In the last days of President Donald Trump’s administration, the U.S. Department of Labor (DOL) released several opinion letters on federal wage and hour laws, addressing rules for tipped workers, independent contractors and employees who are exempt from receiving overtime pay.
During the Trump administration, the DOL resumed the use of opinion letters that describe how the agency would enforce federal wage and hour laws in specific circumstances. There is a safe harbor for employers if they can show that they relied on an opinion letter—even if they were not the party that requested the letter.
“Opinion letters are useful in helping employers comply with the law,” said Brett Coburn, an attorney with Alston & Bird in Atlanta.
The Obama administration stopped issuing these letters in 2010 and replaced them with more general guidance. Jeffrey Brecher, an attorney with Jackson Lewis in Long Island, N.Y., noted that President Joe Biden’s DOL may seek again to make broad changes through administrator interpretations.
In the meantime, employers should be aware of the following opinion letters, which were issued in the days leading up to Biden’s inauguration.
Two opinion letters addressed Fair Labor Standards Act (FLSA) questions about paying workers who generally receive tips, such as restaurant servers and bartenders.
“There is considerable ambiguity in the FLSA as it relates to the payment of tipped workers, which has resulted in substantial litigation, particularly over the past several decades,” said Mark Goldstein, an attorney with Reed Smith in New York City. “These opinion letters, therefore, provide some much-need clarity from the DOL.”
Sometimes restaurant owners take a so-called tip credit, which allows employers that meet certain criteria to pay tipped workers less than minimum wage, as long as their tips make up the difference.
In the first letter, the DOL said a nontraditional tip pool that includes tipped servers and nontipped hosts and hostesses may be permissible if the pool doesn’t include management and if all workers are paid at least the full minimum wage. If the employer takes a tip credit, only employees who traditionally receive tips may be included in the tip pool.
The second letter addressed how to properly calculate overtime pay under the FLSA for employees who receive tips and automatic gratuities or service charges.
The DOL said the employee’s cash wage, the employer’s tip credit (which is the difference between the employee’s hourly wage and the full minimum wage) and any mandatory service charges must be included in the employee’s regular rate of pay, which is used to calculate overtime premiums.
“While the DOL’s guidance provides some much-welcomed clarity, employers should take that guidance with a grain of salt,” Goldstein said. First, several states have laws on tipped workers that are more stringent than the FLSA. Additionally, he said, the Biden administration may issue more employee-friendly opinion letters or other guidance.
Two opinion letters addressed whether certain workers can be classified as independent contractors under the FLSA or if they are actually employees.
Independent contractors are not eligible for minimum wage, overtime and other benefits that employees must receive—but they generally have more flexibility to set their own schedules and work for multiple companies.
One opinion letter focused on whether a motor carrier can order tractor-trailer truck drivers to implement legally required safety measures without jeopardizing the drivers’ independent-contractor status. Based on several scenarios provided, the DOL concluded that the motor carrier’s requirements don’t affect the drivers’ classification.
“[T]he requirements to comply with certain legal, health and safety obligations are not a factor in determining whether a driver is an employee or an independent contractor under the FLSA,” the DOL said.
Another opinion letter addressed whether distributors of a manufacturer’s food products are employees or independent contractors under the FLSA. The distributors resell the manufacturer’s products to retailers.
Based on the facts provided, the DOL concluded that the distributors are independent contractors. The DOL applied its recently revised economic-reality test to determine whether an individual is in business for himself or herself or is economically dependent on a company for work.
The department noted that the parties’ contracts are not exclusive, the distributors can work for the manufacturer’s competitors and can work in the same territory as other distributors, and the manufacturer’s products make up less than half the annual sales volume for some distributors. The distributors also have discretion to choose their assignments and are largely free from supervision.
The opinion letter “provides insight into the food manufacturer-distributor relationship, particularly to the extent the relationship mirrors the factual scenario at play here, but also to other similarly structured relationships outside of this industry,” said Kelli Fuqua and Kim Rives Miers, attorneys with Littler in Austin, Texas.
They noted that employers should closely monitor DOL guidance on this topic, as the Biden administration may make changes.
Employers should also review applicable state laws, which may apply a different analysis.
The DOL also addressed the FLSA’s exemptions from overtime pay.
One letter considered whether the FLSA’s “retail or service establishment” exemption applies to staffing firms that recruit and hire employees to then place on assignments with clients. Under the FLSA’s “retail or service establishment” exemption:
- The firm must be engaged in the sales of goods or services.
- 75 percent of its sales of goods and/or services must be recognized as retail in the particular industry.
- No more than 25 percent of its sales of goods and/or services may be resales.
The DOL said staffing firms may qualify as retail or service establishments, but a case-by-case analysis is necessary. Whether a particular employee qualifies as exempt will also require an individual analysis. The employee’s regular rate of pay must be at least 1 1/2 times higher than the minimum wage and more than half of the employee’s earnings in a representative period must be commissions.
Finally, the DOL addressed whether journalists for certain local small-town and community news sources can be classified as exempt creative professionals.
Although the FLSA regulations specifically mention journalists as creative professionals, not all journalists qualify for the exemption, particularly if they only collect, organize and record routine information, rather than add interpretation and analysis to the news.
The party that requested the letter noted that the duties of local and community journalists have changed in recent years to focus on “context-based” reporting rather than “just the facts.”
The DOL said journalists who perform the required primary duties and meet the salary threshold qualify for the exemption “regardless of the size, prestige or geographic reach of the journalist’s employer.”