With assistance from Rose McCarty

The Willow’s Inn, Washington’s most expensive restaurant, recently agreed to pay nearly $150,000 in back pay and penalties after a Department of Labor investigation revealed entry-level employees working in a “staging” or apprenticeship program were denied fair compensation. The restaurant employees began on a trial basis, working for one-month without pay, and then were paid below state minimum wage while working labor-intensive 14-hour days.

At a time of year when many private companies are taking on interns, this case is a good reminder of the impact of state and federal wage and hour regulations.

For-profit entities are required to pay all persons who are “employed,” which is broadly defined to mean “suffer or permit to work.” Unpaid training programs and internships in the private sector may be allowed, but only if all of the following Department of Labor criteria are met:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If a private-sector company fails to satisfy any one of these requirements, a worker is considered an employee and must be paid at least minimum wage.

Unlike the private sector, nonprofits and government organizations usually are permitted to offer unpaid internships, even if the intern provides services of value to the organization.

For more information on wage requirements and volunteer and internship standards, please contact Foster Pepper’s Employment, Labor and Benefits group.

A reader recently commented on the compensation of seniors who work as resident monitors in a building where they live. The building (in Colorado) is operated by a religious charity. The monitor oversees the premises when management is not present. Although working more than 60 hours each week, the monitor is paid only about $200.

While the reader may resent building management, the arrangement is proper under the Fair Labor Standards Act because the monitors are volunteers. (We do not address Colorado law, which might have contrary provisions.) As we wrote several years ago:

Nonprofit and public sector organizations may have volunteers as long as the volunteers are not employees of the organization and give time and services gratuitously. There can’t be any pressure or coercion to donate time, and all services must be free and voluntary.

Continue Reading Ask Washington Workplace Law: Don’t I have the right to get paid more?

April 1 is implementation day for Seattle’s new Minimum Wage Ordinance. Starting April 1, large businesses with over 500 employees must pay workers wages of at least $11 per hour. Smaller businesses with 500 or fewer employees must pay either a flat hourly wage of $11, or a wage of $10 per hour with an additional $1 per hour in compensation comprised of tips or payments made to a qualifying medical-benefits plan.

The City of Seattle’s Office of Labor Standards, a new division within the Seattle Office for Civil Rights, has released the Final Administrative Rules for the new Ordinance, along with detailed set of Frequently Asked Questions.

If you have questions regarding compliance with Seattle’s Minimum Wage Ordinance, or any other wage and hour question, please contact Foster Pepper’s Employment & Labor group.  

As we previously reported, the Seattle City Council enacted an ordinance that will raise the minimum wage for workers at many Seattle businesses.  The ordinance, which is scheduled to take effect in April, designated the Seattle Office for Civil Rights to interpret and administer the new provisions.  SOCR now has released proposed Administrative Rules.  Readers can visit SOCR’s website for details, including a press release and frequently asked questions about the new ordinance.

Wage and hour litigation has become an increasingly expensive concern for employers in recent years.  Recent wage and hour class actions have concluded in settlements ranging from $11.8 million in an overtime lawsuit against HP, $5 million in an overtime lawsuit against AT&T, and up to $4.7 million in an independent contractor misclassification lawsuit against Citigroup.  Yet employers seeking to mitigate the risk of potentially catastrophic financial exposure from wage and hour class action lawsuits have traditionally met with limited insurance options since most employment practices liability insurance policies (“EPLI”) exclude wage and hour coverage.

The tide has begun to shift, however, as several insurance companies recently started offering policies specifically covering wage and hour litigation costs.  The choices remain limited, but some analysts predict these cautious first steps into the new market, if successful, could lead to wider coverage options.  See Keep Your Shirts On: Wage & Hour Coverage Arriving Just in Time.

Continue Reading Wage & Hour Litigation Insurance: A Viable Option for Employers Wishing to Mitigate Risk?

A new Washington law, which took effect on June 12, 2014, gives public employees two unpaid religious holidays per calendar year. The measure amends RCW 1.16.050, which had granted public employees one paid floating holiday per calendar year in addition to the legal holidays recognized by the State of Washington. The new law adds two unpaid holidays for religious purposes to accommodate employees with holy days do not coincide with state legal holidays.

