Prop. 206: Minimum Wage & Paid Sick Time FLSA: Overtime ...sahra.shrm.org/sites/sahra.shrm.org/files/SAHRA Prop 206 OT Rule Injunction...Casual babysitter Starts on day 1 and applies

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Prop. 206: Minimum Wage & Paid Sick Time

FLSA: Overtime Rule Injunction

Presented by: Joseph T. Clees

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© 2016, Ogletree, Deakins, Nash, Smoak & Stewart, P.C. 01/04/2017

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Arizona Voters Approve Proposition

206 a/k/a Minimum Wage and Paid

Time Off Initiative a/k/a Healthy

Working Families

Raises the Minimum Wage

Provide for Paid Sick Time

Approved by 58.33%

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Which Employers are Covered?

Most private employers, as well as all municipalities

and school districts

Exemption from minimum wage for “small businesses.”

Defined: Less than $500K gross revenue and not engaged in

interstate commerce or in production of goods for interstate

commerce.

No “small business” exemption for Paid Sick Time law

State and federal workers exempt

3





Which Employees are covered?

Broad definition. Any employee employed by an

employer except:

Employed by parent of sibling

Casual babysitter

Starts on day 1 and applies to temporary and part-time

employees.

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AZ Minimum Wage

Currently $8.05 and was set to go to $8.15 in 2017

Now:

2017 -- $10

2018 -- $10.50

2019 -- $11

2020 -- $12

In 2021, adjusted annually based on cost of living

Tipped employees - $3 tip credit remains

Affects 650,000 Arizonans in 2017





Paid Sick Time

Paid Sick Time should be viewed as a guarantee of

both time off and compensation for such time off.

PST must be paid at no less than the rate the

employee would have earned had he or she actually

worked the PST.

Employees may use accrued PST in the smallest

increments that the employer’s payroll system uses to

account for absences “or use of other time.”

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How Does Paid Sick Time Accrue?

Rate of no less than one hour for every 30 hours

worked

Fewer than 15 employees – maximum accrual of 24

hours

15 or more – maximum accrual of 40 hours

FLSA-Exempt Employees: Presumed to work 40 hours per

week for accrual purposes

If weeks with fewer than 40 hours, PST accrues based on the

actual number of hours worked

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How Does Paid Sick Time Accrue?

Employers may ‘front-load’ PST before it’s earned.

Not clear how employer may recoup if employee leaves before

PST is “earned.”

Existing PTO Policies: Employer’s with policies that

meet or exceed the benefits provided under the PST

law are “not required to provide additional paid sick

time.”

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How Much Paid Sick Time Must An

Employer Allow?

Fewer than 15 employees – at least 24 hours per year

15 or more – at least 40 hours per year

These are only statutory minimums. Employers may

set a higher limit

9





What’s a “Year”?

A year is “a regular and consecutive 12-month period

as determined by the employer.”

Employers may designate a fiscal year (or some other

consecutive 12-month period) as an accrual or usage

year.

No presumptive year mentioned in the statute.

10





Carryover

Any unused earned PST carries over

year-to-year (but maximum use limits still

apply) There is no limit to how much PST and

employee can accrue

Employers may pay out accrued PST at year

end, but must provide at least the statutory

minimum of PST at the beginning of the next

year for employees’ immediate use.

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Termination, Reinstatement, Successors

No earned PST need to be paid upon termination, layoff, or

retirement

All earned PST is reinstated if rehired within 9 months

If an employer “succeeds or takes the place of an existing

employer,” the PST accrued by employees of the original

employer who “remain employed” by the successor

employer remains valid and exercisable.

Successor employers should consider treating accrued

PST as an assumed liability irrespective of how the

predecessor employer’s employees become employees of

the successor

12





When Can It Be Used?

For employees or for an employee to care for a “family

member – “Family Member” Includes: Children of any age (including biological, adopted, or foster children, legal wards,

children of a domestic partner, or children for whom the employee stands in loco

parentis);

Parents (including biological, foster, stepparents or adoptive parents or legal

guardians of the employee or the employee’s spouse or domestic partner,

including persons who stood in loco parentis when the employee or employee's

spouse or domestic partner was a minor child);

Spouses or domestic partners;

Grandparents, grandchildren, or siblings (including foster, adoptive, or step

relationships) of the employee or the employee's spouse or domestic partner; r

Any other individual related by blood or affinity whose close association with the

employee is the equivalent of a family relationship

13





When Can It Be Used?

For employees (or for an employee to care for a family

member’s) –

mental or physical illness, injury, or health condition

need for medical diagnosis, care or treatment of a mental or

physical illness, injury or health condition

need for preventative medical care

Closure of workplace or school due to public health emergency

Time off relating to domestic or sexual violence, or “abuse or

stalking,” including the need for medical attention, services from a

victim services program, counseling, relocation, or attendance at

legal hearings.

14





Notices Employers:

By July 1, 2017, must post notices informing employees

of their entitlement to earn PST, how much PST they

are entitled to earn, the guaranteed terms of PST use,

prohibition against retaliation, right to file a complaint

(with ICA), and the ICA’s contact information.

