[Federal Register Volume 76, Number 65 (Tuesday, April 5, 2011)]
[Rules and Regulations]
[Pages 18832-18860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-6749]
[[Page 18831]]
Vol. 76
Tuesday,
No. 65
April 5, 2011
Part II
Department of Labor
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Office of the Secretary
Wage and Hour Division
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29 CFR Part 4, 516, 531, et al.
Updating Regulations Issued Under the Fair Labor Standards Act; Final
Rule
Federal Register / Vol. 76 , No. 65 / Tuesday, April 5, 2011 / Rules
and Regulations
[[Page 18832]]
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DEPARTMENT OF LABOR
Office of the Secretary
29 CFR Part 4
Wage and Hour Division
29 CFR Parts 516, 531, 553, 778, 779, 780, 785, 786, and 790
RIN 1215-AB13, 1235-AA00
Updating Regulations Issued Under the Fair Labor Standards Act
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Final rule.
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SUMMARY: In this final rule, the Department of Labor (Department or
DOL) revises regulations issued pursuant to the Fair Labor Standards
Act of 1938 (FLSA) and the Portal-to-Portal Act of 1947 (Portal Act)
that have become out of date because of subsequent legislation. These
revisions conform the regulations to FLSA amendments passed in 1974,
1977, 1996, 1997, 1998, 1999, 2000, and 2007, and Portal Act amendments
passed in 1996.
DATES: Effective Date: These rules are effective on May 5, 2011.
FOR FURTHER INFORMATION CONTACT: Montaniel Navarro, Wage and Hour
Division, U.S. Department of Labor, Room S-3502, 200 Constitution
Avenue, NW., Washington, DC 20210; telephone: (202) 693-0067 (this is
not a toll-free number). Copies of this final rule may be obtained in
alternative formats (Large Print, Braille, Audio Tape or Disc), upon
request, by calling (202) 693-0023 (not a toll-free number). TTY/TDD
callers may dial toll-free (877) 889-5627 to obtain information or
request materials in alternative formats.
Questions of interpretation and/or enforcement of regulations
issued by this agency may be directed to the nearest Wage and Hour
Division (WHD) District Office. Locate the nearest office by calling
our toll-free help line at (866) 4USWAGE ((866) 487-9243) between 8
a.m. and 5 p.m. in your local time zone, or log onto the WHD's Web site
for a nationwide listing of Wage and Hour District and Area Offices at:
http://www.dol.gov/esa/contacts/whd/america2.htm.
SUPPLEMENTARY INFORMATION: The Regulatory Information Number (RIN)
identified for this rulemaking changed with the publication of the 2010
Spring Regulatory Agenda due to an organizational restructuring. The
old RIN was assigned to the Employment Standards Administration, which
no longer exists. A new RIN has been assigned to the WHD.
I. Overview of Changes
The FLSA requires covered employers to pay their nonexempt
employees a Federal minimum wage and overtime premium pay of time and
one-half the regular rate of pay for hours worked in excess of forty
(40) in a work week. The FLSA also contains a number of exemptions from
the minimum wage and overtime pay requirements.
Over the years, Congress has amended the FLSA to refine or to add
to these exemptions and to clarify the minimum wage and overtime pay
requirements. A 1974 amendment to section 13(b)(10) of the FLSA, 29
U.S.C. 213(b)(10), extended an overtime exemption to include any
salesman primarily engaged in selling boats and eliminated the overtime
exemption for partsmen and mechanics servicing trailers or aircraft.
Congress also in 1974 revised aspects of the FLSA's tip credit
provisions, 29 U.S.C. 203(m) and (t), which were further revised by
amendments enacted in 1977 and 1996. As part of the Small Business Job
Protection Act of 1996, Congress amended section 4(a) of the Portal
Act, 29 U.S.C. 254(a), to define circumstances under which pay is not
required for employees who use their employer's vehicle for home-to-
work commuting purposes. The 1996 Act also created a youth opportunity
wage of $4.25 per hour under section 6(g) of the FLSA, 29 U.S.C.
206(g). In 1997, Congress amended section 13(b)(12) of the FLSA, 29
U.S.C. 213(b)(12), to expand the exemption from overtime pay for
workers on ditches, canals, and reservoirs when 90% (rather than 100%)
of the water is used for agricultural purposes. In 1998, Congress added
section 3(e)(5) to the FLSA, 29 U.S.C. 203(e)(5), to provide that the
term ``employee'' does not include individuals who volunteer to private
non-profit food banks solely for humanitarian purposes and who receive
groceries from those food banks. In 1999, Congress added section 3(y)
to the FLSA, 29 U.S.C. 203(y), to define an employee who is engaged in
``fire protection activities.'' In 2000, Congress added section 7(e)(8)
to the FLSA, 29 U.S.C. 207(e)(8), that treats stock options meeting
certain criteria as an additional type of remuneration that is
excludable from the computation of the regular rate. As part of the
U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Appropriations Act, 2007, Congress increased the FLSA
minimum wage in three steps: to $5.85 per hour effective July 24, 2007;
to $6.55 per hour effective July 24, 2008; and to $7.25 per hour
effective July 24, 2009.
Additionally, a number of courts have examined the interpretation
of the FLSA's compensatory time provisions in section 7(o)(5)
concerning public agency employers' obligation to grant employees'
requests to use ``comp time'' within a ``reasonable period after making
the request if the use of the compensatory time does not unduly disrupt
the operations of the public agency.'' 29 U.S.C. 207(o)(5). Finally,
the regulations governing the ``fluctuating workweek'' method of
computing half-time overtime pay for salaried nonexempt employees, who
work variable or fluctuating hours from week to week need updating to
delete outmoded examples.
The Department published a notice of proposed rulemaking (NPRM) in
the Federal Register on July 28, 2008 (73 FR 43654 (Jul. 28, 2008)),
inviting comments on revisions to the regulations to implement these
statutory amendments and to address the issues raised by the courts.
Comments were due on or before September 11, 2008. In response to a
number of requests for an extension of the time period for filing
written comments, the Department on August 22, 2008 (73 FR 49621 (Aug.
22, 2008)) extended the deadline 15 days to September 26, 2008. The
Department received approximately 30 substantive comments in response
to the NPRM from a variety of sources, including labor unions and other
employee representatives, employees, employer organizations,
governmental representatives, Members of Congress, and law firms.
Comments may be viewed at http://www.regulations.gov, by searching for
docket id: WHD-2008-0003.
The comments reflected a wide variety of views on the merits of
particular sections of the proposed regulations. Many included
substantive analyses of the proposed revisions. The Department
acknowledges that there are strongly held views on several of the
issues presented in this rulemaking, and it has carefully considered
all of the comments, analyses, and arguments made for and against the
proposed changes in developing this final rule. The Department has
narrowed the scope of this final rule to address those sections which
require change to reflect statutory enactment or outdated examples
contained in the regulations and therefore is not proceeding with some
of the changes proposed in the NPRM including proposed changes to
regulations regarding compensatory time, the fluctuating workweek, and
[[Page 18833]]
meal credits. The Department is also not proceeding with the proposed
rule that service managers, service writers, service advisors, and
service salesman are exempted from the overtime provision. We have also
further clarified the tip credit provision to reflect long-standing and
settled WHD policy concerning the ownership of tips.
II. Summary of Comments
This section presents a topical summary of the major comments
received on the proposed revisions, together with a discussion of the
changes that have been made in the final regulatory text in response to
the comments received.
1. 2007 Amendment to the FLSA Minimum Wage
The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and
Iraq Accountability Appropriations Act, 2007, Public Law 110-28, 121
Stat. 112 (May 25, 2007), included an amendment to the FLSA that
increased the applicable Federal minimum wage under section 6(a) of the
FLSA in three steps: to $5.85 per hour effective July 24, 2007; to
$6.55 per hour effective July 24, 2008; and to $7.25 per hour effective
July 24, 2009. This legislation did not change the definition of
``wage'' in section 3(m) of the FLSA for purposes of applying the tip
credit formula in determining the wage paid to a qualifying tipped
employee. Thus, the minimum required cash (or ``direct'') wage for a
tipped employee under the FLSA remains $2.13 per hour. The maximum
allowable tip credit for Federal purposes under the FLSA increased as a
result of the 2007 legislation, and is determined by subtracting $2.13
from the applicable minimum wage provided by section 6(a)(1) of the
FLSA. See 29 U.S.C. 203(m).
The Department proposed changes in several of the FLSA's
implementing regulations that cite to the applicable minimum wage to
reflect these statutory changes, including at 29 CFR 516.28, 531.36,
531.37, 778.110, 778.111, 778.113, and 778.114, as well as changes to
the McNamara-O'Hara Service Contract Act regulations to eliminate
outdated references to the FLSA minimum wage in 29 CFR 4.159 and 4.167.
The Department did not receive any comments specifically addressing
these non-substantive conforming updates, although several commenters
did commend the Department generally for its effort to update the
regulations. See, e.g., Littler Mendelson, P.C., Chamber of Commerce,
International Public Management Association for Human Resources (IMPA-
HR), the International Municipal Lawyers Association (IMLA), and the
National League of Cities (NLC). Therefore, the final rule adopts the
technical updates in these sections as proposed.
2. Small Business Job Protection Act of 1996
On August 20, 1996, Congress enacted the Small Business Job
Protection Act of 1996 (SBJPA), Public Law 104-188, 100 Stat. 1755.
SBJPA amended the Portal Act to define circumstances under which pay is
not required for employees who use their employer's vehicle for home-
to-work commuting purposes. It also amended the FLSA by creating a
youth opportunity wage and modifying the allowable tip credit.
A. Employee Commuting Flexibility Act of 1996
Sections 2101 through 2103 of Title II of SBJPA, entitled the
``Employee Commuting Flexibility Act of 1996,'' amended section 4(a) of
the Portal Act, 29 U.S.C. 254(a). The amendment, effective upon
enactment, provides that
The use of an employer's vehicle for travel by an employee and
activities performed by an employee which are incidental to the use
of such vehicle for commuting shall not be considered part of the
employee's principal activities if the use of such vehicle for
travel is within the normal commuting area for the employer's
business or establishment and the use of the employer's vehicle is
subject to an agreement on the part of the employer and the employee
or representative of such employee.
Employee Commuting Flexibility Act of 1996, Section 2102, 29 U.S.C.
254(a).
The House Committee Report states that the purpose of the amendment
is to clarify how the Portal Act applies to ``employee use of employer-
provided vehicles for commuting at the beginning and end of the
workday.'' H.R. Rep. No. 104-585, at 6 (1996). It states that such
travel time is to be considered noncompensable if the use of the
vehicle is ``conducted under an agreement between the employer and the
employee or the employee's representative.'' Id. at 4. The agreement
may be a formal written agreement, a collective bargaining agreement,
or an understanding based on established industry or company practices.
Id.; see Rutti v. LoJack Corp., Inc., 596 F.3d 1046, 1052 (9th Cir.
2010). In addition, ``the work sites must be located within the normal
commuting area of the employer's establishment.'' H.R. Rep. No. 104-
585, at 4. Activities that are merely incidental to the use of the
vehicle for commuting at the start or end of the day are similarly
noncompensable, such as communication between the employee and employer
to obtain assignments or instructions, or to report work progress or
completion. Id. at 5.
This statutory amendment to the Portal Act affects certain
regulations in 29 CFR parts 785 and 790 issued pursuant to the FLSA and
the Portal Act. Current section 785.9(a) explains the statutory
provisions that exclude from work time certain ``preliminary'' and
``postliminary'' activities performed prior to or subsequent to the
workday. The NPRM proposed to add to that section a new provision that
activities incidental to the use of an employer-provided vehicle for
commuting are not considered principal activities, and are not
compensable, when they meet the requirements of the 1996 amendment.
