The Unringing of the Bells, Part Two: The DOL

Over the last month, we have seen a number of significant restorations of status quo antes. These have come in the form of reverting to earlier precedent, regulations, or guidance. Without further ado, we present some of the more notable developments:

1.  The Return of the Wage and Hour Division Administrator Opinion Letter

Earlier this month, the Department of Labor (DOL) Wage and Hour Division (WHD) reissued seventeen (17) Opinion Letters which were originally published by the outgoing acting administrator under President Bush, and subsequently withdrawn in the very early days of the Obama Administration. Until these most recent letters, no opinion letters have been issued since January 14, 2009.

The 17 re-issued letters cover a number of topics, such as eligibility for overtime exemptions for certain positions, the calculation of the regular rate of pay, and the determination of hours worked for on-call employees.

Opinion letters provide official WHD explanations of the application of the Fair Labor Standards Act (FLSA) to specific scenarios. The letters are usually written in response to specific requests, and they generally address complex issues and applications of the law. When an opinion letter is signed by the WHD Administrator (as opposed to a lower-ranking individual), employers may rely upon it as the division’s interpretation and use it as a good faith defense to a wage claim under the FLSA.

2.  When is an intern an employee?

As we noted recently, the DOL clarified its guidance regarding when interns must be considered to be employees. As a reminder, under the Fair Labor Standards Act (FLSA), an intern who is really an employee is entitled to receive at least minimum wage and is eligible for overtime.

The earlier DOL test conflicted with the test used by several federal appellate courts. This test was a six factor test, and it required each factor to be satisfied in order for the intern to be exempt from wage and hour requirements. As a result, the test was more rigid and limited than required by law.

The revised DOL guidance instead utilizes a “primary beneficiary” test to determine whether the individual is an intern or an employee. The “economic reality” of the relationship is evaluated using seven factors. This test is intended to be used on a case-by-case basis. It is therefore flexible, and none of the factors is controlling. The seven factors are:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

According to the DOL, the updated guidance “will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community” and DOL Wage and Hour Division “investigators with increased flexibility to holistically analyze internships on a case-by-case basis.”

3.  Proposed Changes to the Tip Rule

In December 2017, the DOL announced a proposed rule change intended to make the calculation of tipped income comply with the legal and regulatory scheme that existed before 2011.

Under section 3(m) of the FLSA, tipped employees may be paid an hourly wage that is less than the minimum wage, and the tips they receive are used as a “tip credit” to bring the employee to the required hourly minimum wage amount. This essentially makes that tip amount the property of the employee.

In 2011, the applicable regulation made tipped income the property of the employee who received the tip, regardless of whether the employee earns full minimum wage.

This was a matter of some controversy, with at least one appellate court holding that this regulatory expansion exceeded the DOL’s authority under the FLSA. The 10th Circuit held, “[i]f an employer pays more than the minimum wage without regard to tips, the FLSA does not restrict the employer’s use of tips.” The DOL itself stated that it proposed the new rule “with serious concerns that it incorrectly construed the statute when promulgating the 2011 regulations.”

The comment period for the proposed rule change closed on January 4, 2018. We will keep you informed of further developments.