Several wage and overtime changes will affect Pennsylvania employers starting August 5, 2022. Some updates bring Pennsylvania’s wage and overtime regulations more in line with the Federal Fair Labor Standards Act (FLSA), while others expand the distance between the two.

Employers utilizing tipped employees or a fluctuating workweek method to calculate overtime rates should pay special attention to these updates, explained here, and adjust their policies accordingly.

Overtime Updates

The FLSA permits employers to use a fluctuating workweek method of calculating overtime rates for salaried, nonexempt employees whose work hours vary weekly. Under the FLSA’s fluctuating workweek method, overtime pay is determined by dividing the employee’s fixed weekly salary by the number of hours actually worked in the week. For every hour worked in excess of 40 hours in that workweek, the employee must receive an additional 0.5 times that calculated rate (meaning, “half time,” instead of the typical calculation of time and a half).

Starting August 5, Pennsylvania employers must calculate the overtime rate on a 40-hour workweek, instead of the number of hours actually worked. Furthermore, employers must pay the overtime rate at time and a half, instead of just the half time rate. Consequently, the regulation updates fundamentally eliminate an employer’s ability to use the fluctuating workweek method of calculating overtime rates.

In 2019, the Pennsylvania Supreme Court ruled that state law prohibited the fluctuating workweek method because state law requires overtime rates to be paid at time and a half (instead of just half time, as permitted under the FLSA). This regulation update incorporates the Chevalier v. General Nutrition Centers Inc. holding, but goes further by requiring that the overtime rate is always based on 40 hours, instead of the hours actually worked by the employee.

Tipped Employees Updates

The regulation updates also necessitate several changes for tipped employee practices. To start, Pennsylvania employers may pay tipped employees $2.83/hour while taking a corresponding tip credit to meet the required minimum wage of $7.25/hour. A “tipped employee” is an individual working in an occupation that “customarily and regularly” receives tips. This means, under the FLSA, earning $30/month in tips. The updated regulations, however, raise this rate to $135/month in tips.

The updates also implement an “80/20” rule, which more directly aligns with FLSA guidance. Under this rule, an employer may not take a tip credit for tip-supporting duties that exceed 20% of the employee’s weekly work hours. So, if an employee performs tip-supporting duties for 25% of his/her weekly work hours, a tip credit cannot apply to 5% of the employee’s weekly work hours. Tip-supporting work includes, for example, a server rolling silverware or sweeping the dining room. To be clear, though, a tip credit is never permitted for duties that are neither tip producing nor tip supporting (e.g., preparing food).

The updated regulations also align with the FLSA by instituting new tip pooling rules. Specifically, employers must exclude from a tip pool, among others, any employee who does not spend at least 80% of his/her time performing tip-producing duties (for example, cooks and dishwashers do not perform tip-producing work). If, however, all tip pool employees are paid at least minimum wage (i.e., the employer does not use a tip credit), non-tip-producing employees may be included in the tip pool.

Finally, there are also two changes related to credit card charges and administration fees. Significantly, an employer may not pass a credit card transaction fee down to a tipped employee (e.g., by deducting the transaction fee from a credit card tip). Additionally, organizations charging an administration or service fee may not utilize this fee to pay an employee’s tips, must provide a notice to customers that the administration/service fee does not include a tip to be distributed to employees, and must include a separate line item on the bill for the payment of a tip.

Implications for Pennsylvania Employers

The FLSA is considered the “floor,” and state governments may impose stricter requirements through their own laws and regulations. When differences exist between state and federal law or regulations, employers should apply the law/regulation which provides the most protection to workers. Failing to do so results in potential liability under state law.

If utilizing tipped employees or a fluctuating workweek arrangement in Pennsylvania, employers are encouraged to determine what policy changes are necessary and seek legal guidance where appropriate.

The Federal Trade Commission (FTC) and the National Labor Relations Board (NLRB) recently announced a Memorandum of Understanding (MOU) resolving to enhance the enforcement of federal laws and regulations administered by these agencies, and to promote interagency collaboration through information sharing, cross-agency training, and coordinated outreach.  The stated goal is to “better root out practices that harm workers in the ‘gig economy’ and other labor markets.” 

The MOU lists a variety of issues of common regulatory interest to the agencies, including the gig economy and other alternative work arrangements; non-compete and non-disclosure provisions; the ability of workers to act collectively; and the classification and treatment of workers.  The reference to worker classification signals again the NLRB’s high level of interest in this subject. 

The MOU provides that the agencies will facilitate information sharing and cross-agency consultations on an as needed basis for law enforcement purposes; however, the MOU does not create any legally binding obligations on the agencies.  The announcement continues the trend of the NLRB coordinating with other agencies to further enforcement efforts. 