Current Sec. 785.34 discusses the effect of section 4 of the Portal
Act on determining whether time spent in travel is working time. The
NPRM proposed to add a reference to the statutory conditions under
which commuting in an employer-provided vehicle will not be considered
part of the employee's principal activities and therefore not
compensable. The NPRM also proposed to revise Sec. Sec. 785.50 and
790.3 to incorporate the 1996 amendment into the quotation of section 4
of the Portal Act.
A number of commenters addressed this proposal. Several commenters
noted that the proposal simply quotes the statutory text in the
regulation, and they stated that the proposal therefore does not
provide adequate guidance regarding the limited impact of this
amendment. See National Employment Lawyers Association (``NELA''),
American Federation of Labor and Congress of Industrial Organizations
(``AFL-CIO''), National Employment Law Project (``NELP''), and Comments
from Members of United States Congress. A variety of commenters
representing employees suggested that the Department should emphasize
the narrow nature of this amendment by stating that, under the
continuous workday principle, it does not affect the compensability of
hours worked within the workday (the time between when an employee
commences a principal activity and the time the employee ceases a
principal activity). See, e.g., NELA, NELP, North Carolina Justice
Center, and Service Employees International Union (``SEIU''). They also
suggested that the Department should include clarifying language, such
as the statement that ``otherwise non-compensable [traveling] is not
compensable merely because the
[[Page 18834]]
employee uses his employer's vehicle * * * Likewise, otherwise
compensable travel time does not become non-compensable simply through
the use of an employer-owned vehicle.'' See, e.g., NELP (quoting Burton
v. Hillsborough County, 181 Fed. Appx. 829, 835 (11th Cir. 2006)
(unpublished)), NELA, North Carolina Justice Center, and Greater Boston
Legal Services. They also emphasized that the amendment did not change
the analysis of what constitutes a ``principal'' work activity that is
compensable. See NELP, SEIU, and NELA. These commenters cited court
decisions addressing commuting time issues, some of which they thought
were correctly decided and some of which they thought were wrong. Many
of the commenters suggested that the Department should withdraw its
proposal and reissue a new NPRM that would provide concrete examples of
what constitutes an activity that is ``incidental'' to commuting and
what activities are compensable. See, e.g., AFL-CIO, SEIU, NELP, and
NELA.
Commenters representing employers approved of the addition of
language to the regulations to conform them to the Employee Commuting
Flexibility Act. See Chamber of Commerce, Littler Mendelson, P.C.,
Society for Human Resource Management (``SHRM''), and National
Automobile Dealers Association. Both the Chamber of Commerce and
Littler Mendelson stated that it would be helpful for the Department to
provide further guidance regarding issues such as what types of
activities are incidental to the use of a vehicle for commuting, how
the normal commuting area of the employer's business is determined, and
what constitutes an agreement regarding the use of an employer-provided
vehicle. Both commenters cited court decisions addressing these issues
(holding, for example, that transporting tools and equipment during a
commute is incidental; that normal commuting area is determined on a
case-by-case basis; and that a formal written agreement is not
necessary).
SHRM also suggested that the final rule should state that employees
should not incur any out-of-pocket expenses related to commuting, such
as for gas, tolls, parking or maintaining the employer's vehicle. The
Department notes that the House Committee Report similarly stated that
``[i]t is the intent of the Committee that the employee incur no out-
of-pocket or direct cost for driving, parking or otherwise maintaining
the employer's vehicle in connection with commuting in employer-
provided vehicles.'' H.R. Rep. No. 104-585, at 5. While the Department
has not added language to this effect to the final rule, it notes that
its longstanding interpretation of the amendment comports with both the
Committee report and SHRM's comment. See Wage and Hour Opinion Letter
2001-11 (April 18, 2001).
As the comments from both employee and employer representatives
show, the question of the compensability of employees' commuting time
is an important issue. Therefore, the Department does not believe that
it would be helpful or appropriate to leave the regulations
inconsistent with the statute while it simply starts the NPRM process
anew, as a number of employee representatives suggested. Rather, in
order to avoid confusion and needless litigation, the Department
continues to believe that it is important to update the regulations to
reflect the current state of the law by incorporating the statutory
provisions of the Employee Commuting Flexibility Act into the
regulations. Furthermore, the cases that both employee and employer
representatives cited show that issues related to the compensability of
driving time and other activities are very fact-specific and must be
resolved on a case-by-case basis, in light of all the factors present
in the particular situation. As a result, the Department does not
believe that it would be useful to include examples in the regulatory
text. The Department will consider providing additional guidance at a
later date on these and other issues, such as commuting distance,
costs, incidental activities, and the nature of the agreement through
non-regulatory means. Similarly, because the regulations in 29 CFR part
790 already fully address issues related to the continuous workday
principle and principal activities, the Department does not believe it
is necessary to add to those regulations. The Department does observe,
however, that nothing in the Employee Commuting Flexibility Act or this
regulation alters or supersedes continuous workday principles. Only
commuting time that occurs before the first principle activity or after
the last principle activity in the workday is excluded from compensable
time. Therefore, the final rule adopts the changes to Sec. Sec.
785.9(a), 785.34, 785.50 and 790.3 as proposed.
B. Youth Opportunity Wage
Section 2105 of the SBJPA amended the FLSA by adding section 6(g),
which provides that ``[a]ny employer may pay any employee of such
employer, during the first 90 consecutive calendar days after such
employee is initially employed by such employer, a wage which is not
less than $4.25 an hour.'' 29 U.S.C. 206(g)(1). This subminimum wage
``shall only apply to an employee who has not attained the age of 20
years.'' 29 U.S.C. 206(g)(4). The amendment also protects current
workers by prohibiting employers from taking action to displace
employees, including reducing hours, wages, or employment benefits, for
the purpose of hiring workers at the opportunity wage. 29 U.S.C.
206(g)(2). It also states that any employer violating this subsection
shall be considered to have violated the anti-discrimination provisions
of section 15(a)(3) of the FLSA. 29 U.S.C. 206(g)(3).
The NPRM proposed to add a new subpart G to 29 CFR part 786 to set
forth the provisions of the youth opportunity wage. The Department
received one comment regarding this update. The National Automobile
Dealers Association stated that it supported the proposal. The final
rule adopts the new subpart G as proposed but changes the title to
``Miscellaneous Exemptions and Exclusions from Coverage.''
C. Tip Credit Amendments of 1996
Section 2105 of Title II of the SBJPA also amended section 3(m) of
the FLSA, 29 U.S.C. 203(m), by providing that
In determining the wage an employer is required to pay a tipped
employee, the amount paid such employee by the employee's employer
shall be an amount equal to--(1) the cash wage paid such employee
which for purposes of such determination shall be not less than the
cash wage required to be paid such an employee on the date of the
enactment of this paragraph; and (2) an additional amount on account
of the tips received by such employee which amount is equal to the
difference between the wage specified in paragraph (1) and the wage
in effect under section 6(a)(1). The additional amount on account of
tips may not exceed the value of the tips actually received by an
employee. The preceding 2 sentences shall not apply with respect to
any tipped employee unless such employee has been informed by the
employer of the provisions of this subsection, and all tips received
by such employee have been retained by the employee, except that
this subsection shall not be construed to prohibit the pooling of
tips among employees who customarily and regularly receive tips.
Public Law 104-188, Sec. 2105(b) (1996). Prior to the 1996 amendments,
section 3(m) of the FLSA required an employer to pay its tipped
employees a cash wage equal to 50 percent of the minimum wage (then
$4.25 an hour). See Public Law 101-157, Sec. 5 (1989). As amended,
section 3(m)(1) provides that an employer's minimum cash wage
obligation to its tipped employees is the minimum cash wage required on
August 20, 1996, the date of the SBJPA enactment. Thus, section 3(m)(1)
[[Page 18835]]
established an employer's minimum cash wage obligations to tipped
employees at the pre-SBJPA amount: 50 percent of the then-minimum wage
of $4.25 per hour, or $2.13 per hour. See 29 U.S.C. 203(m)(1).
Subsection (2) of the 1996 amendments bases an employer's maximum
allowable tip credit on a specific formula in relation to the
applicable minimum wage, stating that an employer may take a tip credit
equal to the difference between the required minimum cash wage
specified in paragraph 3(m)(1) ($2.13) and the minimum wage ($7.25
effective July 24, 2009). Thus, the maximum Federal tip credit that an
employer currently is permitted to claim under the FLSA is $7.25 minus
$2.13, or $5.12 per hour.
As explained in the NPRM, this 1996 amendment affects certain
regulations in 29 CFR part 531. Current Sec. 531.50(a) quotes section
3(m) of the FLSA as it appeared in 1967, when the regulation was
published. To incorporate the 1996 amendment, the NPRM proposed to
replace the old statutory language with the current statutory
provision. Current Sec. Sec. 531.56(d), 531.59, and 531.60 refer to
the pre-1996 statutory language setting the tip credit at 50 percent of
the minimum wage. The proposed rule deleted or changed these references
to reflect the current statutory requirements (maximum tip credit
equaling the difference between the minimum wage required by section
6(a)(1) of the FLSA and the $2.13 required cash wage). Additional
changes related to tipped employees are discussed in this preamble at
sections 7B and 8, infra.
The Department received many comments relating to tipped employees;
however, those comments generally addressed the issues discussed infra
in sections 7B and 8 of this preamble, not the technical changes to the
formula for computing the tip credit addressed here. The Chamber of
Commerce and Littler Mendelson, P.C., stated that they supported these
changes to the regulations to conform them to the statutory amendments,
thereby clarifying that employers are only required to pay $2.13 per
hour in cash wages regardless of what the minimum wage is. The Chamber
of Commerce also noted that there was a typographical error in Sec.
531.59(b); the cross-reference to Sec. 531.31 should have referred to
Sec. 531.54. Because the Department received no other substantive
comments relating to these issues, and having the regulations
consistent with the statute will help to eliminate confusion, the final
rule adopts the changes to Sec. Sec. 531.50(a), 531.56(d), 531.59 and
531.60 related to the statutory tip credit calculation as proposed,
except for the correction of a typographical error in 531.50(a) and the
cross-reference in Sec. 531.59.
3. Agricultural Workers on Water Storage/Irrigation Projects
Section 105 of The Departments of Labor, Health and Human Services,
Education, and Related Agencies Appropriations Act, Public Law 105-78,
111 Stat. 1467 (Nov. 13, 1997), amended section 13(b)(12) of the FLSA,
29 U.S.C. 213(b)(12), which provides an overtime exemption for
agricultural employees and employees employed in connection with the
operation or maintenance of certain waterways used for supply and
storing of water for agricultural purposes. The 1997 amendment deleted
``water for agricultural purposes'' and substituted ``water, at least
90 percent of which was ultimately delivered for agricultural purposes
during the preceding calendar year.'' Thus, this amendment makes the
exemption from overtime pay requirements applicable to workers on water
storage and irrigation projects when at least 90 percent of the water
is used for agricultural purposes, rather than when the water is used
exclusively for agricultural purposes.
The NPRM proposed to update the regulations in 29 CFR part 780,
Subpart E to incorporate the statutory amendment. Thus, proposed Sec.
780.400 correctly quoted the statute, including the amendment. Proposed
Sec. 780.401 provided an updated general explanatory statement of the
history of the exemption. Proposed Sec. 780.406 deleted the last
sentence of the current rule, which refers to the 1966 amendments, as
no longer necessary. Proposed Sec. 780.408 was updated to describe the
``at least 90 percent'' requirement for using the water for
agricultural purposes.
The Department received one comment addressing this proposal. The
AFL-CIO noted that current Sec. 780.408 states that if a small amount
of water is used by the farmer for domestic purposes, this does not
prevent the application of the exemption. The AFL-CIO stated that the
``[t]olerance for a `small amount' of water that is used for domestic
purposes may have made sense under the old statutory provision, which
required exclusive use of the water for agricultural purposes. However,
now that Congress has amended the exemption to permit 10 percent of the
water for non-agricultural purposes, there is no longer any
justification for this exception. Any water that is used for `domestic
purposes' (that is, non-agricultural purposes) should count toward the
new statutory 10 percent tolerance.''
