In Morin v. Innegrity, LLC, the South Carolina Court of Appeals permitted a member of an LLC that was performing services for the LLC to recover unpaid wages under the South Carolina Payment of Wages Act (SCPWA or the Act).  Though the parties did not raise the issue, the case presented an interesting question about whether the protections of the Act extend to service members of an LLC.  (Note that in the ensuing discussion “LLC” is used interchangeably with “partnership” and “member” with “partner.”)

The purpose of the SCPWA is “to protect employees from the unjustified and willful retention of wages by [an] employer.”[1]  The Act, however, does not define “employee” and unhelpfully defines an “employer” as “every person, firm, partnership, association, [or] corporation . . . employing any person in [South Carolina].” Predictably, when lawmakers drafted the SCPWA they did not address the treatment of partners as employees.

The Wage and Hour Division of the United States Department of Labor, on the other hand, is clear that partners are not employees of their partnerships under the Fair Labor Standards Act (FLSA), the federal equivalent to the SCPWA.  In its Field Operations Guide, the Wage and Hour Division states that “[an] employment relationship [does not] exist between a bona fide partnership and the partners of whom it is composed . . . since [the partners] cannot be said to be employed by an employer separate and distinct from themselves.” Accordingly, partners cannot recover against their partnerships under the FLSA.

Because there is not guidance on the treatment of partners under the SCPWA, the Act’s general provisions apply.  Specifically, section  41-10-80(c) provides that for “any failure to pay wages due to an employee . . . the employee may recover in a civil action an amount equal to three times the full amount of the unpaid wages, plus costs and reasonable attorney’s fees . . . .”  Therefore, to recover under the SCPWA an individual must be an “employee” earning “wages.”  Fortunately, the Act does define “wages.”  So ignoring, momentarily, the thorny partner-as-employee issue, let us consider how a partner might earn “wages” from her partnership.

The SCPWA broadly defines “wages” as “all amounts at which labor rendered is recompensed, whether the amount is fixed or ascertained on a time, task, piece, or commission basis . . . .”  The Act is silent about whether payments made to partners can be wages.  From an income tax perspective partners cannot earn W-2 wages from their partnerships.  Instead, they are paid in one of three ways.    For returns on investments in a partnership, partners receive a “distributive share.”  Because a distributive share is not earned for performing services, it is not a “wage,” and partners owed a distributive share cannot recover under the SCPWA.

Partners that do perform services for their partnership are paid either “707(a) payments” or “guaranteed payments for services.”  Partners earn “707(a) payments” for services performed for a partnership outside of the partner’s capacity as partner—e.g., a partner at a law firm being paid to perform services other than legal services for the firm.  Alternatively, partners that perform services for a partnership in their capacity as partners typically receive pre-arranged, fixed payments called “guaranteed payments for services.”  These payments are called “guaranteed payments” because they are contractually required to be paid regardless of the income of the partnership.  While neither form of payment is a “wage” for tax or FLSA purposes, both 707(a) payments and guaranteed payments for services probably are “wages” under the SCPWA definition as each payment is an amount “[for] which labor rendered is recompensed.”

In any event, even a partner earning “wages” for services performed for her partnership cannot recover under the SCPWA unless she is also an “employee” of the partnership.  Though the Act itself is silent, our Supreme Court in two unanimous opinions has stated explicitly that “[w]orking partners are not employees.”  Daniels v. Roumillat, 264 S.C. 497, 502 (1975); Marlow v. E.L. Jones & Sons, Inc., 248 S.C. 568, 771 (1966).  Ordinarily such plain guidance would bind a lower court, and so perhaps the Court of Appeals would have rendered a different decision had the parties brought these cases to its attention.

[1] Mathis v. Brown & Brown of S.C., Inc., 389 S.C. 299, 698 S.E.2d 773, 783 (S.C.2010) (quoting Rice v. Multimedia, Inc., 318 S.C. 95, 456 S.E.2d 381, 383 (S.C.1995)).

