether the “economic realities” of the relationship are consistent with employment (although there is no agreement among the circuit courts of which test best determines these economic realities). In the 2021 decision NCAA v. Alston, the Supreme Court characterized student athletes as participants in a labor market for purposes of federal antitrust laws. The Alston opinion left little reason to doubt that the Court would arrive at the same conclusion when considering the “economic reality” of student athletes as employees under the FLSA. The bigger question is where the Court will ultimately draw a line to separate student athlete-employees from truly amateur sports. The Third Circuit is currently considering an appeal that raises this very question, which may be the vehicle by which this appears before the Supreme Court.

Q: Can an employee opt into an FLSA collective action if the employee does not reside in the state in which the action is pending?

A: Unless an action is filed in the state in which an employer is incorporated or headquartered, the answer to this question varies by jurisdiction. In August 2021, both the Sixth Circuit (covering federal courts in Kentucky, Michigan, Ohio, and Tennessee) and the Eighth Circuit (covering federal courts in Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) answered this question in the negative, requiring that opt-in plaintiffs under the Fair Labor Standards Act (FLSA) reside in the state in which an action was filed for a court to exercise personal jurisdiction. Earlier this year, the First Circuit (covering federal courts in Maine, Massachusetts, New Hampshire, Puerto Rico, and Rhode Island) reached the opposite conclusion, reasoning that disallowing nonresident opt-in plaintiffs from joining FLSA collective actions would frustrate the purposes of the collective action mechanism.

On July 26, the Third Circuit (covering federal courts in Delaware, New Jersey, and Pennsylvania) sided with the Sixth and Eighth circuits, further nudging the existing circuit split in favor of employers.

Q: In a unanimous opinion, the U.S. Supreme Court held that employers who do not act promptly to invoke an arbitration clause may be held to waive arbitration. What does this mean for my company?

A: As noted in our colleagues’ blog post, on May 23, in a unanimous opinion, the U.S. Supreme Court held that employers who do not act promptly to invoke an arbitration clause may be held to waive arbitration. In so holding, the Court resolved a circuit court split over whether a party arguing waiver had to demonstrate prejudice. The Court held that prejudice was not a requirement. The Court’s holding departs from its generally pro-arbitration holdings over the last 15 years.

Q: What do employers need to know about recent state and local laws providing for protections for gig workers?

A: Employers and businesses are likely familiar with recent changes to rescind more employer-friendly, Trump-era FLSA regulations governing independent contractor classification and joint employment status, which we previously covered. However, employers may be less familiar with various new laws being passed or considered by cities and states that provide additional protections specific to “gig” workers — i.e., those independent contractors who perform “on-demand” services.

Q: Do Trump-era FLSA regulations governing independent contractor classification and joint employer status (still) apply?

A: The U.S. Department of Labor (USDOL) announced its decision to reverse a Trump-era rule governing the employee/independent contractor distinction under the Fair Labor Standards Act (FLSA) that was scheduled to go into effect on March 8. The decision comes on the heels of another recent announcement by the Biden administration that requested public comment about its intention to rescind the Trump-era regulations governing joint employment under the FLSA, which went into effect in March 2020. Both reversals have significant implications for whether a company is considered an employer under the FLSA and thus subject to minimum wage, overtime, and recordkeeping requirements under the statute.

Q: Are outside sales employees considered exempt under the outside sales exemption (OSE) if they work from a home office during the pandemic?

A: Throughout the last 11 months, the pandemic has required most in-person business activity to go virtual; and this is no less true for employees working in sales. However, Zoom meetings and social distancing have made it challenging for employers to classify their sales force as exempt under the OSE of the Fair Labor Standards Act (FLSA).

Q: What does the latest decision on joint employer liability mean for businesses?

A: On September 8, 2020, the United States District Court for the Southern District of New York issued a decision overturning the U.S. Department of Labor’s (DOL) March 2020 Final Rule, which had adopted a narrow four-factor test for determining joint employer liability in “vertical” employment relationships, such as contractor/subcontractor, franchisor/franchisee and company/staffing agency relationships. The test set forth in the Final Rule looked at whether the putative joint employer (i) hires or fires the employee; (ii) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (iii)  determines the employee’s rate and method of payment; and (iv) maintains the employee’s employment records. These factors looked to the degree of control as the standard for determining joint employment, which was a sharp departure from prior DOL guidance which looked more broadly at the economic dependence between the parties.

Q: I heard that the Pennsylvania Supreme Court recently issued a major ruling regarding overtime pay. What do I need to know?

A: On November 20, 2019, the Pennsylvania Supreme Court rejected the application of the fluctuating workweek method (“FWW Method”) of calculating overtime under the Pennsylvania Minimum Wage Act…