The Department agrees that, in light of the 10 percent tolerance
for water used for non-agricultural purposes, there is no longer any
need for the specific tolerance of domestic use by a farmer. Therefore,
the final rule further modifies proposed Sec. 780.408 to delete the
three sentences relating to domestic use on farms. The final rule
adopts Sec. Sec. 780.400, 780.401 and 780.406 as proposed.
4. Certain Volunteers at Private Non-Profit Food Banks
Section 1 of the Amy Somers Volunteers at Food Banks Act, Public
Law 105-221, 112 Stat. 1248 (Aug. 7, 1998), amended section 3(e) of the
FLSA, 29 U.S.C. 203(e), by adding section (5) to provide that the term
``employee'' does not include individuals volunteering solely for
humanitarian purposes at private non-profit food banks and who receive
groceries from those food banks. 29 U.S.C. 203(e)(5). The proposed rule
renamed 29 CFR part 786 ``Miscellaneous Exemptions and Exclusions From
Coverage'' and added subpart H to set forth this exclusion from FLSA
coverage. The Department did not receive any comments specifically
addressing this section of the NPRM. The final rule adopts subpart H as
proposed.
5. Employees Engaged in Fire Protection Activities
In 1999, Congress amended section 3 of the FLSA, 29 U.S.C. 203, by
adding section (y) to define ``an employee in fire protection
activities.'' This amendment states that an ``employee in fire
protection activities'' means
an employee, including a firefighter, paramedic, emergency medical
technician, rescue worker, ambulance personnel, or hazardous
material worker, who--(1) is trained in fire suppression, has the
legal authority and responsibility to engage in fire suppression,
and is employed by a fire department of a municipality, county, fire
district, or State; and (2) is engaged in the prevention, control,
and extinguishment of fires or response to emergency situations
where life, property, or the environment is at risk.
Public Law 106-151, 113 Stat. 1731 (1999); 29 U.S.C. 203(y). Such
employees may be covered by the partial overtime exemption allowed by
Sec. 7(k) or the overtime exemption for public agencies with fewer
than five employees in fire protection activities pursuant to Sec.
13(b)(20). 29 U.S.C. 207(k); 213(b)(20).
The NPRM proposed to make several revisions to 29 CFR part 553,
subpart C,
[[Page 18836]]
to incorporate this amendment. In the first sentence of proposed Sec.
553.210(a), the statutory amendment language was substituted for the
current four-part regulatory definition of the term ``any employee * *
* in fire protection activities.'' The proposed rule also deleted the
last sentence of current Sec. 553.210(a) stating that, ``[t]he term
would also include rescue and ambulance service personnel if such
personnel form an integral part of the public agency's fire protection
services,'' and it deleted the cross-reference to Sec. 553.215. The
``integral part'' test for the public agency employees is no longer
needed because the new statutory standards define when such rescue and
ambulance personnel qualify as employees in fire protection activities.
Section 553.215(a) of the current rule discusses ambulance and rescue
service employees who are employees of a public agency other than a
fire protection or law enforcement agency. The section 3(y) amendment,
however, specifically states that one of the requirements to be an
``employee in fire protection activities'' is that the employee is
employed by a fire department of a municipality, county, fire district,
or State. The proposed rule, therefore, deleted Sec. 553.215(a)
because it permits non-fire department public agencies to treat their
ambulance and rescue service employees as employees engaged in fire
protection activities, contrary to the new statutory provision. The
proposed rule also deleted Sec. Sec. 553.215(b) (stating that rescue
service employees of hospitals and nursing homes cannot qualify for the
exemption) and 553.215(c) (stating that ambulance and rescue service
employees of private organizations do not come within the exemption) as
unnecessary in light of the clear statutory requirement for employment
by a fire department. Finally, in Sec. Sec. 553.221, 553.222, 553.223,
and 553.226, the Department proposed to substitute ``employee in fire
protection activities'' or ``employees in fire protection activities,''
respectively, wherever the terms ``firefighter'' or ``firefighters''
appeared.
The Department reexamined other regulations in part 553, Subpart C,
in light of the section 3(y) amendment to assess whether any other
changes were appropriate. Current Sec. 553.210 characterizes as exempt
work-related incidental activities, such as equipment maintenance,
lecturing and fire prevention inspections. Current Sec. 553.210 also
recognizes that employees can be included within the exemption whether
their status is ``trainee,'' ``probationary,'' or ``permanent,'' and
regardless of their particular specialty or job title or assignment to
certain support activities. The Department stated its belief in the
NPRM that these provisions are consistent with statutory intent and
remain the appropriate interpretation of the new statutory definition
and, thus, the Department proposed no further changes to Sec. 553.210.
Current Sec. 553.212 recognizes that exempt employees may engage
in some nonexempt work, such as firefighters who work for public forest
conservation agencies and who plant trees and perform other
conservation activities unrelated to their firefighting duties during
slack times, and set a 20% tolerance for such work. As explained in the
NPRM, the Department reexamined this regulation, particularly in light
of McGavock v. City of Water Valley, 452 F.3d 423, 427-28 (5th Cir.
2006), in which the appellate court concluded that the 20% tolerance
for nonexempt work in Sec. 553.212 was rendered ``obsolete and without
effect'' by the statutory amendment. 73 FR 43658 (Jul. 28, 2008); see
also Huff v. DeKalb County, Ga., 516 F.3d 1273, 1278 (11th Cir. 2008)
(agreeing that new section 3(y) is a streamlined definition that made
existing provisions in Sec. Sec. 553.210 and 553.212 obsolete). The
proposed rule therefore deleted Sec. 553.212 as unnecessary in light
of these court decisions and the new statutory definition of
``employee[s] in fire protection activities'' in section 3(y) of the
Act.
The Department received several comments addressing these issues.
The National Public Employment Labor Relations Association (``NPELRA'')
stated that the removal of the 20 percent test was ``an important
clarification'' because it was obsolete and yet some people still
believe that it applies. This commenter suggested that the rules should
go further in describing the terms ``legal authority and responsibility
to engage in fire suppression'' (as meaning that the employee who has
been trained may engage in such tasks) and ``is engaged in the
prevention, control or extinguishment of fires'' (because a fire
department at an airport may extinguish a fire only once per year or
less). The IMPA-HR, IMLA, and NLC stated that it was important to
distinguish between the section 3(y)(1) tests relating to ``the status
of employees who are trained in fire suppression--that they have the
legal authority and responsibility to engage in fire suppression and be
employed by a public fire department''--and the disjunctive test in
section 3(y)(2) relating to the duties of an employee, which require
``that the employee either be engaged in firefighting or respond to
emergencies.'' They agreed with the court's statement in McGavock that
``emergency personnel trained as firefighters could be exempt even if
they `spend one hundred percent of their time responding to medical
emergencies.' '' They suggested that the Department add a sentence in
Sec. 553.210 providing that emergency medical personnel who are
employed by a fire department and trained in fire suppression will be
exempt as long as they either are engaged in firefighting or respond to
emergency situations.
On the other hand, William Pincus, an attorney representing
firefighters, stated that the 20% test was not obsolete because, even
after the section 3(y) amendment, it is still necessary to distinguish
between exempt and nonexempt activities. The 20 percent test defines
when employees who perform work that is nonexempt fall outside the
exemption. This commenter cited a pre-amendment court decision holding
that without the rule a public agency would be free to assign a
firefighter to do any kind of work (road repair, sanitation, parks and
recreation) without fear of losing the exemption, and stated that
nothing in the amendment changes this analysis. The International
Association of Fire Fighters (``IAFF'') commented that the second
sentence of proposed Sec. 553.210(a) would create confusion because,
by using the wording ``the term includes'', the proposal implies that
employees engaged in incidental nonfirefighting functions such as
equipment maintenance, attending community fire drills and inspecting
homes for fire hazards are exempt even if they do not satisfy the
section 3(y) statutory criteria. The IAFF also stated that the third
sentence of this section is overbroad because is suggests that the term
includes all ``trainees.'' The IAFF stated that ``trainees who have not
completed requisite training and have no certification in fire
suppression are neither `trained,' nor have the `legal authority * * *
to engage,' in fire suppression.'' The commenter thus distinguished
between a ten-year firefighter sent to a training course in hazardous
materials who remains exempt and an untrained individual in an
introductory fire suppression course before certification. This
commenter further suggested that the third sentence, relating to
employees assigned to support activities, is incorrect because
``[w]here employees have been assigned to other jobs in which they do
not have the authority or responsibility
[[Page 18837]]
to engage in fire suppression and/or they do not engage in fire
protection activities or response to emergency situations, the
employees do not fit the statutory definition.'' Finally, the IAFF
stated that existing Sec. 553.210(b) is obsolete, and the Department
should remove it or explain why it is retained.
After careful review of the comments received on this issue and
reexamining the legislative history of the section 3(y) amendment, it
is the Department's view that the statutory definition of an ``employee
in fire protection activities'' requires no further regulatory guidance
at this time; however, the Department may provide additional guidance
in the future, as appropriate. As a result, this final rule implements
the proposed change to Sec. 553.210(a) substituting the statutory
amendment language for the current four-part regulatory definition of
the term ``any employee * * * in fire protection activities.'' In
addition, the Department is deleting the remainder of paragraph (a) as
unnecessary due to the statutory definition. This change also removes
language from the rule that commenters identified as confusing or
inconsistent with FLSA section 3(y). Likewise, current paragraph (b) is
deleted from this final rule because it is no longer necessary. Current
paragraph (c) of Sec. 553.210 will be redesignated as paragraph (b) in
this final rule.
With regard to the 20 percent test, the Department continues to
believe that Congress defined, without further limitation, the
particular criteria for when an employee qualifies as ``an employee in
fire protection activities'' in section 3(y). Thus, an employee who
performs the described duties under the circumstances and the
conditions set forth in section 3(y) is ``an employee in fire
protection activities'' without regard to the 20 percent tolerance for
nonexempt work contained in Sec. 553.212 of the current rule. The
specific definition adopted by Congress renders the 20 percent
tolerance for nonexempt work applied under the former regulatory
definition obsolete. However, Sec. 553.212 also applies to employees
engaged in law enforcement activities, and the definition of ``an
employee in fire protection activities'' in section 3(y) does not
impact those employees. Therefore, the final rule does not delete Sec.
553.212(a) in its entirety; instead, it deletes from Sec. 553.212(a)
only the reference to employees engaged in ``fire protection''. The 20
percent tolerance for nonexempt work for employees engaged in law
enforcement activities in section 553.212(a) will remain in effect.
Likewise, since section 3(y) did not impact the applicability of
section 7(p)(2)'s rule regarding the occasional or sporadic employment
of public agency employees, including fire protection and law
enforcement personnel, the final rule also retains Sec. 553.212(b),
which discusses this statutory provision. Section 553.212(b) does
contain a reference to the 20 percent tolerance for nonexempt work, and
the final rule makes a slight modification to that section to make
clear that the 20 percent tolerance is only applicable to law
enforcement personnel.
With regard to the IAFF comments, the current regulation at Sec.
553.214 directly addresses the status of trainees, and it clarifies
that a trainee qualifies for exemption ``only when the employee meets
all the applicable tests described in Sec. 553.210.'' The Department
is not aware of instances of the exemption being claimed for trainees
who have not gained certification and therefore do not have the legal
authority or responsibility to engage in fire suppression, or of
confusion surrounding this issue since passage of the section 3(y)
amendment. Moreover, the Department believes that the statutory terms,
such as legal authority and responsibility, should continue to be
interpreted and applied on a case-by-case basis, based upon the
specific facts in each situation, as reflected in Wage and Hour Opinion
Letter FLSA 2006-20 (June 1, 2006). Therefore, no additional changes
are required to implement this statutory provision.
6. Stock Options Excluded From the Computation of the Regular Rate
The Worker Economic Opportunity Act, Public Law 106-202, 114 Stat.