  • Affected Employers. The statute covers employees of the state and its political subdivisions, including colleges, universities, counties, cities and towns, and likely also extends to municipal corporations such as fire districts and public transit agencies.
  • Covered Absences. The new law covers absences for “a reason of faith or conscience or an organized activity conducted under the auspices of a religious denomination, church, or religious organization.” This definition encompasses religious holidays, services and other activities organized by a religious organization, even if not inherently religious. The statute also applies to employees who desire time off for reasons of “conscience,” thus covering employees who do not belong to organized religions.
  • Type of Leave. The statute provides for unpaid leave, but does not require employers to allow employees to use paid leave to cover a religious holiday absence.
  • Denying Requests for Leave. Employers may deny requests for leave under the new law if the absence would impose “an undue hardship,” or if the employee’s presence is necessary to maintain “public safety.” The Washington Office of Financial Management (“OFM”) created a temporary emergency rule defining “undue hardship,” as an action requiring “significant difficulty or expense to the employer.” The OFM will issue a permanent rule at a later date.
  • Implementation. Though employers have an existing legal obligation under the Washington Law Against Discrimination to accommodate employee religious beliefs, the statute creates a clear entitlement for two unpaid holidays each year. The new law requires “local government employers” to adopt guidelines implementing the new leave entitlement by ordinance or resolution of their legislative authority. Other public employers should implement the statute by adopting guidelines in personnel policies and procedures. These guidelines should explain the process for requesting leave, specifying where the request should be directed, the amount of required advance notice, and the person responsible for evaluating the request.

If you have questions about implementation or application of the new law, please contact any member of the Foster Pepper Employment and Labor Relations practice.

 

On August 7, 2014, the Washington Supreme Court issued its decision in Becerra v. Expert Janitorial, ruling that the “joint employer” doctrine is available under the Washington Minimum Wage Act to assess minimum wage and overtime liability against entities that are not the primary employers of underpaid workers.  While the ruling is consistent with decisions under the federal Fair Labor Standards Act (FLSA), the Becerra case is another reminder to employers that they may be responsible for the wage claims of their contractors and subcontractors.

The Facts

The plaintiffs performed janitorial work at Fred Meyer stores in the Puget Sound area, mostly at night while the stores were closed and locked.  Their employment relationship was complex.  Fred Meyer contracted with Expert Janitorial to provide cleaning services.  Expert, in turn, subcontracted the work to a series of other entities, which in turn engaged the workers.  The subcontractors did not pay minimum wage or overtime pay.

In addition to suing the subcontractors, the plaintiffs also sued Fred Meyer and Expert, claiming that they were really Expert’s and Fred Meyer’s employees, and therefore should be able to collect lost wages from those companies.  The trial court dismissed the claims against Expert and Fred Meyer, but the Supreme Court reversed.

The Analysis 

The Supreme Court relied on the FLSA in making its decision.  Under the Washington Minimum Wage Act and the FLSA, an employee may have more than one employer, each of which is responsible for paying minimum wage and overtime.  The two (or more) responsible entities are often referred to as joint employers.  An entity can be considered an employer or a joint employer if various factors are met.  The Supreme Court identified 13 non-exclusive factors:

  1. The nature and degree of control of the workers;
  2. The degree of supervision, direct or indirect, of the work;
  3. The power to determine the pay rates or the methods of payment of the workers;
  4. The right, directly or indirectly, to hire, fire, or modify the employment conditions of the workers;
  5. Preparation of payroll and the payment of wages;
  6. Whether the work was a specialty job on the production line;
  7. Whether responsibility under the contracts between a labor contractor and an employer pass from one labor contractor to another without material changes;
  8. Whether the “premises and equipment” of the employer are used for the work; 
  9. Whether the employees had a business organization that could or did shift as a unit from one worksite to another;
  10. Whether the work was “piecework” and not work that required “initiative, judgment or foresight;”
  11. Whether the worker had an “opportunity for profit or loss depending upon [his or her] managerial skill;” 
  12. Whether there was “permanence” the working relationship; and,
  13. Whether “the service rendered is an integral part of the alleged employer’s business.”