By now, most, if not all, of you are familiar with the Supreme Court’s decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), which upheld the validity of waivers of FLSA collective actions in arbitration agreements. The United States District Court for the District of South Carolina recently issued an order expanding on Epic Systems. Continue Reading Utilizing Arbitration Agreements Effectively

The 2018 federal appropriations bill signed into law on March 23rd includes an addition to the Fair Labor Standards Act (FLSA) stating that “[a]n employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” The amendment also nullifies certain regulations issued by the Department of Labor in 2011, including regulations which prohibited an employer from using an employee’s tips as part of an invalid tip pool even where the employer was paying the employees the full minimum wage without utilizing a tip credit. Continue Reading Congress Addresses Who Can Share Tips

Perry MacLennan, Chris Gantt-Sorenson and Denny Major
Perry MacLennan, Chris Gantt-Sorenson and Denny Major

Haynsworth Sinkler Boyd recently hosted our annual Employment Law Seminars across South Carolina. These complimentary seminars educated Human Resource professionals on recent employment law updates and changes.

Here is a brief summary of the presentations from our seminars.

LGBTQIA: What Human Resource Professionals Need to Know by Chris Gantt-Sorenson

  • The 4th Circuit Court of Appeals has already stated in dicta that it would recognize a claim alleging gender discrimination or harassment under Title VII for any employee who has been discriminated against on the basis of their gender identity, gender expression, sexual orientation or sexual preference.
  • OSHA states, “All employees, including transgender employees, should have access to restrooms that correspond to their gender identity.”
  • OSHA reports 22% of 700,000 transgender employees surveyed indicated they were denied access to gender appropriate restrooms.
  • OSHA’s Sanitation Standard 1910.141(c)(1)(ii) requires employers to provide toilet facilities that are close to their workspace for each gender. OSHA also issued guidance recommending that employers offer single occupancy, gender neutral facilities rather than gender specific. However, if an employer could not do so, OSHA advised employers should provide lockable stalls in each restroom.

Wage and Hour Update by Denny Major

  • The Department of Labor has issued a request for information to solicit input on the salary level test used to help determine if an employee meets the executive, administrative, or professional exemption for the FLSA’s overtime requirement. The DOL has indicated that it intends to use the comments to develop a new proposed regulation regarding this exemption. For now, the 2004 salary level test ($455/week) remains in effect.
  • In recent opinions, the Fourth Circuit Court of Appeals, which is the federal court of appeals that covers South Carolina, has taken a fairly broad view of who is an employee versus an independent contractor and who constitutes joint employers under the FLSA. In a recent case, the Fourth Circuit, after examining several fact specific factors, determined that an exotic dancer was an employee of an exotic dance club rather than an independent contractor. In another recent case, it held that a general contractor was a joint employer over the employees of the contractor’s drywall subcontractor. While these are very fact specific inquiries, it suggests a trend in the way the Fourth Circuit is treating these cases.

Politics in the Workplace by Perry MacLennan

  • The Problem: According to a recent survey from BetterWorks, 50% of respondents have witnessed a political conversation turn into an argument at work (63% of millennials say the same). Thirty percent of respondents say they are less productive since the election due to the political environment. Employees are increasingly taking to social media to express their political beliefs and opinions, sometimes crossing the line into harassment and discrimination, or embarrassing the company and creating a public relations nightmare.
  • The Challenge: Foster a cooperative, productive, inclusive work environment that does not discourage workers from having their own opinions and does not create a workplace that feels more like a dictatorship than a democracy. Develop policies and procedures that strike a balance between being strong enough to justify discipline in certain situations, while not being overly broad, which are tough to enforce and could be illegal.
  • The Solution: Review your current policies and procedures (Social Media Policy, Code of Conduct Policy, etc.) to determine if your organization is compliant with the National Labor Relations Act and other laws governing the regulation of employee speech in the workplace. Make sure the policies emphasize mutual respect, civility, and productivity at work. Finally, include a reminder that anti-discrimination and other company policies apply to an employee’s outside activities, including social media posts.

Immigration Law Update by Garrett Steck and Suyash Raiborde

  • Immigration is seeing and will likely continue to see major changes under the current Administration.
  • Internal immigration compliance enforcement has increased in recent months.
  • The government may eliminate several visa programs, and significantly alter existing visa programs.