308 (May 18, 2000), amended Sec. Sec. 7(e) and 7(h) of the FLSA. 29
U.S.C. 207(e), (h). In Sec. 7(e), a new subsection (8) adds to the
types of remuneration that are excluded from the computation of the
regular rate when determining overtime pay ``[a]ny value or income
derived from employer-provided grants or rights provided pursuant to a
stock option, stock appreciation right, or bona fide employee stock
purchase program'' meeting particular criteria. In Sec. 7(h), the
amendment clarifies that the amounts excluded under Sec. 7(e) may not
be counted toward the employer's minimum wage requirement under section
6, and that extra compensation excluded pursuant to the new subsection
(8) may not be counted toward overtime pay under Sec. 7.
The proposed rule incorporated the amendments made by the Worker
Economic Opportunity Act by adding to the regulatory provisions which
simply quote the statute in Sec. 778.200(a) and (b). Section 778.208
was also revised simply to update from ``seven'' to ``eight'' the
number of types of remuneration excluded in computing the regular rate.
Only two commenters addressed this section of the proposed rule.
SHRM stated that ``[t]his addition to the existing regulations is
appropriate, and we encourage DOL to include it as proposed in its
final rule.'' The AFL-CIO stated that the Department should do more
than just restate the statutory language, specifically noting the need
to clarify how an employer must communicate to employees the ``terms
and conditions'' of stock benefit programs and under what ``other
circumstances'' an employee may exercise a stock option or stock
appreciation right in less than six months. The AFL-CIO did not offer
any regulatory language or suggested solutions that it thought would be
helpful, but only stated that the Department should withdraw the
proposal and reissue a new NPRM providing further guidance.
The Department does not believe that it would be helpful or
appropriate to leave the regulations inconsistent with the statute
while it starts the NPRM process anew. Rather, in order to avoid
confusion, the Department continues to believe that it is important to
update the regulations to reflect the current state of the law by
incorporating the Worker Economic Opportunity Act into the regulations.
Therefore, the final rule adopts the changes to Sec. 778.200 with
minor editorial edits and Sec. 778.208 as proposed. The Department
will consider offering further guidance on the issues raised in the
comments and other issues through non-regulatory means.
7. Fair Labor Standards Act Amendments of 1974
A. Service Advisors Working for Automobile Dealerships and Boat
Salespersons
On April 7, 1974, Congress enacted an amendment to section
13(b)(10) of the FLSA, 29 U.S.C. 213(b)(10). Public Law 93-259, 88
Stat. 55 (1974). This amendment added an overtime exemption for
salespersons primarily engaged in selling boats (in addition to the
pre-existing exemption for sellers of trailers or aircraft). This
amendment also eliminated the overtime exemption for partsmen and
mechanics servicing trailers or aircraft. The proposed rule revised 29
CFR part 779, Subpart D--Exemptions for Certain Retail or Service
Establishments--to conform the regulations to this 1974 amendment.
Section 779.371(a) was revised to reflect the amendment's addition of
boat salespersons to the exemption. Proposed Sec. 779.372(a) clarified
that ``any
[[Page 18838]]
salesman, partsman, or mechanic'' primarily engaged in selling or
servicing automobiles, trucks, or farm implements are covered by the
exemption; and that salespersons primarily engaged in selling trailers,
boats, or aircraft are also exempt, but not partsmen or mechanics for
such vehicles. Portions of Sec. 779.372(b) and (c) were also changed
accordingly.
Section 13(b)(10)(A) of the FLSA provides that ``any salesman,
partsman, or mechanic primarily engaged in selling or servicing
automobiles, trucks, or farm implements, if he is employed by a
nonmanufacturing establishment primarily engaged in the business of
selling such vehicles or implements to ultimate purchasers'' shall be
exempt from the overtime requirements of the Act. 29 U.S.C.
213(b)(10)(A). The current regulation at 29 CFR 779.372(c)(4) states
that an employee described as a service manager, service writer,
service advisor, or service salesman who is not primarily engaged in
the work of a salesman, partsman, or mechanic is not exempt under
section 13(b)(10)(A).
As discussed in the preamble to the proposed rule, three appellate
courts have held that service advisors are exempt under section
13(b)(10)(A) because they are ``salesmen'' who are primarily engaged in
servicing automobiles. 73 FR 43658 (Jul. 28, 2008). Based upon the two
earliest court decisions, the Wage and Hour Division in 1978 recognized
in an Administrator-issued opinion letter that in certain circumstances
service advisors or writers ``can be properly regarded as engaged in
selling activities.'' See Wage and Hour Opinion Letter WH-467, 1978 WL
51403 (July 28, 1978). The opinion letter noted, however, that this
``would not be true in the case of warranty work, since the selling of
the warranty is done by the vehicle salesman when the vehicle is sold,
not by the service writer.'' Therefore, the NPRM proposed to change
Sec. 779.372(c), titled ``Salesman, partsman, or mechanic,'' to follow
the courts' holdings that employees performing the duties typical of
service advisors are within the section 13(b)(10)(A) exemption. Section
779.372(c)(1) was revised to include such an employee as a salesman
primarily engaged in servicing automobiles. Section 779.372(c)(4) was
rewritten to clarify that such employees qualify for the exemption.
A number of commenters addressed this issue. The National
Automobile Dealers Association stated that the retail automobile and
truck dealership industry has relied upon the Administrator's 1978
opinion letter and that it supported the proposed clarification that
such employees are exempt. Littler Mendelson, P.C., similarly stated
that it supported the change, because it ``will eliminate confusion
resulting from the inconsistency between the [Field Operations
Handbook] and the current regulatory guidance, and is not a change in
the law.''
Other commenters disagreed with the proposed rule. The AFL-CIO
stated that the proposal ignored congressional intent ``to carve a
narrow exemption for salesmen who work at automobile dealerships.'' The
AFL-CIO, NELA, and NELP traced the legislative history, focusing on the
addition of the requirement that the salesman must be ``primarily
engaged in selling or servicing such vehicles.'' These commenters
disagreed with the court decisions interpreting the exemption, stating
that service advisors merely coordinate between customers and the
mechanics who actually perform the services, and that the exemption
should not be extended to employees outside its plain language simply
because they are ``functionally similar'' to an exempt employee. The
AFL-CIO concluded that ``neither integration with exempt employees nor
the performance of functions related to those of exempt employees
qualifies an employee as one who is primarily engaged in either selling
or servicing vehicles.'' (Emphasis in original). NELA concluded that
the exemption ``requires an employee to either primarily service the
vehicle or `sell' the vehicle--not sell the service of the vehicle, as
Walton concluded.'' Comments submitted by Members of the United States
Congress similarly opposed the Department's proposal, stating that the
1966 exemption only exempts salesmen who sell automobiles and mechanics
who service automobiles, and not salesmen who sell services. They
stated that the Department's proposal ``would abandon its longstanding
and correct interpretation of Section 13(b)(10),'' and would ignore the
Supreme Court's command to construe FLSA exemptions narrowly. Id.
The AFL-CIO stated that, if the Department does treat service
writers as salesmen primarily engaged in servicing vehicles, then it
urged the Department to exclude any time spent in ``selling'' warranty
work from the determination of whether the writer has spent the
majority of his time in selling, since that right to free parts and
service has already been sold by the salesman of the vehicle. NELA
stated that the proposed regulatory text was confusing because it
appears to exempt service writers only if they are selling the
servicing of vehicles that the dealership sells, which would be
difficult for both the employee and the employer to know. Both NELP and
the North Carolina Justice Foundation commented that the proposal
exempts service writers based upon their job title alone, rather than
based upon an analysis of their actual job duties, which is contrary to
the requirement to look at the circumstances of the whole activity.
Upon further consideration of the issue, the Department has decided
not to adopt the proposed change to Sec. 779.372(c)(4) to specifically
include service managers, service writers, service advisors, or service
salesmen as qualifying for exemption. As commenters point out, the
statute does not include such positions and the Department recognizes
that there are circumstances under which the requirements for the
exemption would not be met. The Department notes that current Sec.
779.372(c)(1) is based on its reading of 13(b)(10)(A) as limiting the
exemption to salesmen who sell vehicles and partsmen and mechanics who
service vehicles. The Department believes that this interpretation is
reasonable and disagrees with the Fourth Circuit's conclusion in Walton
v. Greenbrier Ford, Inc., 370 F.3d 446, 452 (4th Cir. 2004), that the
regulation impermissibly narrows the statute. Therefore, the Department
has concluded that current 779.372(c) sets forth the appropriate
approach to determining whether employees in such positions are subject
to the exemption. However, the final rule adopts Sec. 779.372(a)-(b)
as proposed.
B. Tipped Employees
Section 3(m) of the FLSA defines the term ``wage.'' The FLSA was
amended in 1966 to include hotels and restaurants within the scope of
its coverage for the first time. In order to alleviate these
industries' new minimum wage obligations, the 1966 amendments also
provided for the first time, within section 3(m)'s definition of a
``wage,'' that an employer could utilize a limited amount of its
employees' tips as a credit against its minimum wage obligations to
those employees through a so-called ``tip credit.'' The Department's
current tip credit regulations were promulgated in 1967, one year after
the tip credit was first introduced, and prior to the 1974 amendments
to the FLSA, which amended the tip credit provision in section 3(m) by
providing that an employer could not take a tip credit unless:
[[Page 18839]]
(1) [its] employee has been informed by the employer of the
provisions of this subsection and (2) all tips received by such
employee have been retained by the employee, except that this
subsection shall not be construed to prohibit the pooling of tips
among employees who customarily and regularly receive tips.
Public Law 93-259, Sec. 13(e), 88 Stat. 55 (1974). Thus, as amended in
1974, section 3(m) required that the employer inform its employees
about the tip credit prior to utilizing it, required that a tipped
employee retain all of his or her tips, and limited employer-imposed,
mandatory tip pools to employees who ``customarily and regularly
receive tips.''
The section 3(m) requirement that the employer ``inform'' its
tipped employees of the provisions of section 3(m) prior to taking a
tip credit has been strictly enforced by the Department and by the
courts. Courts have disallowed the use of the tip credit for lack of
notice even ``where the employee has actually received and retained
base wages and tips that together amply satisfy the minimum wage
requirements,'' remarking that ``[i]f the penalty for omitting notice
appears harsh, it is also true that notice is not difficult for the
employer to provide.'' Reich v. Chez Robert, Inc., 28 F.3d 401, 404 (3d
Cir. 1994) (citing Martin v. Tango's Restaurant, 969 F.2d 1319, 1323
(1st Cir. 1992)).
Prior to the 1974 amendments, the compensation of tipped employees
was often a matter of agreement. Tipped employees could agree, for
example, that an employer was only obligated to pay cash wages when an
employee's tips were less than the minimum wage, or that the employee's
tips would be turned over to the employer, who could then use the tips
to pay the full minimum wage. See Usery v. Emersons Ltd., 1976 WL 1668,
at *2 (E.D. Va. 1976), vacated and remanded on other grounds sub. nom.
Marshall v. Emersons Ltd., 593 F.2d 565 (4th Cir. 1979). The 1974
section 3(m) amendments were intended to prohibit such agreements. See
S. Rep. No. 93-690, at 43 (1974) (``The [retention requirement] is
added to make clear the original Congressional intent that an employer
could not use the tips of a 'tipped employee' to satisfy more than 50
percent of the Act's applicable minimum wage.''). The Department's
current regulations, which were in effect prior to the 1974 amendments
and allowed an employer to require employees to turn over all their
tips to the employer, were therefore superseded by the statutory
amendment to the extent that they permitted employers to utilize
employees' tips to satisfy more than 50% of their minimum wage
obligation.
Under the 1974 amendments to section 3(m), an employer's ability to
utilize an employee's tips is limited to taking a credit against the
employee's tips as permitted by section 3(m). Section 3(m) provides the
only method by which an employer may use tips received by an employee.