Unfortunately, the Supreme Court did not apply these standards to the facts at issue.  Instead, the Supreme Court sent the case back to the trial court to apply the factors.

Impact on Companies and Government Bodies 

The Becerra case is only the latest demonstration that even well-meaning companies and government bodies may be held responsible for the labor and employment violations of their contractors and subcontractors.  However, the entity seeking services may not know enough of the facts to predict how a court might apply the 13 factors listed above.  

Possible steps to reduce risk might include:

  • Investigate the solvency and track record of any contractor.
  • Bar the contractor from further subcontracting work without your consent.
  • Ensure that the agreement with the contractor identifies the contractor as the entity responsible for paying wages in conformity with law.
  • Include strong indemnification provisions in the agreement so that the contractor is responsible for defense of claims and any liability or settlement.  
  • Determine whether insurance coverage is available.

If you have any questions regarding application of Becerra to your workplace, please contact any member of the Foster Pepper Employment and Labor Relations practice.

Seattle residents will not be voting on the city’s new minimum wage.  Over the past month various business groups collected signatures in favor of referendums on this fall’s ballot, so voters could approve or reject the $15 minimum wage ordinance. According to King County Elections, one group, Forward Seattle, submitted 18,929 signatures, but only 14,818 signatures were valid. A second group, Save Our Choice, submitted 568 signatures, of which 455 were valid. Each referendum needed a minimum of 16,510 signatures to appear on the fall ballot, and both fell short.

While these political efforts to undo the ordinance have been thwarted, there is still a pending legal challenge brought by the International Franchise Association. 

Meanwhile, the Port of Seattle Commission voted to increase wages for workers at SeaTac airport, the facility serving Seattle, Tacoma, and surrounding areas.  The City of SeaTac had previously enacted a $15 minimum wage, but a superior court ruled that the measure did not apply to many workers at the airport, and barred applicability of the ordinance to Port property.

Under the Port’s new measure, in January 2015, workers will receive a minimum wage of $11.22; hourly minimum compensation (including tips, healthcare or other benefits) of $13.72; and one hour of paid leave for every 40 hours worked. In January 2017, the minimum wage will increase to $13, and minimum compensation (including tips, healthcare or other benefits) will increase to $15.50.  After 2017, minimum wages will increase at the rate of inflation.

The Port’s program is tied to its safety, security and training efforts, and will increase wages for 3,500 workers at the airport, including baggage/cargo handlers, catering, cleaning, fueling, dispatch, security, wheelchair attendants, and workers who check in passengers. The policy does not apply to restaurant and retail workers. 

For further information about minimum wage increases and any other wage and hour issues, contact Foster Pepper’s Employment & Labor Relations practice.

On June 2, 2014, the Seattle City Council unanimously approved legislation that increases the minimum wage in the City of Seattle to $15 per hour, with pay raises phased-in over the next three to seven years. The law will go into effect on April 1, 2015, with workers’ wages immediately increasing by $1 per hour, followed by gradual wage increases until the $15 per hour threshold is met.  You can view the full bill online, but additional key terms of the ordinance include:

  •  Employers with more than 500 employees (“Schedule 1 Employers”) must raise the minimum wage to $11 per hour by April 1, 2015, and must reach $15 per hour in 2017. 
  • Schedule 1 Employers that provide employees with health insurance have until 2018 to phase in the $15 minimum wage. 
  • Employers with fewer than 500 employees (“Schedule 2 Employers”) must raise the minimum wage to $10 per hour by April 1, 2015, and must reach $15 per hour by 2019. 
  • Schedule 2 Employers that offer paid benefits or have employees who receive tips have until 2021 to phase in the $15 minimum wage. Benefits and tips may be counted toward the minimum wage requirement.
  • Franchises (regardless of the number of employees at the franchise location) are treated as Schedule 1 Employers, and subject to the shorter minimum wage phase-in timeline.  The International Franchise Association plans to file a lawsuit challenging this aspect of the ordinance as “unfair and discriminatory.”
  • The ordinance will allow the City to set a lower minimum wage for minors and participants in training and apprentice programs.
Employers with more than 500 employees (“Schedule 1 Employers”) must raise the minimum wage to $11 per hour by April 1, 2015, and must reach $15 per hour in 2017. 
Schedule 1 Employers that provide employees with health care benefits have until 2018 to phase in the $15 minimum wage.  
Employers with fewer than 500 employees (“Schedule 2 Employers”) must raise the minimum wage to $10 per hour by April 1, 2015, and must reach $15 per hour by 2019.  
Schedule 2 Employers that offer paid benefits or have employees who receive tips have until 2021 to phase-in the $15 minimum wage. Benefits and tips may be counted toward the minimum wage requirement.
Franchises (regardless of the number of employees at the franchise location) are treated as Schedule 1 Employers, and subject to the shorter minimum wage phase-in timeline.  The International Franchise Association plans to file a lawsuit challenging this aspect of the ordinance as “unfair and discriminatory.”
The final approved ordinance will allow the City to set a lower minimum wage for minors and participants in training and apprentice progr