Recent Trends with the ADA

  • Both the EEOC and the US District Court of South Carolina have taken the position that an employee’s request for a service animal may be a reasonable accommodation under the ADA even though Title III of the ADA which governs employers does not specifically address service animals.
  • The failure to engage in the interactive process with the employee once a request for a service animal as a reasonable accommodation is made will most likely result in a violation of the ADA and subject the employer to liability for failing to engage in the interactive process.
  • The EEOC’s recent position on service animals as well as recent court decisions do not foreclose the possibility that the EEOC or the courts would find that an emotional support animal may be a reasonable accommodation under the ADA. If a request for an emotional support animal as a reasonable accommodation is made, employers should engage in the interactive process to determine whether the animal is reasonable under the circumstances.
  • Both the EEOC and the courts take the position that leave may be a form of reasonable accommodation under the ADA. Employer’s may have to modify existing leave policies to accommodate an employee’s request for accommodation.

DOR and the Unemployment Insurance Tax Rate by Demetrius Pyburn

  • Respond timely, adequately and effectively to SCDEW’s request for information regarding the reason the employee no longer works for the company.
  • Implement clear employee policies and keep records of any trainings, orientation and counseling.
  • Understand the Unemployment eligibility and appeals process to prevent improper payment and higher tax rates.

Stay on top of all employment law issues and subscribe to our SC Employers’ Blog.

And don’t miss next year’s seminar. Sign up for HSB emails and be the first to know about upcoming events.

On January 5, 2018, the United States Department of Labor announced that, going forward, it would utilize the “primary beneficiary” test for determining whether interns are employees under the FLSA, consistent with recent rulings from appellate courts. Its updated Fact Sheet #71, a copy of which is linked here, explains the test, which examines “the ‘economic reality’ of the intern-employer relationship to determine which party is the ‘primary beneficiary of the relationship.” Fact Sheet #71 outlines 7 factors that courts should apply on a fact specific basis in making this determination, with no single factor being dispositive:

  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.

This test replaces the older 6 factor test contained in Fact Sheet #71, which some courts had rejected as too rigid. While this guidance from the DOL is persuasive, rather than binding, authority, it should be noted that a version of the “primary beneficiary” test was already being applied by the Fourth Circuit Court of Appeals, at least in the context of whether trainees constitute employees. The adoption of this test by the DOL provides additional support for the application of it by the Fourth Circuit Court of Appeals and District Court for the District of South Carolina.

Today, July 26, 2017, the Department of Labor issued a Request for Information seeking notice and comment from the public before issuing revised proposed regulations regarding the minimum salary level required to meet the executive, administrative, and salary level exemption from the overtime requirement. As discussed in previous blogs, the DOL issued regulations last year that increased the salary level requirement, which had been last updated in 2004, from $455 per week to $913 per week.  The regulations were scheduled to become effective December 1, 2016.  However, a district court in Texas issued an injunction that prohibited the regulations from becoming effective. See Nevada, et. al. v. U.S. Department of Labor, et. al., 218 F. Supp. 3d 520, 534 (E.D. Texas 2016).  The appeal of that injunction is currently pending.  The DOL has stated that it does not intend to pursue the salary level of $913 per week which was a part of last year’s rule.  In fact, the Request for Information states that “[t]he Department is aware of stakeholder concerns that the standard salary level in the 2016 Final Rule was too high.”

The Request for Information seeks comment on eleven issues, which are summarized as follows:

  1. Whether updating the 2004 salary level for inflation would be an appropriate basis for setting the level (and, if so, what measure of inflation to use), or whether applying the 2004 methodology to current salary data would be appropriate? It also asks whether using either salary level require changes to the duties test, and, if so, what those changes should be?
  2. Whether the regulations should contain multiple salary levels, and, if so, how the levels should be set (size of employer, geographical region, etc.).
  3. Whether there should be different salary levels for executive, administrative, and professional exceptions, and what the impact would be on employers and employees.
  4. Whether the standard salary level should be set within the historical range of the short test salary level, long test salary level, or should it be based on some other methodology?
  5. Whether the standard salary level in the 2016 Final Rule works effectively in the standard duties test or whether it eclipses the role of the duties test, and at what salary level does the duties test no longer fulfill its role in determining exempt status.
  6. What were employers’ reactions to the 2016 final rule in terms of whether they increased salaries to retain exempt status, decreased employees’ hours so that they didn’t work overtime, converted workers from salary to hourly, or made changes to workplace policies limiting employee flexibility to work after normal working hours or to track work during those times?   What was the impact of these changes?
  7. Would a test that focuses solely on the employee’s duties be preferable to the current salary test? If so, what would the duties test be, and would it include examination of the amount of non-exempt work performed?
  8. Does the salary level test in the 2016 final rule exclude from exemption particular occupations that were traditionally exempt, and, if so, what are those occupations? Do employees in those occupations perform more than 20% or 40% non-exempt work per week?
  9. Should the regulations allow non-discretionary bonuses and incentive payments to satisfy the standard salary level and, if so, what would be an appropriate limit?
  10. Should there be multiple total annual compensation levels for the highly compensated employee exemption? If so, how should they be set (size of employer, census region, state, metropolitan statistical area, etc.)?
  11. Should the standard salary level and total annual compensation level (for highly compensated employees) be automatically updated on a periodic basis and, if so, what mechanism should be used for the automatic update, and whether automatic updates should be delayed during periods of negative economic growth.