An employer's only options under section 3(m) are to take a credit
against the employee's tips up to the statutory differential, or to pay
the entire minimum wage directly. See Wage and Hour Opinion Letter WH-
536, 1989 WL 610348 (October 26, 1989) (defining when an employer does
not claim a tip credit as when the employer does not retain any tips
and pays the employee the minimum wage).
As amended in 1996, section 3(m) provides that the ``wage'' of a
tipped employee equals the sum of the cash wage paid by the employer,
which is fixed at a minimum of $2.13 an hour, and the amount it claims
as a tip credit. The maximum permissible tip credit under section 3(m)
is calculated using the current Federal minimum wage. Thus, in a
situation in which an employee earns $10 an hour in tips and the
employer pays $2.13 an hour in cash wages and claims the statutory
maximum as a tip credit, the employee has received only the minimum
wage because tips in excess of the maximum tip credit are not
considered ``wages'' under 3(m). Using the current minimum wage of
$7.25 an hour as an example, the maximum permissible tip credit is
$7.25 minus $2.13, which permits the employer to take a tip credit
against its minimum wage obligation of $5.12 an hour, provided it has
informed its tipped employees of the tip credit provision and has
permitted the employees to retain all of their tips.
Since the amount of tips the employee receives in excess of the
allowable tip credit are not considered ``wages'' paid by the employer,
any deductions by the employer from the employee's tips would result in
a violation of the employer's minimum wage obligation because the
employer has only paid the employee the minimum wage (cash wage of
$2.13 plus the tip credit up to $7.25). A deduction from the employee's
tips would be subtracted from the $7.25 minimum wage payment and would
bring the employee below the minimum wage.
The NPRM proposed to update the regulations to incorporate the 1974
amendments, the legislative history, subsequent court decisions, and
the Department's interpretations. Proposed Sec. Sec. 531.52,
531.55(a), 531.55(b), and 531.59 eliminated references to employment
agreements providing either that tips are the property of the employer
or that employees will turn tips over to their employers, and clarified
that the availability of the tip credit provided by section 3(m)
requires that all tips received must be paid out to tipped employees in
accordance with the 1974 amendments. Section 531.55(a), which describes
compulsory service charges, also was updated by changing the example of
such a charge from 10 percent to 15 percent to reflect more current
customary industry practices.
The 1974 amendments also clarified that section 3(m)'s statement
that employees must retain their tips does not preclude the practice of
tip pooling ``among employees who customarily and regularly receive
tips.'' 29 U.S.C. 203(m). The Department's regulation on the subject
provides that ``the amounts received and retained by each individual
[through a tip pooling arrangement] as his own are counted as his tips
for purposes of the Act.'' 29 CFR 531.54.
Wage and Hour has interpreted the tip pooling clause more fully in
opinion letters and in its Field Operations Handbook (``FOH''). The FOH
provides, for example, that a tip pooling arrangement cannot require
employees to contribute a greater percentage of their tips to the tip
pool than is ``customary and reasonable.'' FOH section 30d04(b). The
agency expanded upon this position, in its opinion letters and in
litigation, that ``customary and reasonable'' equates to 15 percent of
an employee's tips or two percent of daily gross sales. See, e.g., Wage
and Hour Opinion Letter WH-468, 1978 WL 51429 (Sept. 5, 1978). Several
courts have rejected the agency's maximum contribution percentages,
however, ``because neither the statute nor the regulations mention [the
requirement stated in the agency interpretation] and the opinion
letters do not explain the statutory source for the limitation that
they create.'' Kilgore v. Outback Steakhouse of Fla., Inc., 160 F.3d
294, 302-03 (6th Cir. 1998); see Davis v. B&S, Inc., 38 F. Supp. 2d
707, 718 n.16 (N.D. Ind. 1998) (citing Dole v. Continental Cuisine,
Inc., 751 F. Supp. 799, 803 (E.D. Ark. 1990) (``The Court can find no
statutory or regulatory authority for the Secretary's opinion
[articulated in an opinion letter] that contributions in excess of 15%
of tips or 2% of daily gross sales are excessive.''). In light of these
court decisions, the NPRM proposed to update Sec. 531.54 to clarify
that section 3(m) of the FLSA does not impose a maximum tip pool
contribution percentage. Moreover, the NPRM proposed to state that the
[[Page 18840]]
employer must inform each employee of the required tip pool
contribution.
The 1974 amendments also revised another aspect of section 3(m).
Prior to the 1974 amendments, section 3(m) of the FLSA provided that an
employee could petition the Wage and Hour Administrator to review the
tip credit claimed by an employer. See Public Law 89-601, 80 Stat. 830
(1966) (``[I]n the case of an employee who (either himself or acting
through his representative) shows to the satisfaction of the Secretary
that the actual amount of tips received by him was less than the amount
determined by the employer as the amount by which the wage paid him was
deemed to be increased * * * the amount paid such employee by his
employer shall be deemed to have been increased by such lesser
amount.''). The 1974 amendments eliminated the review clause to clarify
that the employer, not the employee, bears the ultimate burden of
proving ``the amount of tip credit, if any, [he] is entitled to
claim.'' S. Rep. No. 93-690, at 43. Two outdated regulatory provisions
promulgated in 1967, however, still purport to permit petitions to the
Wage and Hour Administrator for tip credit review despite the fact that
the statute no longer provides for this review. See 29 CFR 531.7,
531.59.
Consistent with the 1974 amendments, the NPRM proposed to delete
Sec. 531.7, which permits employees to petition the Wage and Hour
Administrator for tip credit review. References to the Administrator's
review in Sec. 531.59 also were deleted, and the language was updated
to reflect the burden on the employer to prove the amount of the tip
credit to which it is entitled.
Numerous commenters addressed the issues relating to tipped
employees.
i. Ownership of Employee Tips
Commenters representing employees expressed concern with several of
the Department's proposed revisions. First, a variety of commenters
stated that they were opposed to the Department's reference in Sec.
531.52 to the fact that an employer is prohibited from using an
employee's tips for any reason other than to make up the difference
between the required cash wage paid and the minimum wage where ``an
employee is being paid wages no more than the minimum wage.'' See,
e.g., NELA, AFL-CIO, Bruckner Burch PLLC, and NELP. These commenters
further noted that the preamble addresses the converse situation where
an employer does pay more than the minimum wage in cash, and the
preamble states that such an employer ``would be able to make
deductions so long as they did not reduce the direct wage payment below
the minimum wage.'' 73 FR 43659 (Jul. 28, 2008). They objected to these
statements, based upon the legislative history of the tip credit
provisions.
These commenters pointed out that section 3(m) first was amended in
1966, following a Supreme Court decision that concluded that employers
could use employees' tips to satisfy the entire minimum wage. That
amendment provided that employers could credit tips toward 50 percent
of the minimum wage. After the Wage and Hour Division issued
regulations concluding that an employer could still require employees
to turn over all their tips, effectively achieving a tip credit equal
to 100 percent of the minimum wage, Congress again amended the statute
in 1974 to provide that all tips received by an employee must be
retained by the employee (except for valid, or bona fide, tip pooling).
The commenters noted that the legislative history clarifies that
Congress wanted in 1974 ``to make clear [its] original * * * intent
that an employer could not use the tips of a `tipped employee' to
satisfy more than 50 percent of the Act's applicable minimum wage.'' S.
Rep. No. 93-690, at 43. Congress also made it clear in 1974 that
``[a]ll tips received [by tipped employees were to] be paid out to
tipped employees.'' Id., at 42. The commenters cited Wage and Hour
opinion letters, the FOH and Fact Sheet 15 issued thereafter,
which concluded that the 1974 Amendments clarified Congress'
determination that tips are the property of the employees who receive
them, not the employer, and that any agreement requiring an employee to
turn over tips to the employer is, therefore, illegal.
Based upon this history, NELP stated that the proposed rule and the
preamble language provides ``misleading guidance on tips'' and
``threaten[s] to increase confusion in this already high-violation
industry.'' NELP asserted that it would be unlawful for an employer to
pay a worker a cash wage of $1.00 in excess of the full minimum wage
and then withhold $1.00 per hour of a worker's tips, and that the
Department ``lacks the authority to create this exception to the
general rule against tip stealing.'' NELP further concluded that the
proposed regulations include misleading guidance that is ``confusing
and encourages abuse that would adversely impact both tipped workers
and their employers.'' Employers would hire workers for a wage that
appeared to exceed the minimum wage, but then would lower their pay
back to the minimum wage, and such action would expose ``employers to
significant liability because it is out of step with the many state
laws prohibiting this action.'' See also North Carolina Justice Center.
NELA similarly stated that the proposed regulations ``create
confusion with respect to the ownership of tips'' because they suggest
that if an employer pays a direct (or cash) wage slightly in excess of
the minimum wage, it can ``thereby obtain unfettered access to its
employees' tips.'' NELA stated that the confusion ``is particularly
dangerous given that some courts wrongly permit employers to pocket the
tips of employees who are `paid' at least the minimum wage.''
Therefore, NELA suggested that the Department should clarify that tips
are the property of the employee who receives them and that the tip
retention requirement applies even if the employer pays a wage in
excess of the minimum wage.
The AFL-CIO similarly commented that the Department's regulatory
``language--whether intended by the Department or the result of poor
drafting--seems to permit employers to take the employee's tips if they
are paid the minimum wage or greater * * * [which] was barred by
Congress in 1974.'' See also Members of United States Congress. The
AFL-CIO cited numerous opinion letters and court decisions for the
conclusion that, whether or not an employer claims any tip credit, the
employee must retain all tips (asserting the few court decisions that
hold to the contrary are incorrect). Therefore, the AFL-CIO concluded
that proposed Sec. 531.52 would ``turn the 1974 amendment on its
head'' by allowing employers to require employees to surrender their
tips when the amendment bars such agreements; the commenter further
stated that the proposal conflicts with proposed Sec. 531.59, which
states that section 3(m) requires employers to permit employees to
retain all tips received with the exception of a valid, or bona fide,
tip pool. Bruckner Burch commented that the final rule could
incorporate examples from the Department's opinion letters, such as
Wage Hour Opinion Letter WH-536, 1989 WL 610348 (Oct. 26 1989) (cited
in the preamble), explaining when deductions may be made from the tips
of employees who are paid in excess of the minimum wage, but that the
rule as proposed created confusion.
The Chamber of Commerce stated that it supported the elimination of
the references in current Sec. 531.52 and other regulations to
agreements between employers and employees that would make tips the
property of the employer or require employees to turn over their
[[Page 18841]]
tips to employers. The commenter stated that ``Congress amended the
FLSA in 1974 to clarify that employers are not permitted to retain
employee tips. References within the current regulations to agreements
that could permit employers to do so were misleading and confusing,
within the context of the congressional amendment.''
The Department agrees with the analysis in the comments that tips
are the property of the employee, and that Congress deliberately
amended the FLSA's tip credit provisions in 1974 to clarify that
section 3(m) provides the only permitted uses of an employee's tips--
through a tip credit or a valid tip pool among only those employees who
customarily and regularly receive tips. This has been the Department's
longstanding position since the 1974 amendments. The Department has
also taken the position since the 1974 amendments that these
protections against the use of an employee's tips apply irrespective of
whether the employer has elected the tip credit.
The legislative history of the Act, as well as caselaw and opinion
letters published shortly after the 1974 amendments, support the
Department's position that section 3(m) provides the only permissible
uses of an employee's tips regardless of whether a tip credit is taken.
As noted supra, the tip credit provision permitting an employer to use
an employee's tips to satisfy 50 percent of the employer's minimum wage
obligation was originally enacted in 1966. Public Law 89-601, Sec.
101(a), 80 Stat. 830 (1966). In 1974, when the Act was amended, a
Senate Report stated that the amendment was intended to ``requir[e]
that all tips received be paid out to tipped employees.'' S. Rep. No.