The path to the minimum wage increase began last year with protests and walkouts by fast food workers (view our prior blog post). The minimum wage became a critical election-year topic last fall (view our prior blog post) as socialist City Councilmember Kshama Sawant and Mayor Ed Murray took up the cause, and were elected on the minimum wage platform. Voters also approved a $15 minimum wage on the ballot in the nearby City of SeaTac.

Shortly after his election, Mayor Murray assembled a committee comprised of business, labor and community leaders to study the issue of income inequality and make recommendations for increasing the minimum wage. After months of debate, the committee reached an agreement, advocating a phased-in increase to the minimum wage, and providing the framework for the Mayor’s $15 Minimum Wage Proposal. Following last Thursday’s unanimous approval by the City Council’s Committee on Minimum Wage and Income Inequality, the June 2 approval by the full Council was no surprise.

According to the Los Angeles Times, Seattle may be leading the charge among other west coast cities. San Francisco is discussing raising its minimum wage to $15, Los Angeles is looking at $15 per hour for hotel workers, San Diego is considering $13 per hour and Oakland is evaluating $12.25 per hour.

Back in Seattle, employers have until April 1, 2015 before they must implement any minimum wage increases beyond what is required under state law (currently $9.32 per hour). Until then, the City will be busy developing the infrastructure to support and enforce the new ordinance. We’ll continue to advise our readers of any new developments.

For further information about the Seattle minimum wage increase and any other wage and hour issues, contact Foster Pepper’s Employment & Labor Relations practice.

The U.S. Supreme Court recently heard arguments in an employment tax case (United States v. Quality Stores, Inc.) that will have an important impact on many employers and employees. The specific issue that the Court must address is whether certain types of severance pay (i.e., those made to employees who are involuntarily terminated because of a reduction in force, plant shutdown or other similar circumstances) are “wages” subject to Federal Insurance Contributions Act (FICA) tax.

On its face, the case deals with a narrow technical issue, but the Court’s decision will have a broad impact for a number of reasons. First, it will resolve an issue that falls into a gray area, leaving employers confused about their obligation to withhold and pay FICA tax in many severance pay situations. Second, if a judgment is rendered in favor of the taxpayer (i.e., if the Court finds that the severance pay is not wages subject to the FICA tax), it could result in the government refunding billions of dollars to individual taxpayers and employers.

The United States argues that the severance pay at issue falls squarely within the broad definition of wages found in the FICA tax statute (“all remuneration for employment”) and are therefore subject to the FICA tax. The taxpayer, on the other hand, argues that the severance pay is a supplemental unemployment benefit (SUB) and not wages.

The Court is not expected to issue a ruling on the case until sometime this summer. In the meantime, however, employers who reported severance pay as FICA wages in 2010 are facing a deadline. They have until April 15, 2014 to file a refund claim for the related FICA taxes that they paid. Employers who believe that they have a valid claim should file a protective claim by the deadline. The IRS will likely hold the claim in abeyance until the Court issues its decision. Remember, however, that the case only affects severance pay made to employees who were involuntarily terminated because of a reduction in force, plant shutdown or other similar circumstances.

If you have questions about payroll tax requirements, please contact the Foster Pepper Tax Practice Group.