The Request for Information can be found here.

tipThe plethora of litigation against restaurants for alleged improper tip practices continues.  Follow this link to see new litigation brought against a restaurant for requiring tipped employees to perform non-tipped work.

If a restaurant takes a tip credit, those employees who are paid pursuant to the tip credit cannot perform non-tipped work more than 20% of the time.   (The DOL has indicated that an employee’s status will be viewed on the basis of his activities over an entire workweek.  See DOL Opinion Letter, 1997 WL 998047 (Nov. 4, 1997).)  In other words, if a tipped employee is performing related duties not directed at tips, then the related duties can be compensated pursuant to the tip credit as long as those related duties only comprise 20% or less of the employee’s time.  No tip credit may be taken for time spent on unrelated duties, and a tipped employee must be paid full minimum wage for such duties.

For example, a waitress may be employed in a dual job.  If she customarily and regularly receives at least $30 a month in tips for her work as a waitress, then she is a tipped employee only with respect to employment as a waitress. While a tip credit can be taken for the time worked in the tipped position, she must be paid at least minimum wage for those hours spent working in the non-tipped position.  Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. These are considered related duties in an occupation that is a tipped occupation even though they are not by themselves directed toward producing tips.

You can find helpful guidance on assessing and using tip credit here.

blog2015HRLawUpdateBannerHaynsworth Sinkler Boyd’s Employment Team is pleased to offer the 2015 HR Law Update in six cities this Fall.

Hot Topics. Through these six sessions, you’ll learn about hot topics HR managers are facing today: Immigration, Criminal Background Checks, Independent Contractors, FLSA Violations, Pregnancy Non-Discrimination, and more.

Don’t miss out. In one morning, we’ll cover the basics of HR law in a fast-paced, plain-English way that will provide a whole new level of understanding to anyone who has to deal with the thousands of facets of employment law.

September 22nd – Anderson, SC

September 23rd – Spartanburg, SC

November 11th – Sumter, SC

November 12th – Lexington, SC

December 1st – North Charleston, SC

December 2nd – Florence, SC

Each seminar will start with Registration & Continental Breakfast at 8:00 am. Sessions will begin at 8:30 and conclude by Noon.

To Register, click on the desired city above or visit www.hsblawfirm.com and look for Upcoming Events.

SESSION #1 – Wage and Hour Compliance: The most common FLSA violations. A discussion about most common unintentional FLSA violations, as well as situations to avoid. Presented by Chris Gantt-Sorenson

SESSION #2 – Immigration: What you need to know about President Obama’s executive action on Immigration. Presented by Garrett D. Steck

SESSION #3 – Independent Contractors: Are workers truly independent contractors or are they really your employees under the law?  An overview of current federal and state guidance on the classification, including practical application and tips for drafting your contracts to avoid the consequences of incorrectly classifying workers.  Presented by Emily H. Farr

SESSION #4 – Can the Box be Banned? Employers with a Legal Duty to Conduct Criminal Background Checks. Presented by Andrea H. Brisbin

SESSION #5 – Pregnancy Non-Discrimination Act:Directives from the Supreme Court’s ruling in Young v. UPS and its impact on the EEOC’s guidance and the Pregnancy Non-Discrimination Act Amendments. Presented by Pierce T. (Perry) MacLennan

SESSION #6 – Open Forum: A free exchange of information and ideas covering today’s topics and beyond. Attendees are encouraged to come ready with questions to ask the lawyers.