96-690, at 42 (1974). The same Report further observed that the
amendments required employees to retain all of their tips (except to
the extent that they are used in a valid tip pool) and clarified that
an employer could not use its employees' tips to satisfy more than 50
percent of its minimum wage obligations. Id. at 42-43 (quoting 29 CFR
531.52). In 1977, a Senate Report from the Committee on Human Resources
considering further amendments to the FLSA indicated that the role of
tips in the calculation of an employer's minimum wage obligations to
its tipped employees had been resolved by the 1974 amendments:
Tips are not wages, and under the 1974 amendments tips must be
retained by the employees--which can include employees who are in an
appropriate tip pool--and cannot be paid to the employer or
otherwise used by the employer to offset his wage obligation, except
to the extent permitted by section 3(m).
S. Rep. No. 95-440, at 25 (1977). In support of this statement, the
Report cites to two cases, Richard v. Marriott Corp., 549 F.2d 303 (4th
Cir. 1977), and Usery v. Emersons Ltd., 1976 WL 1668 (E.D. Va. 1976),
both of which recognized shortly after the 1974 amendments that while
section 3(m) is not entirely clear, it had the effect of limiting an
employer's use of its employees' tips to the extent provided in the
statute. In Marriott Corp., the Fourth Circuit concluded that tips
belonged to the tipped employee, and that it was ``nonsense'' to argue
after the 1974 amendments ``that compliance with the statute results in
one-half credit, but that defiance of the statute results in 100
percent credit.'' 549 F.2d at 305. In Emersons Ltd., the district court
stated that ``[w]hile [section 3(m)] could have been worded more
clearly, it is apparent, at least as a result of the 1974 amendment,
that Congress intended to give the employer the benefits of tips
received by the employee, but only to a limited extent.'' 1976 WL 1668,
at *4.
The Ninth Circuit recently held that section 3(m)'s limitations on
an employer's use of an employee's tips apply only when the tip credit
is taken, and that when a tip credit is not taken, tips are only the
property of the employee absent an agreement to the contrary. Cumbie v.
Woody Woo, Inc. d/b/a Vita Caf[eacute], 596 F.3d 577 (9th Cir. 2010);
see also Platek v. Duquesne Club, 961 F. Supp. 835, 839 (W.D. Pa.
1995), aff'd without opinion, 107 F.3d 863 (3d Cir.) (Table), cert.
denied, 522 U.S. 934 (1997). The Department respectfully believes that
Woody Woo was incorrectly decided. The issue in Woody Woo was whether
section 3(m)'s limitation on mandatory tip pools to those employees who
``customarily and regularly'' receive tips applies when an employer
does not take a tip credit. In that case, tipped employees were
required to turn over the majority of their tips to a tip pool that
included employees, such as cooks and dishwashers, who are not
``customarily and regularly'' tipped employees, and received a small
portion of their tips back from the tip pool. The employer was
precluded from taking a tip credit by State law and paid its tipped
employees the full State minimum wage, which exceeded the Federal
minimum wage.
The Ninth Circuit started its analysis in Woody Woo with a
statement from the 1942 Supreme Court decision in Williams v.
Jacksonville Terminal Co., 315 U.S. 386 (1942), that `` '[i]n
businesses where tipping is customary, the tips, in the absence of an
explicit contrary understanding, belong to the recipient. Where,
however, such an arrangement is made * * *, in the absence of statutory
interference, no reason is perceived for its invalidity.' '' Woody Woo,
596 F.3d at 579 (quoting Jacksonville Terminal, 315 U.S. at 397)
(emphasis added by the Ninth Circuit). Thus, the Ninth Circuit stated
that Jacksonville Terminal established a ``default rule that an
arrangement to turn over or to redistribute tips is presumptively
valid,'' and that the question before the court was whether the FLSA,
as amended, ``imposes any 'statutory interference' that would
invalidate Woo's tip-pooling arrangement.'' Id. After ``unpacking''
what it characterized to be ``dense statutory language'' in section
3(m), the court concluded that it is ``clear'' that the current
statutory language disrupts the Jacksonville Terminal default rule only
when a tip credit is taken, because the language in the last sentence
of section 3(m), providing that an employer cannot take a tip credit
unless it has provided notice and permits employees to retain all of
their tips (except for a valid tip pool), ``imposes conditions on
taking a tip credit and does not state freestanding requirements
pertaining to all tipped employees.'' Id. at 581. The Ninth Circuit
therefore did not read section 3(m) as imposing any limitations on the
use of an employee's tips when a tip credit is not taken. The court
thus rejected the Department's position in its amicus curiae brief that
Woody Woo made improper deductions from the cash wage paid when it
required its employees to contribute their tips to an invalid tip pool,
and that this improper deduction resulted in a minimum wage violation
because the tipped employees did not receive the full minimum wage plus
all tips received.
The Department believes the Ninth Circuit incorrectly concluded
that the 1974 amendments to the FLSA did not alter what it
characterized as Jacksonville Terminal's default rule. The fact that
section 3(m) does not expressly address the use of an employee's tips
when a tip credit is not taken leaves a ``gap'' in the statutory
scheme, which the Department has reasonably filled through its
longstanding interpretation of section 3(m). See Barnhart v. Walton,
535 U.S. 212, 218 (2002) (``[S]ilence, after all, normally creates
ambiguity. It does not resolve it.''); see also Senger v. City of
Aberdeen, SD, 466 F.3d 670, 672 (8th Cir. 2006) (recognizing
Department's
[[Page 18842]]
authority to fill a ``gap'' in the FLSA's regulatory scheme). The Ninth
Circuit's ``plain meaning'' construction is unsupportable. Congress
would not have had to legislatively permit employers to use their
employees' tips to the extent authorized in section 3(m) unless tips
were the property of the employee in the first instance. In other
words, if tips were not the property of the employee, Congress would
not have needed to specify that an employer is only permitted to use
its employees' tips as a partial credit against its minimum wage
obligations in certain prescribed circumstances because an employer
would have been able to use all of its employees' tips for any reason
it saw fit. If, as the Ninth Circuit held, the FLSA places limitations
on an employer's use of its employees' tips only in the context of a
tip credit, an employer could simply eschew the tip credit and use a
greater part of its employees' tips toward its minimum wage obligations
than permitted under section 3(m). This would stand the 1974 amendment
``on its head'' and would mean it has ``accomplished nothing.''
Emersons Ltd., 1976 WL 1668, at *4. If an employer could avail itself
of this loophole, it would have no reason to ever elect the tip credit
because, instead of using only a portion of its employees' tips to
fulfill its minimum wage obligation, it could use all of its employees'
tips to fulfill its entire minimum wage obligation to the tipped
employees or other employees. This is essentially what the panel's
decision permits, because if there are no restrictions on an employer's
use of its employees' tips when it does not utilize a tip credit, the
employer can institute a mandatory tip pool that requires employees to
contribute all of their tips regardless of how much they receive back,
or mandate that employees turn over all of their tips and use those
tips to pay the minimum wage or for any other purpose.
For example, if an employer is subject to the current Federal
minimum wage of $7.25 an hour and its tipped employees receive $10 an
hour in tips, an employer who uses the maximum tip credit against its
minimum wage obligation has to pay a cash wage of $2.13 and can ``use''
$5.12 of an employee's tips as a credit toward the rest of the minimum
wage payment. The employee thus receives $2.13 in cash wages and keeps
all of her $10 in tips, for a total of $12.13. Woody Woo, however,
permits an employer who eschews the tip credit to pay $7.25 to its
tipped employees in cash wages to satisfy its minimum wage obligation
and require an employee to turn over all $10 of the employee's tips.
The employee now receives only $7.25 an hour, rather than $12.13. And
the employer, while it pays $7.25, gains $10.00 that it can direct for
its own purposes (in essence realizing a $2.75 profit from the
employee's tips). Thus, under the Ninth Circuit's ``plain language''
reading of section 3(m), an employer that does not utilize a tip credit
is permitted to use its employee's tips to a greater extent than an
employer that does utilize such credit. This yields an absurd result
and makes the 1974 amendment superfluous.
As noted supra, the Department stated publicly immediately after
the 1974 amendments that its tip credit regulations permitting
employers to take control of employee tips through agreements were
outdated, and indicated that new regulations were forthcoming. See Wage
and Hour Opinion Letter WH-310, 1975 WL 40934, at *1 (Feb. 18, 1975).
The Department also explicitly stated that the 1974 amendments
superseded Jacksonville Terminal, explaining that ``the situation of a
tipped employee is far different'' than it was in 1942. Wage and Hour
Opinion Letter WH-321, 1975 WL 40945, at *1 (Apr. 30, 1975). As also
noted supra, a number of commenters voiced concern that the proposed
regulatory text in Sec. 531.52 was confusing on this point, and did
not make the Department's position clear. In order to codify its
longstanding interpretation of section 3(m) in its regulations, and in
response to these commenters, the Department is amending Sec. 531.52
in the final rule to make clear that tips are the property of the
employee, and that section 3(m) sets forth the only permitted uses of
an employee's tips--either through a tip credit or a valid tip pool--
whether or not the employer has elected the tip credit.
The inclusion of the text in proposed Sec. 531.52 reading ``Where
an employee is being paid wages no more than the minimum wage'' was
intended to convey the fact that the Department only has authority
under the FLSA to enforce, inter alia, the minimum wage provisions of
that Act. See, e.g., 29 U.S.C. 216, 217. Thus, if an employer pays the
employee a direct wage in excess of the minimum wage--and thus did not
claim a credit against any portion of the employee's tips and did not
utilize the employee's tips in any way--the employer would be able to
make deductions but only from the cash wage amount paid directly by the
employer and only to the extent that the deductions did not reduce the
employer's direct wage payment to an amount below the minimum wage. See
Wage and Hour Opinion Letter WH-536, 1989 WL 610348 (Oct. 26, 1989). In
such a situation, the deduction would be viewed as coming from the
employer's direct wage payment that exceeds the minimum wage. This is
consistent with the Department's position regarding impermissible
deductions in the non-tip context. See Wage and Hour Opinion Letter
FLSA 2006-21, 2006 WL 1910966 (June 9, 2006) (explaining that no FLSA
action lies against an employer who makes impermissible deductions from
cash wages paid if those wages are in excess of the minimum wage and
the deductions do not reduce the employee's pay below the minimum
wage). However, the Department agrees with the commenters that the
payment of tipped employees under the FLSA and State laws is a very
complex issue, and that retention of this language from the proposed
rule could result in unintended confusion among the regulated
community. Consequently, the text in proposed Sec. 531.52 is revised
to delete the introductory phrase in the fourth sentence of that
section that reads: ``Where an employee is being paid wages no more
than the minimum wage,'' to clarify under the final rule that an
employer in all cases is prohibited from using an employee's tips for
any reason other than as a tip credit to make up the difference between
the required cash wage paid and the minimum wage or in furtherance of a
valid tip pool.
ii. Required Employer Notice
Commenters representing employees also objected to the Department's
proposal in Sec. 531.59(b) and the accompanying preamble providing
that employers only have to ``inform'' employees orally that they will
treat tips as satisfying part of the employer's minimum wage
obligation, but do not have to ``explain'' the tip credit or provide
anything in writing. For example, NELP commented that the legislative
history ``makes clear that informing workers is no mere formality, but
that the employer must indeed explain the tip credit.'' NELP quoted S.