Notice in English, Spanish, and any other language the

ICA requires.

ICA will issue “model” notices

Paycheck Notification: Must show PST available,

amount used that year, and total amount of pay

received as earned PST (also part of recordkeeping)

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Notices

Employees:

“Foreseeable Leave” Must make “good faith effort” to give

employer advance notice and schedule absences to lessen

impact on the employers’ business.

Request “may be made orally, in writing, by electronic means

or by any other means acceptable to the employer.”

“Unforeseeable Leave”: Employees may be required to

give notice of “unforeseeable” need for PST

However, this requirement must itself be disseminated in a notice to

the affected in advance of the leave

Request shall include the expected duration of the absence

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Notices

Employees (cont.):

Verification: Documentation only required for leaves of 3 or more days

Medical-mental health care: documentation signed by a heath

care professional indicating earned paid sick time is necessary

shall be considered reasonable documentation for purposes of

this section

Other covered reasons: a police report, court order, signed

statement from a domestic violence services organization,

signed statement from an attorney, clergy member, doctor, or

even the employee’s own written statement are all considered

reasonable verifying documentation

17





Confidentiality and Nondisclosure

Employers prohibited from requiring employees to disclose

details of the nature of the employee’s (or family member’s)

health condition or details relating to domestic violence,

sexual violence, abuse or stalking, as a condition of

providing earned PST.

If employer possesses such health or other PST qualifying

information, they must treat it as confidential and may only

disclose it to the affected employee or with the affected

employee’s permission.

18





Collective Bargaining Agreements

Does not apply to employees covered by a collective

bargaining agreement in effect on July 1, 2017, until that

CBA expires.

CBAs entered into after July 1st can waive the PST law’s

requirements so long as the waiver is done by “clear and

unambiguous” language in the CBA

19





Nondiscrimination and Non-retaliation

Provisions and Enforcement

Protection for discrimination and retaliations good faith

allegations of violations protected

May file complaint with ICA

Lawsuits by Attorney General and other enforcement

officers

Private lawsuits

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Penalties - PST

Civil penalties – at least $250 for first violation and at

least $1,000 for each subsequent or willful violation

Monitoring and inspection

Balance of PST owed, plus interest and liquidated

damages

$150/day for retaliation

Attorneys’ fees and costs

“[N]o verbal or written agreement or employment

contract may waive any rights under [the PST law].”

21





Chamber of Commerce Lawsuit

Riddle, et al. v. State of Arizona, et al.

Challenges constitutionality of Prop. 206

Violates the “Revenue Source Rule” in the AZ

Constitution (Art. 9, §23).

Violates the “Separate Amendment Rule” (Art. 21, §1).

22





Federal Judge Enjoins Part 541

Overtime Regulations

Overview

Part 541 Rule’s Salary and Compensation Requirements

Scope of Judge’s Order

Financial Risks Posed by Retroactivity

Future Prospects for Litigation, Congressional Action, New

Administration

Best Practices and Compliance Strategies

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May 23, 2016 – U.S. DOL/WHD published Part 541 final rule

amending executive, administrative, and professional (EAP)

exemptions from overtime and minimum wage

December 1, 2016 – Changes scheduled to be effective

Key provisions relate to salary level or amount test

Increases minimum salary amount for EAP exempt employees to

$913 per week/$47,476 per year

Increases minimum total annual compensation for highly

compensated employees to $134,004 per year

Triennial adjustments to these amounts effective January 1, 2020

24





Summary of Current Part 541Rule

3 Separate Tests for Part 541 EAP Exemptions

Salary Level or Amount Test: Exempt employee must be paid a

minimum salary amount of $455 per week or its equivalent if paid

bi-weekly, semi-monthly, etc.

Salary Basis Test: Exempt employee must be paid a guaranteed

salary not subject to reduction due to quality or quantity of work

performed

Primary Duties Test: Exempt employee must perform certain job

duties that meet principal duties for EAP exemptions

DOL Fact Sheet #17A (www.dol.gov/whd/overtime/fs17a_overview.htm)

Highly Compensated Employee Exemption (HCE)

Total annual compensation of at least $100,000 with a limited duties

test

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Overtime Regulations Standard Salary Level for EAP Exemptions Was to Be $913 Per Week

Based upon 40th percentile of weekly earnings of full-time non-hourly employees in

the lowest-wage census region (currently the South)

$1,826 bi-weekly

$1,978 semi-monthly

$3,956 monthly

$47,476 annually

Up to 10% of the salary amount could be met by non-discretionary bonus, incentive,

or commission payments

Total Annual Compensation for HCE Was to Be $134,004

Based upon 90th percentile of earnings of full-time non-hourly employees nationally

Must receive at least $913 in weekly salary

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Judge issues Memorandum Opinion and Order and

grants nationwide preliminary injunction on Tuesday,

November 22, 2016

Prerequisites for Preliminary Injunction

Substantial likelihood of success on the merits;

Substantial threat of irreparable harm to plaintiffs;

Injury to plaintiffs outweigh potential damage to defendants;

and

Injunction will not disserve public interest

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Court found plaintiff States established a substantial

likelihood of success on the merits even though FLSA:

Contains a broad grant of authority to Labor Secretary to define and

delimit exemptions

Provides leeway to establish duties that could qualify an employee

for an exemption, subject to plain meaning of statute and

Congressional intent

Court ruled that Part 541 final rule exceeded statute and

Congressional intent because they did not include

establishing a salary level test that supplants duties tests

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Court found plaintiff States established a substantial

likelihood of success on the merits (continued)

Even if statute and Congressional intent was ambiguous, Part 541 rule did

not merit deference

Significant increase in salary amount created a de facto salary only test for

EAP exemptions

DOL also lacked authority to implement the provision to increase

automatically the salary amount and HCE total annual compensation

Court granted emergency motion for preliminary injunction Identified specific sections of rule that U.S. DOL/WHD was enjoined from

enforcing but omitted sections 541.601and 541.709

29





Possible Twists and Turns: Litigation

Future, Congress, and Administration

U.S. DOL Has Appealed to Fifth Circuit

Moved for Expedited Briefing and Oral Argument

Congressional Review Act – 1996 law that allows House to

reverse regulations enacted within the previous 60 legislative

days, and Senate to pass repeal by simple majority

Committees of both Senate and House of Representatives have issued

statement supporting decision

Will a Trump Administration inherit this Obama initiative?

If so, will it initiate new notice-and-comment rulemaking?

30





Could the Regulations Be Enforced

Retroactively?

The Home Health Care Rule, announced in October

2013, to be effective January 1, 2015

Changed the exemption to provide that home health

care workers are entitled to overtime

Home Care Ass’n. of Am.. v. Weil, 76 F.Supp.3d 138

(D.D.C. 2014), enjoined and then vacated the new rule

Home Care Ass’n of Am. v. Weil, 799 F.3d 1084 (D.C.

Cir. 2015), reversed the lower court, effective October

13, 2015

Is the rule effective January 1 or October 13, 2015?

31





Courts Finding No Retroactivity

Flamer v. Maxim Healthcare Serv., Inc., No. 1:15-cv-

02070-FFM (D.C. Md. October 26, 2015)

Bangoy v. Total Homecare Solutions, LLC, No. 1:15-

cv-573, 2015 U.S. Dist. LEXIS 177859 (S.D. Ohio,

December 21, 2015)

Collins v. DKL Ventures, LLC, No. 16-cv-00070-MSK-

KMT (D. Colo. August 16, 2016)(Magistrate

recommended ruling)

32





Courts Finding Retroactivity

Kinkead v. Humana, Inc., 2016 WL 3950737 (D. Conn.

July 19, 2016), Petition to Appeal Pending, No. 16-3593

(2nd Cir. October 25, 2016)

Collins v. DKL Ventures, LLC, No. 16-cv-00070-MSK-

KMT (D. Colo. September 21, 2016)(Judge ruling)

Lewis-Ramsey v. Evangelical Lutheran Good

Samaritan Soc., No. 3:16-cv-00026-RP-CFB, Doc. 46

(S.D. Iowa September 21, 2016)

Cummings v. Bost, Inc., 2016 WL 6514103 (W.D. Ark.

November 1, 2016)

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The Arguments for No Retroactivity

The district court vacatur rendered the home health

care rule a nullity

Statutes are not generally applicable retroactively

To enforce the regulation retroactively would be to act

as if the vacatur never occurred and the regulation was

continuously in effect, which is not what happened

DOL announced that it would only enforce the home

health care rule prospectively

34





The Arguments for Retroactivity

Judicial decisions operate retroactively. The reversal of

the lower court decision means that the lower court

was wrong and that decision has no effect.

It is unreasonable for employers to rely on the lower

court decision, as employers should know that the

decision could be reversed on appeal.

Employers had notice of the rule change and therefore

had time to comply.

35





Best Practices – Don’t Make Changes

Delay indefinitely and see how things play out.

This approach is not without risk.

If the injunction is lifted, or if the court issues a vacatur that

is then overturned, it is conceivable that employees could

seek compliance with the regulations retroactively.

Employers who delay making changes should have

employees track their time. That way, if the injunction is

overruled, they have an accurate measure of the hours

actually worked. (This also will help them determine what

potential overtime exposure may be in the future.)

36





Best Practices – Undo Changes?

Most employers will not undo changes; particularly, they

are not going to reverse salary increases.

Communicate with employees now about the injunction and

the potential for further future changes.

If you do reverse the changes, understand the retroactivity

risk and keep records.

Communicate the changes that are going to be made in

advance and in compliance with applicable state and local

notice requirements.

Undoing changes can be very messy if they have to be

redone if the ruling is reversed.

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Thank You

39

Joseph T. Clees Ogletree Deakins, Nash,

Smoak & Stewart, P.C.

2415 E. Camelback Road

Suite 800

Phoenix, AZ 85016

Phone: 602-778-3000

[email protected]

Documents

Prop. 206: Minimum Wage & Paid Sick Time FLSA: Overtime ...sahra.shrm.org/sites/sahra.shrm.org/files/SAHRA Prop 206 OT Rule Injunction...Casual babysitter Starts on day 1 and applies