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New guidance released July 15, 2015, from the Department of Labor (DOL) narrows independent contractor classification so that “most workers are employees under the FLSA.” The DOL’s guidance makes it clear that the amount of control an employer has over a worker is not as important in properly classifying the worker. Instead, the DOL details an “economic realities” test that must be used “to determine whether the worker is economically dependent on the employer (and thus the employee) or is really in business for him or herself (and thus its independent contractor.)”

According to DOL, you need to consider the following factors when determining if a worker is truly an independent business or is economically dependent upon the employer:

  1. Is the work an integral part of the employer’s business? DOL says that an independent contractor’s work is unlikely to be an integral part of the employer’s business.
  2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? An independent contractor is one whose managerial decisions (whether to hire others, purchase more equipment, advertise, etc) are more likely to lead to profit or loss beyond the current job.
  3. How does the worker’s relative investment compare to the employer’s investment? The worker’s investment must be significant in magnitude relative to the employer’s investment in the overall business to indicate an independent contractor. DOL emphasized a Tenth Circuit opinion that determined a rig welder’s investment in equipment of $35,000-$40,000 did not indicate the welders were independent contractors when compared to the employer’s investment in the business.
  4. Does the work performed require special skill and initiative? This factor considers special business skills and judgment in moving the business forward, rather than technical skills in performing the work.
  5. Is the relationship between the worker and the employer permanent or indefinite? The more permanent the job, the more likely the worker is truly an employee.
  6. What is the nature and degree of the employer’s control? Again, the DOL guidance de-emphasizes the importance of this factor, explaining that this should not be given undue weight. However, the amount of control an employer has over a worker helps determine if the worker is truly in business for himself or not.

It is clear from the guidance that DOL views most workers as employees; therefore, the classification of independent contractors should be used sparingly. You should review all of your independent contractors in light of this guidance to make sure they are properly classified because a finding of misclassification can result in significant liability for unpaid overtime, unemployment and worker’s compensation insurance premiums, as well as other potential statutory penalties and liabilities.

You can read the full guidance, with examples of each factor, here: http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.pdf

The DOL today issued its long awaited proposed rules changing the salary basis test for those employees classified as exempt under the Fair Labor Standards Act (FLSA).  The salary basis test is one of two tests necessary to determine if an employee is properly classified as exempt. The minimum salary basis for exempt employees is currently $455 a week, yielding an annual minimum salary of $23,660.  This minimum salary basis test has been in effect since August 23, 2004.  The proposed rules purport to update those figures and increase the salary minimum to $970 a week for a minimum annual salary of $50,440.  The DOL believes this would impact about 4.6 million employees.  The DOL has proposed this change to “minimize” the risk that employees legally entitled to overtime will be subject to misclassification based solely on the salaries they receive, without excluding from exemption an unacceptably high number of employees who meet the duties test.”[1]

These amounts were projected after the DOL evaluated the current 40th percentile of weekly earnings for full-time salaried workers because the DOL believes that percentile “represents the most appropriate demarcation between exempt and nonexempt employees.”[2] The proposed rule increases the total annual compensation requirement needed to exempt highly compensated employees from $100,000 to $122,148 annually. The DOL also proposes a mechanism that would automatically update the salary and compensation levels going forward.  The plan is for these rules to take effect in 2016.

The DOL is seeking guidance as to whether to allow nondiscretionary bonuses to satisfy a portion of the salary basis test, whether the standard duties tests are working as intended to screen out employees who are not bona fide white collar exempt employees, and other issues. Comments can be posted electronically at www.regulations.gov or mailed to D.C.[3] Refer to RIN 1235-AA11.

Having been fortunate to offer employment law advice and counsel to employers for years, I can attest that proper classification of those employees considered exempt is an area where even the most sophisticated employer can be non-compliant. Besides providing comments on those areas the DOL is seeking guidance, Employers should audit their FLSA practices regarding who is classified as exempt in their organizations and evaluate how they might address any effect to their financials caused by the mandatory increase in minimum salaries for exempt employees in their employ.

 

Continue Reading Proposed New Rule More Than Doubles Minimum Salary for Exempt Employees