Rep. 93-690 at 43 (1974), which provides that the employer is
responsible for informing a tipped employee how the wage was calculated
and that ``the employer must explain the tip provision of the Act to
the employee and that all tips received by such employee must be
retained by the employee.'' NELP stated that many tipped employees are
low-wage and immigrant employees working in high-violation industries,
and they do not understand the complicated tip credit rules. NELP
suggested that requiring
[[Page 18843]]
employers to provide a clear written explanation to employees upon hire
would help them understand the rules and would help employers because
it ``would enable them to protect themselves from litigation claiming
that they failed to provide adequate notice and therefore cannot take
the tip credit.'' See also North Carolina Justice Center, Greater
Boston Legal Services (simply informing an employee that it will use
the tip credit would be ``jargon that would be meaningless to many
workers, especially those with limited English proficiency or immigrant
workers with limited experience with wages in this country * * * Having
the explanation in writing, moreover, is especially important to those
workers who may want or need to seek additional assistance, outside the
workplace, to understand the information they are being provided.'');
Members of United States Congress (the regulation should require
employers to explain the tip credit rules so that employees understand
``how their wages are calculated, as a matter of fairness and as a way
of enforcing the law * * * To satisfy these goals, the Department
should require employers to provide written notice * * * Written notice
will also prevent unnecessary litigation, by improving employees'
understanding of their rights.'').
The AFL-CIO submitted similar comments and stated that the proposed
regulation ``fails to satisfy the plain language of the statute, which
requires not just that the employer `inform' the employee that it is
taking a tip credit, but that `the employer [inform the employee] of
the provisions of this subsection.' '' NELA also submitted similar
comments and stated that, given the increasing importance of employee
tips vis-[agrave]-vis the minimum wage, the tip credit regulations
should ensure the fair operation of the tip credit provisions.
Because the FLSA poster (Publication 1088) provides only a limited
description of the tip credit rules and recognizes that ``other
conditions must also be met,'' several commenters suggested that the
regulation should set forth a sample notice providing the required
explanation in full. NELA, the AFL-CIO, and Bruckner Burch PLLC stated
that employers must tell employees not only that the employer will be
using the tip credit, but also that a minimum wage is required by law,
the amount of the minimum wage, how the tip credit works--that the
employer must pay $2.13 and the balance of the full minimum wage
required by the Act can come from the tip credit but that the employer
must make up the difference if the employee does not receive sufficient
tips, that the employee will retain all of his or her tips, and the
formula for any tip pooling arrangement. These commenters stated that
the Department should not rely on Kilgore v. Outback Steakhouse of
Florida, Inc., 160 F.3d 294 (6th Cir. 1998), the case cited in the
preamble to the proposed rule, because it was wrongly decided on the
notice issue in that it did not take into account the legislative
history or the statutory language requiring employees to be informed of
the provisions of section 3(m). These commenters pointed, instead, to
other decisions that held employers could not utilize the tip credit
where they had not adequately informed employees of the law's
requirements. Finally, NELA objected to the suggestion that paychecks
received after the work is performed or prior work history can provide
the requisite notice, because the statute requires an employer to
provide notice of the tip credit provisions prior to taking any tip
credit.
Epstein Becker commented that the notice provision of section 3(m)
does not require an employer to communicate its intent to use the tip
credit; rather, it requires an employer to communicate the provisions
of the section. Epstein Becker stated that the cases that require an
employer to communicate its intent to treat tips as satisfying part of
the minimum wage obligation do so without analysis of the statutory
language and are incorrect. Epstein Becker further asserted that the
information that would be useful to employees and required by section
3(m) is that the employer must supplement an employee's tips if they
are insufficient to raise the wage level to the minimum wage, that the
cash wage must be at least $2.13, and all tips earned must be retained
by the employee absent a valid tip pooling arrangement (and perhaps
information regarding the required information as to the tip pool,
although this is ``difficult to reconcile with the statute's
language''). The commenter stated that the proposed regulation,
requiring communication of the employer's intent to use the tip credit,
does little to advance the purpose of the statute because virtually all
employees know their employer intends to pay them a reduced tip wage
based on prior work in the industry and any misunderstanding would be
resolved with the first paycheck. Finally, Epstein Becker stated that
the information on the FLSA poster (Publication 1088) is concise and
understandable, and that the poster should contain all information that
employers are required to communicate.
The Chamber of Commerce and Littler Mendelson, P.C., agreed with
the proposal regarding what an employer must communicate to employees
and stated that it can be oral. They stated the proposal is a positive
step in clarifying employer obligations and, thus, it should reduce the
litigation on this issue by clearly articulating the required content
of the notice.
Section 3(m)(2) of the Act provides that the tip credit provisions
``shall not apply with respect to any tipped employee unless such
employee has been informed by the employer of the provisions of this
subsection, and all tips received by such employee have been retained
by such employee [except for] pooling of tips among employees who
customarily and regularly receive tips.'' 29 U.S.C. 203(m)(2) (emphasis
added). The ``provisions of this subsection'' include how to determine
the wage an employer is required to pay a tipped employee, which is
``the amount paid such employee by the employee's employer'' (an amount
that cannot be less than the cash wage required to be paid to a tipped
employee on August 20, 1996, which was $2.13), and ``the additional
amount on account of the tips received by such employee'' (an amount
equal to the difference between the actual cash wage paid and the full
minimum wage in effect under section 6(a)(1) of the Act). A Senate
Report accompanying the 1974 amendments stated that the amendment
``modifies Section 3(m) of the [FLSA] by requiring employer explanation
to employees of the tip credit provisions, and by requiring that all
tips received be paid out to tipped employees. * * * The tip credit
provision of S. 2747 is designed to insure employer responsibility for
proper computation of the tip allowance and to make clear that the
employer is responsible for informing the tipped employee of how such
employee's wage is calculated. Thus, the bill specifically requires
that the employer must explain the provision of the Act to the employee
and that all tips received by such employee must be retained by the
employee.'' S. Rep. No. 93-690 at 42-43 (1974) (emphasis added).
As discussed in the preamble to the proposed rule, the courts have
disagreed over the level of notice required to ``inform'' a tipped
employee about section 3(m). Thus, in Kilgore v. Outback Steakhouse of
Florida, Inc., 160 F.3d 294, 298 (6th Cir. 1998), the Sixth Circuit
held that while an employer must ``inform its employees of its intent
to take a tip credit toward the
[[Page 18844]]
employer's minimum wage obligation,'' it was not required to
``explain'' the tip credit. In Martin v. Tango's Restaurant, Inc., on
the other hand, the First Circuit interpreted section 3(m)'s notice
provision to require, ``at the very least notice to employees of the
employer's intention to treat tips as satisfying part of the employer's
minimum wage obligations,'' and stated that the provision ``could
easily be read to require more.'' 969 F.2d 1319, 1322 (1st Cir. 1992);
see Reich v. Chez Robert, Inc., 821 F. Supp. 967, 977 (D. N.J. 1993)
(an employer does not meet its obligation to ``inform'' under section
3(m) when it tells its tipped employees that they will be paid a
specific wage but does not explain that that wage is below the minimum
wage and that it is permitted by law based on the employees' tips),
rev'd on other grounds, 28 F.3d 401 (3d Cir. 1994)). In Pellon v.
Business Representation Int'l, Inc., 528 F. Supp. 2d 1306, 1310-11
(S.D. Fla. 2007), aff'd, 291 Fed. Appx. 310 (11th Cir. 2008), the
district court held that the employer in that case had fulfilled its
duty to ``inform'' its tipped employees of the provisions of section
3(m) by posting the FLSA poster and verbally notifying the employees
that they would be paid $2.13 an hour plus tips, but noted that ``a
prominently displayed poster containing all of the relevant tip credit
information'' would also constitute sufficient notice. In Bonham v.
Copper Cellar Corp., 476 F. Supp. 98 (E.D. Tenn. 1979), on the other
hand, the court held that vague references to the minimum wage and a
poster that was not prominently displayed did not meet the requirement
to ``inform.''
The Department has concluded that notice of the specific provisions
of 3(m) is required to adequately inform the employee of the
requirements of the tip credit. To the extent that the Sixth Circuit
and other courts have reached different results, the Department notes
that those courts generally failed to consider the important
legislative developments underlying the FLSA's tip credit provisions
and we choose to not be guided by those decisions in this revision of
the regulations. Accordingly, based on the express provisions of the
statute and the supporting legislative history, the Department agrees
with the commenters stating that an employer must inform a tipped
employee before it utilizes the tip credit, of the following: (1) The
direct cash wage the employer is paying a tipped employee, which can be
more than, but cannot be less than, $2.13 per hour; (2) the additional
amount the employer is using as a credit against tips received, which
cannot exceed the difference between the minimum wage specified in
section 6(a)(1) of the FLSA and the actual cash wage paid by the
employer to the employee; (3) that the additional amount claimed by the
employer on account of tips as the tip credit may not exceed the value
of the tips actually received by the employee; (4) that the tip credit
shall not apply with respect to any tipped employee unless the employee
has been informed of the tip credit provisions of section 3(m) of the
Act; and (5) that all tips received by the tipped employee must be
retained by the employee except for the pooling of tips among employees
who customarily and regularly receive tips. Furthermore, the current
FLSA recordkeeping regulation, at 29 CFR 516.28(a)(3), expressly
requires that the amount per hour that the employer takes as a tip
credit shall be reported to the employee in writing each time it is
changed from the amount per hour taken in the preceding week.
Upon careful reexamination of the terms of the statute, its
legislative history, and a review of the public comments, the
Department is revising its interpretation from the NPRM of the level of
explanation that employers must provide when informing tipped employees
about the tip credit pursuant to section 3(m). Accordingly, the text of
the second and third sentences in proposed Sec. 531.59(b) are combined
and revised in the final rule to provide:
* * * Pursuant to section 3(m), an employer is not eligible to
take the tip credit unless it has informed its tipped employees in
advance of the employer's use of the tip credit of the provisions of
section 3(m) of the Act, i.e.: The amount of the cash wage that is
to be paid to the tipped employee by the employer; the additional
amount by which the wages of the tipped employee are increased on
account of the tip credit claimed by the employer, which amount may
not exceed the value of the tips actually received by the employee;
that all tips received by the tipped employee must be retained by
the employee except for a valid tip pooling arrangement limited to
employees who customarily and regularly receive tips; and that the
tip credit shall not apply to any employee who has not been informed
of these requirements in this section. * * *
Many commenters urged the Department to require employers to
provide written notice to its tipped employees that explain section
3(m)'s tip credit provision. Although the Department is not requiring
in this rule that the employer ``inform'' its tipped employees of
section 3(m)'s requirements in writing, employers may wish to do so,
since a physical document would, if the notice is adequate, permit
employers to document that they have met the requirements in section
3(m) and the Department's regulations to ``inform'' tipped employees of
the tip credit provision. Finally, the Final Rule changes the word
``bona fide'' in the last sentence in proposed Sec. 531.59(b) to
``valid''; although both terms in this context refer to a tip pool that
includes only those employees who customarily and regularly receive
tips, the term ``valid'' is used in those regulations pertaining to
tips for consistency.
iii. Tip Pools
Commenters also addressed issues relating to tip pooling. As noted,
the NPRM proposed to add two new sentences to Sec. 531.54 (``Tip
pooling'') to explain that the FLSA does not set a maximum cap on the
percentage of an employee's tips that may be contributed to a valid tip
pool, but that an employer must notify its tipped employees of any
required tip pool contribution amount. 73 FR 43667 (Jul. 28, 2008).
UNITE HERE stated its belief that tip pooling must be voluntary, as
indicated by current Sec. 531.54 stating that an employer may
redistribute tips to employees ``upon some basis to which they have
mutually agreed among themselves,'' and concluded that an employer
should not be able to require employees to participate in a tip pool
because the rules the employer created might not be fair. It
particularly saw a mandatory pool as a concern if it actually involved
mandatory tip splitting, because then the employer could reduce the
tipped employee to the minimum wage and use the tips ``to augment the
cash compensation of other employees, thereby allowing the employer to
reduce its own expenditures.'' It stated that the requirement that an
employee retain all tips ``would be swallowed up by the exception'' in
this situation. Therefore, UNITE HERE objected to the new language in
Sec. 531.54 referring to ``any required tip pool contribution amount''
and stated that employers should not be permitted to require tipping
out or tip pooling. It also stated that where tip pooling is voluntary,
there is no need for a percentage limitation and the common practice is
for employees to contribute all tips. UNITE HERE further commented
that, if the Department allows mandatory tip pooling, the regulations
should ensure that the pool is valid or ``bona fide'' such as by
clarifying that employers may not retain any of the tips, tips may only
go to employees who regularly and customarily receive tips (not
employees such as cooks, dishwashers and
[[Page 18845]]
janitors), and employers may only take credit for the amount each
employee actually ultimately receives.