Ballard Spahr’s Labor & Employment Group regularly advises employers on labor issues and compliance with the National Labor Relations Act, including non-compete agreements and worker classification issues. 

Plaintiffs in Alcantara v. Duran Landscaping alleged that their former employer violated the Fair Labor Standards Act (FLSA) and Pennsylvania Minimum Wage Act because it failed to pay overtime premiums. Less than a year after filing suit, the parties notified the court that they resolved the claims and requested a phone call with the court to seek approval of the agreed upon settlement without having to spend the money on a formal motion. In response to the parties’ request, the court, sua sponte, raised the question of whether it actually had to approve settlement and invited briefs on the topic. 

Both parties took the position that judicial approval was not necessary.  At the request of the court, the U.S. Department of Labor (DOL) also weighed in, taking the position that based on the text of Federal Rule of Civil Procedure (FRCP) 41 and judicial precedent “FLSA rights cannot be waived or compromised without supervision by the [DOL] or approval by a court.” The DOL’s letter brief to the court is available here.   

After reviewing the submissions, U.S. District Judge Joshua Wolson concluded that neither FRCP 41 nor the FLSA require “a court to approve a settlement between an individual plaintiff and an employer.” The court opined that the settlement approval process is applied under the guise of helping the plaintiff-employees, but in reality, they are represented by counsel and are “equipped to make that decision for themselves.” It reasoned that there is “no support in the FLSA’s text” for judicial approval, describing it as a “judge-made rule that makes litigation slower and more expensive and is at odds with the text of Rule 41.” The court explained that the facts in Lynn’s Food Stores Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982), which is often cited in support of the need for judicial approval of FLSA settlements, are unique because, in that matter, plaintiffs were not represented by counsel and raised concerns that are not present where there are individual (as opposed to class or collective action) claims and the plaintiff is represented by counsel.

The court acknowledged concerns about unfair settlements between employers and employees, but found that public policy weighs against requiring approval of FLSA settlements. In effect, it said that the court’s assistance ultimately “drives up litigation costs in small-value cases, makes settlement more difficult, and delays the disbursement of unpaid wages to FLSA plaintiffs.”

If Judge Wolson’s opinion in Alcantara garners support in other jurisdictions, it may enable parties in FLSA litigation to reach settlement more quickly and reduce the overall cost of litigation. It also raises the possibility that FLSA claims could be resolved without the filing of litigation, which is generally not the case under the prevailing view that release of FLSA claims requires approval of a court or supervision by the DOL. This would make it much easier and cheaper to resolve FLSA claims without the need for any litigation. 

The full decision is available here.

Tuesday, July 26, 2022, 12:00 – 1:30 PM ET

The recent Supreme Court decision overturning Roe v. Wade and state laws banning abortion in the wake of the decision have raised significant employee benefit and other issues for employers. This webinar will address measures that employers are considering and implementing in response to these developments, and the legal and practical issues they present.

This program is approved for 1.5 CLE credits in CA, NY, & PA; and 1.8 NJ; 1.5 HRCI and SHRM Credits are also approved. Uniform Certificates of Attendance will also be provided for the purpose of seeking credit in other jurisdictions.

Register Here

On July 12, 2022, the EEOC again revised its technical assistance questions and answers related to the COVID-19 pandemic and the application of the Americans with Disabilities Act (ADA) and other federal equal employment opportunity laws. In addition, the EEOC updated its publication for employees, Federal Laws Protect You Against Employment Discrimination During the COVID-19 Pandemic. Employers across all industries will find relevant material in the new updates. Notably, the technical assistance revisions make clear that employers now “will need to assess whether current pandemic circumstances and individual workplace circumstances justify viral screening” of employees to prevent workplace transmission of COVID-19. The new guidance signals a changing landscape as COVID-19 trends develop.

The EEOC’s assessment at the outset of the pandemic was that the ADA standard for conducting medical examinations was always met for employers to conduct worksite COVID-19 viral screening testing. Now, the guidance offers possible considerations in making the “business necessity” assessment, including: the level of community transmission; the vaccination status of employees; the ease of transmissibility of the current variant(s); and the types of contacts employees may have with others in the workplace or elsewhere that they are required to work.

In addition, with respect to antibody testing, the guidance makes clear that requiring antibody testing before allowing employees to re-enter the workplace is not allowed under the ADA. This is because, under CDC guidance, antibody testing may not show whether an employee has a current infection, nor establish that an employee is immune to infection, and therefore the test does not meet the ADA’s “business necessity” standard.

The updated guidance also addresses testing of applicants for COVID-19. Employers may conduct such testing, provided that it is done pursuant to a uniform testing policy. According to the guidance, job offers may be rescinded after a positive COVID-19 test only if it is absolutely necessary that the prospective employee start immediately and in-person.

