Pay rates, vacations while recovering, gig economy

By Mike O’Brien bio

Department of Labor enters final stage of update to ‘regular rate’ rule under FLSA. As we have discussed previously in these updates, the Department of Labor has been working to update the definition of “regular rate” of pay under the Fair Labor Standards Act. The regular rate is used to calculate overtime pay. The rule has not been updated in half a century, and fails to capture the realities of the modern workplace. The DOL recognized this, and has now proposed a final rule to the White House Office of Management and Budget.

Although the details are not yet publicly available, prior versions of the rule clarified that forms of compensation like tuition reimbursement, employee discounts, employer-provided gym costs, wellness programs, and certain other benefits are not a part of the regular rate. Stay tuned to these updates for more information as it becomes available.

California lawmakers take aim at gig economy employers with strict independent contractor test. The California Assembly has sent AB 5, a bill codifying a strict test for independent contractor status, to Governor Gavin Newsom. Newsom has indicated that he will sign the measure. AB 5 seeks to codify the “ABC” test set forth by the California Supreme Court last year.

The three prongs of the test are: (a) the hiring entity does not control or direct the work, both in fact and according to the contract for the work’s performance; (b) the worker performs tasks that are outside the usual course of the hiring entity’s business; and (c) the worker is customarily engaged in an independent established trade, occupation, or business of the same nature as the work performed by the hiring entity. AB 5 expands this test beyond wage orders, and applies it to all of the California Labor Code and Unemployment Insurance Code, except where another definition of “employee” is specified.

AB 5 does provide exemptions for dozens of listed occupations such as some health care providers, lawyers, accountants, real estate agents, engineers, veterinarians, hair stylists, and others. Gig economy employers such as Uber and Lyft have aggressively opposed the legislation, with Uber also arguing that it can meet the “ABC” test because its drivers are not “core” to its business, which it says is “serving as a technology platform for several different types of digital marketplaces.”

One thing is certain—AB 5 will be the subject of vigorous litigation. It is also likely a prelude to similar bills in other states. Employers should be aware of all applicable laws and conduct a careful review of worker status before designating a worker as an independent contractor. The risks of misclassification include back taxes, statutory penalties, overtime claims, and more.

Taking a vacation while on FMLA leave? Massachusetts decision reminds employers it may not be FMLA abuse. A Massachusetts court recently awarded a former employee $1.3 million after his employment was terminated when HR personnel learned he went on a previously scheduled vacation to Mexico during FMLA leave after a foot surgery. In DaPrato v. Massachusetts Water Resources Authority, the court acknowledged that an employer may validly consider an employee’s conduct that is inconsistent with the reasons for FMLA leave. However, it noted that in this case, the employee “took FMLA leave to allow his foot to recover fully from surgery. Such recovery could take place in a warm climate as well as in a New England winter.”

Vacations during FMLA leave may take permissible or impermissible forms, according to the court: “An employee recovering from a leg injury may sit with his or her leg raised by the sea shore while fully complying with FMLA leave requirements, but may not climb Machu Pichu without abusing the FMLA process.” An employer must carefully consider the reasons for leave, the timeline for rehabilitation and recovery, and the activities undertaken before concluding that an employee has abused leave.

Another negative factor for the employer in this case was that two HR personnel had exchanged e-mails implying hostility toward the employee’s expressed intention to use more FMLA leave for a second surgery.

The case serves as an important reminder that employers should consider FMLA abuse issues carefully and on an individualized basis. Managers should also be trained to avoid making comments, whether verbally or in writing, which may contribute to claims of interference or retaliation.