Ballard Spahr’s Labor & Employment Group has assisted employers across the nation interpret and apply the EEOC’s technical guidance, and is prepared to help employers develop vaccination and testing programs, address employee requests or concerns involving exemptions, accommodations and address other issues related to the COVID-19 virus.

On June 30, the Third Circuit ruled that Allegheny Port Authority’s (Port Authority) policy prohibiting political and social adornments on employee uniforms is likely unconstitutional.

In April 2020, Port Authority began requiring its uniformed employees to wear masks at work. When some employees wore masks bearing political or social-protest messages, Port Authority prohibited such masks out of concern they would disrupt the workplace. Several employees who wore masks expressing support for Black Lives Matter were disciplined under the policy. The employees, together with their union, filed suit alleging that Port Authority’s policy violated their First Amendment rights. The Western District of Pennsylvania entered a preliminary injunction rescinding the discipline and preventing Port Authority from enforcing its policy. On Wednesday, the Third Circuit affirmed the District Court’s order.

The Third Circuit noted that government employers may limit speech of their employees more than they may limit speech of the public, but those limits must still comport with the protections of the First Amendment. It held that Port Authority did not meet its burden of showing its policy is constitutional.

When employees speak as citizens, rather than pursuant to official duties, on matters of public concern, the Court applies a balancing test that weighs an employee’s interest in speaking against the government employer’s interest in quelling such speech. The Third Circuit found that Port Authority employees were speaking as citizens and that the mask rules restricted speech on matters of public concern. Indeed, the policy was instituted specifically to prevent commentary on political and social issues. Accordingly, to establish the constitutionality of its policy, Port Authority had to show its interests outweighed those of its employees.

The Third Circuit upheld the District Court’s finding that Port Authority failed to make this showing because it could not demonstrate more than a minimal risk of workplace disruption. Further, Port Authority itself publicly supported Black Lives Matter and consistently allowed employees to wear social protest and political buttons on their uniforms without incident, despite having a longstanding policy prohibiting such buttons.

The Third Circuit also found a subsequent modification to the mask policy, which restricted masks to limited styles and colors, to be likely unconstitutional. Specifically, the Court reasoned:

For many years, Port Authority has not enforced its political-button prohibition. And it became concerned about political masks in response to growing division over the messages on those masks. These facts suggest that the prevailing political conditions, rather than employees’ mode of speech, dictates how contentious employees’ workplace political debates will be.

As a result, Port Authority failed to show the mask ban was sufficiently tailored to address the service disruption concern it advanced in support of the policy.

Public employers that restrict social and political messages by employees during working hours should carefully review their policies to make sure they are consistently enforced and narrowly tailored to address the concern posed by such speech in the workplace. Should you need assistance with this, the Labor and Employment attorneys at Ballard Spahr LLP have experience advising public and private employers in policies and compliance and any other labor-related issues that may arise. 

Joseph Kennedy coached football at Bremerton High School, a public school in Washington State. After football games, Kennedy led prayers at the 50-yard line among players, coaches, fans, and, sometimes, politicians. The Bremerton School District, believing that Kennedy’s prayers might be coercing students, suspended Kennedy after he continued conducting post-game prayers. Kennedy sued, alleging that his suspension violated his First Amendment rights under the Free Speech and Free Exercise Clauses. The School District argued that Kennedy’s prayers would be a prohibited government “endorsement” of religion under the Supreme Court’s decision in Lemon v. Kurtzman, 403 U. S. 602 (1971).

The Ninth Circuit found in favor of the School District, determining that a reasonable observer would consider Kennedy’s prayers to be government action endorsing religion. The Supreme Court, however, disagreed and found that the Ninth Circuit’s “endorsement” analysis was incorrect. Instead, the Court instructed that questions about a government employee’s First Amendment rights “must be interpreted by reference to historical practices and understandings, ” not the Lemon (i.e., “endorsement”) test. Indeed, the Court expressly held that it has “abandoned Lemon and its endorsement test.”

The Supreme Court’s 6-3 decision in favor of Kennedy alters the analysis of First Amendment rights of government employees. Instead of determining whether a reasonable person will view an employee’s actions as a government endorsement of religion, courts must now ask whether the action is historically considered an establishment of religion. This approach seemingly results in more protections offered to a government employee’s religious activities, even if conducted on government grounds.

The decision, found here, applies only to public employers. Under Title VII (and state law equivalents), private employers are prohibited from taking adverse action against an employee because of his/her religion. Title VII also provides employees a right to request a reasonable accommodation for religious reasons. An accommodation must be given unless it would create an undue hardship (which is considered more than a minimal burden on operation of the business).  

All employers – public and private – should consider their policies and the applicable legal standard when faced with an employee’s exercise of religion in the workplace and consult counsel as needed.

On June 23, 2022, the 50th anniversary of Title IX, the U.S. Department of Education released its proposed changes to Title IX regulations, which codify protections for LGBTQ+ students from discrimination based on sexual orientation, gender identity, and sex characteristics. The regulations aim to restore protections for students against all forms of sex-based harassment, ensure prompt and effective action, and eliminate the requirements of a live hearing and cross-examination. Notably, the proposed rule does not address Title IX’s application to school sports, but the Department’s press release indicates that it will address school athletics in a separate rulemaking process.

Attorneys in Ballard Spahr’s Education Industry Group cover the proposed changes at length in a legal alert that can be found here.

On June 9, 2022, the Philadelphia City Council passed an ordinance that would require covered employers to make available to eligible employees a commuter transit benefit program. The bill is currently awaiting the Mayor’s signature, which many expect will occur shortly.  To read more about this development, please see our Alert on this development.

More Pay Transparency Laws

Our last edition focused on the new pay transparency law in New York City.  The New York State Legislature passed Senate Bill 9427A, which would impose salary disclosure requirements similar to those issued in New York City.  The bill would require employers to disclose the compensation or a range of compensation (i.e., the minimum and maximum annual salary or hourly range of compensation) for each job, promotion, or transfer opportunity that can or will be performed, at least in part, in New York State. 

In addition, the New York State law would require the posting to include a job description, if such a description exists.  The bill also includes anti-retaliation language that states that “[n]o employer shall refuse to interview, hire, promote, employ or otherwise retaliate against an applicant or current employee for exercising any rights under this section.” 

If the Governor signs the bill, it would take effect 270 days later.  Non-compliant employers shall, thereafter, be subject to civil penalties of up to $1,000 for a first violation, $2,000 for a second violation, and $3,000 for a third or subsequent violation. 

Other localities in New York, in addition to New York City, have enacted or introduced pay transparency legislation, including:

  • amended § 215-3 of its city code to require employers with four or more employees based in Ithaca to disclose the “minimum and maximum hourly or salary compensation” in job postings. The ordinance goes into effect September 1, 2022.
  • amending § 700.03 of the county’s Human Rights Law, that requires employers to include a salary range when posting job opportunities and restricts inquiry into prospective employees’ wage history. The requirements apply to employers with four or more employees who post for positions that are “required to be performed, in whole or in part, in Westchester County.” The law goes into effect early November 2022.
  • introduced a law amending the Albany County Omnibus Human Rights Law to require employers to provide the minimum and maximum salary or hourly wage on job postings. The law is pending further review by legislature committees.

S8922A Warehouse Worker Protection Act

The New York Legislature passed Senate Bill S8922A, known as the Warehouse Worker Protection Act, on June 3, 2022. Should the Governor sign the bill, the law would require warehouse distribution centers—which include those that employ 100 or more employees at a single center or 500 or more employees at centers throughout New York State—to provide their employees written descriptions of work-related quotas they are expected to meet.

Work-related quotas are defined as standards that mandate, within a defined time period, an employee’s specified productivity speed, quantified number of tasks, or quantified amount of material to be handled or produced. The law would prohibit quotas that interfere with required meal or rest periods or use of bathroom facilities.

The bill also imposes recordkeeping requirements on employers and includes a right to request for current and former employees to obtain certain records, such as written descriptions of quotas that affected the employees. Employers would also be subject to the bill’s anti-retaliation provision.

The law would take effect 60 days after the Governor signs the bill. Civil penalties issued for non-compliance could be up to $1,000 for the first violation, $2,000 for a second violation, and $3,000 for all subsequent violations.

Expanding Protections for Freelancers: Freelance Isn’t Free Act

Both the New York State Senate and the State Assembly have passed Bill S83698, expanding on a 2017 New York City specific version of the Freelance Isn’t Free Act. The previous bill established a legal definition for freelance labor in New York City and aimed to help freelancers resolve payment issues with their clients. S83698 expands the protections for freelancers state-wide and provides coverage to freelancers who live in other states but conduct business with New York based companies.

The recent act will mandate “that any hiring party across the state retaining a freelancer’s services for at least $250 provide such freelancer with a detailed written contract and timely and full payment.” If the contract does not specify a “timely manner,” then the hiring party must pay the contracted party “no later than thirty days after the completion of the freelance worker’s services under the contract.” Additionally, the bill contains an anti-retaliation provision to further protect freelance workers.

The new legislation comes as a response to the many unlawful payment practices complaints filed by freelance workers amidst the COVID lockdown.  Independent contractors, unlike regular employees, are not protected by the same minimum wage laws and are generally not eligible for unemployment and workers compensation.

The bill is set to be delivered to the Governor for either a signature or veto. If the Governor signs the bill, it will take effect 180 days later.  A violation of any of the law’s provisions may result in penalties up to $25,000.