NELP objected to the proposed rule's statement that the FLSA does
not impose a maximum contribution percentage on tip pools, stating that
not having a cap ``makes it easier for employers to skim tips for
themselves.'' It suggested that the rule impose a ``customary and
reasonable'' standard, which it concluded may reasonably be read into
the FLSA. See also North Carolina Justice Center and AFL-CIO.
The Chamber of Commerce and Littler Mendelson, P.C. stated that
they supported the elimination of the cap on ``the amount employers
could require tipped employees to `tip out' to other tipped
employees,'' noting that the rule requires an employer to notify
employees of the amount they will be required to contribute to a tip
pool. They stated that the tip credit rules ensure that employees will
retain a sufficient proportion of their tips to satisfy minimum wage.
Accordingly, Littler Mendelson, P.C., concluded that ``no employee will
be harmed in any way even if a higher percentage of their tips are
contributed to a tip pool.''
In response to the comments, the Department has modified the two
proposed new sentences at the end of Sec. 531.54 to read:
* * * Section 3(m) does not impose a maximum contribution
percentage on valid mandatory tip pools, which can only include
those employees who customarily and regularly receive tips. However,
an employer must notify its employees of any required tip pool
contribution amount, may only take a tip credit for the amount of
tips each employee ultimately receives, and may not retain any of
the employees' tips for any other purpose.
Other aspects of tip pooling are discussed in the section on ownership
of tips, supra.
8. Fair Labor Standards Act Amendments of 1977
On November 1, 1977, Congress amended section 3(t) of the FLSA, 29
U.S.C. 203(t). Public Law 95-151, Sec. 3(a), 91 Stat. 1245. Section
3(t) of the FLSA defines the phrase ``tipped employee.'' Prior to the
1977 amendment, the definition encompassed ``any employee engaged in an
occupation in which he customarily and regularly receives more than $20
a month in tips.'' The 1977 amendment raised the threshold in section
3(t) to $30 a month in tips. The proposed rule changed the references
in 29 CFR 531.50(b), 531.51, 531.56(a)-(e), 531.57, and 531.58 from $20
to $30. The commenters did not specifically address these technical
updates to conform to the statute. Therefore, the final rule adopts the
proposed changes to these regulations.
9. Meal Credit Under Section 3(m)
The NPRM proposed to amend Sec. 531.30 to incorporate the
Department's longstanding enforcement position regarding the acceptance
of meals furnished as a credit towards the minimum wage. A ``wage''
paid pursuant to section 3(m) of the FLSA may include ``the reasonable
cost * * * to the employer of furnishing * * * board, lodging, or other
facilities * * * customarily furnished by such employer to his
employees.'' 29 U.S.C. 203(m). ``Facilities'' include employer-provided
meals. See 29 CFR 531.32. The Department's regulation at 29 CFR 531.30,
however, provides that an employer's ability to take credit for a
facility is limited to those instances where an employee's acceptance
was ``voluntary and uncoerced.'' In other words, an employer could not
take a wage credit for employees who did not choose to accept the meal.
After a number of courts rejected the agency's position on this
point with regard to credit for meals, the agency adopted an
enforcement position providing that an employer can take a meal credit
even if an employee does not voluntarily accept the meal. See FOH
section 30c09(b) (``WH no longer enforces the `voluntary' provision
with respect to meals.''); see also Davis Bros., Inc. v. Donovan, 700
F.2d 1368, 1370 (11th Cir. 1983); Donovan v. Miller Properties, Inc.,
711 F.2d 49, 50 (5th Cir. 1983) (per curiam).
Thus, under the agency's current enforcement policy articulated in
the FOH, an employer may require an employee to accept a meal provided
by the employer as a condition of employment, and may take credit for
no more than the actual cost of that meal even if the employee's
acceptance is not voluntary. The NPRM proposed to amend 29 CFR 531.30
to reflect previous court decisions and the agency's current
enforcement posture on meal credits.
Several commenters addressed this issue. Littler Mendelson, P.C.,
stated that it supported the proposal providing that an employee does
not have to voluntarily accept a meal, stating that this was ``not a
change in the law'' because it merely incorporates the Wage and Hour
Division's current policy and court decisions into the regulations.
Commenters representing employees expressed a variety of views. The
AFL-CIO stated that it opposed the change because it will make it
easier for employers to deduct from workers' pay, ``whether or not such
meals are adequate, and whether or not the employer is only deducting
the reasonable cost of such meals.'' It also stated that it
disadvantages employees who are unable to eat a meal because of dietary
or health restrictions. Therefore, it concluded that the Department
should issue guidance on the circumstances when an employer can claim a
meal credit. NELP similarly stated that workers should not be required
to pay for meals that they cannot eat. NELP stated that workers
sometimes are not given an opportunity to eat a mid-shift meal, and yet
an employer may automatically make a deduction for that meal. The meal
provided may also consist of inferior ingredients or other dishes that
cannot be offered for sale. See also North Carolina Justice Center.
Comments by Members of United States Congress also stated that they
opposed the change because ``employees may not even be able to consume
employer-provided meals, because of dietary restrictions associated
with their health, religion, personal preference, or the lack of time
to eat the meals.'' The SEIU recognized that the proposed change to
reflect the court cases and the FOH policy was ``unremarkable'' and
that whether an employee accepted a meal voluntarily had not been a
pressing issue for 25 years. The SEIU commented that the real issue was
employees not being given the time to eat the meal for which they were
charged or given notice of how the cost of the meal is calculated.
Therefore, the SEIU suggested that the regulation require that
employers using a meal credit ``maintain timekeeping records to
indicate that the workers subject to the meal credit deduction actually
had the time and opportunity to consume the meal'' and that they must
provide employees with written notice that the meal cost will be
deducted and an explanation as to how the cost was calculated.
As explained supra, the former requirement that employee acceptance
of a meal must be voluntary was rejected in the early 1980s by two
courts of appeals. Davis Bros. v. Donovan, 700 F.2d 1368 (11th Cir.
1983); Donovan v. Miller Properties, Inc., 711 F.2d 49 (5th Cir. 1983)
(per curiam). The Department's enforcement position adopted after those
rulings provided that where an employee is required to accept a meal as
a condition of employment, the Department would take no enforcement
action provided the employer takes credit for no more than the actual
cost incurred. FOH 30c09(b). It should be noted that the employer in
Davis Bros. deducted from employees'
[[Page 18846]]
wages no more than the actual or reasonable cost of the food provided,
and allowed exceptions for employees who for medical reasons could not
eat the food offered. There was no allegation of minimum wage
violations based on the amount of the credit claimed, but simply that
the employee's acceptance was made mandatory and not voluntary in
contravention of Sec. 531.30. 700 F.2d at 1369-70. The Eleventh
Circuit failed to discern any basis for the Department's construction
in section 3(m) of ``customarily furnished'' by the employer to mean
``voluntarily accepted'' by the employees. Id. at 1370. In the Miller
Properties case, the Fifth Circuit affirmed a lower district court
ruling in the employer's favor in a very brief decision that did not
analyze the particular facts but simply stated it was affirming based
on the reasoning of the Eleventh Circuit in Davis Bros. Donovan v.
Miller Properties, Inc., 711 F.2d at 50.
The proposed revisions to Sec. 531.30 did not modify or otherwise
excuse compliance with other applicable requirements that limit an
employer's credit for the reasonable or actual costs to the employer of
furnishing the employee with board, lodging, or other facilities (if
customarily furnished) under Section 3(m) of the Act (see 29 CFR
531.3). Section 3(m) of the Act prescribes certain limitations and
safeguards that control the payment of wages in other than cash or its
equivalent. Special recordkeeping requirements must also be met as
provided in 29 CFR part 516 (see Sec. 516.27), the provisions of which
also were not modified by the revisions proposed in the NPRM.
After careful consideration of the comments, the Department has
determined that further study is warranted to assess the extent to
which dietary or religious restrictions prevent employees from
consuming employer-provided meals and whether adequate time is allowed
for the employee to eat. The Department therefore is not adopting the
proposal, but may provide guidance on this issue in the future.
10. Section 7(o) Compensatory Time Off
Section 7 of the FLSA requires that a covered employee receive
compensation for hours worked in excess of 40 in a workweek at a rate
not less than one and one-half times the regular rate of pay at which
the employee is employed. 29 U.S.C. 207(a). In 1985, subsequent to the
U.S. Supreme Court's decision in Garcia v. San Antonio Metropolitan
Transit Authority, 469 U.S. 528 (1985), which held that the FLSA may be
constitutionally applied to State and local governments, Congress added
section 7(o), 29 U.S.C. 207(o), to the FLSA to permit public agencies
(i.e., States, local governments, and interstate agencies) to grant
employees compensatory time off in lieu of cash overtime compensation
pursuant to an agreement with the employees or their representatives.
The purpose of this exception to the Act's usual requirement of cash
overtime pay was ``to provide flexibility to State and local government
employers and an element of choice to their employees regarding
compensation for statutory overtime hours.'' H.R. Rep. No. 99-331
(1985).
Section 7(o) provides a detailed scheme for the accrual and use of
compensatory time off. Subsection 7(o)(1) authorizes the provision of
compensatory time off in lieu of overtime pay. Subsection 7(o)(2)
specifies how a public employer creates a compensatory time off plan.
Subsection 7(o)(3) establishes limits for the amount of compensatory
time off that an employee may accrue. Section 7(o)(4) provides the
requirements for cashing out compensatory time upon an employee's
termination.Section 7(o)(5) governs a public employee's use of accrued
compensatory leave. That section states:
An employee of a public agency which is a State, political
subdivision of a State, or an interstate governmental agency--(A)
who has accrued compensatory time off authorized to be provided
under paragraph (1), and (B) who has requested the use of such
compensatory time, shall be permitted by the employee's employer to
use such time within a reasonable period after making the request if
the use of the compensatory time does not unduly disrupt the
operations of the public agency.
29 U.S.C. 207(o)(5)(A), (B).
In 1987, after notice and comment, the Department issued final
regulations implementing section 7(o) (29 CFR 553.20-.28). Section
553.25 of the regulations implements section 7(o)(5)'s requirements
regarding the use of compensatory time off. Section 553.25(c) provides:
(1) Whether a request to use compensatory time has been granted
within a ``reasonable period'' will be determined by considering the
customary work practices within the agency based on the facts and
circumstances in each case. Such practices include, but are not
limited to (a) the normal schedule of work, (b) anticipated peak
workloads based on past experience, (c) emergency requirements for
staff and services, and (d) the availability of qualified substitute
staff.
(2) The use of compensatory time in lieu of cash payment for
overtime must be pursuant to some form of agreement or understanding
between the employers and the employee (or the representative of the
employee) reached prior to the performance of the work. (See Sec.
553.23). To the extent that the []conditions under which an employee
can take compensatory time off are contained in an agreement or
understanding as defined in Sec. 553.23, the terms of such
agreement or understanding will govern the meaning of ``reasonable
period''.
Section 553.25(d) states:
When an employer receives a request for compensatory time off,
it shall be honored unless to do so would be ``unduly disruptive''
to the agency's operations. Mere inconvenience to the employer is an
insufficient basis for denial of a request for compensatory time
off. (See H. Rep. 99-331, p. 23.) For an agency to turn down a
request from an employee for compensatory time off requires that it
should reasonably and in good faith anticipate that it would impose
an unreasonable burden on the agency's ability to provide services
of acceptable quality and quantity for the public during the time
requested without the use of the employee's services.
The Department has consistently interpreted its regulations as
requiring that an employee's request for compensatory time on a
specific date must be granted unless doing so would unduly disrupt the
agency's operations. Wage and Hour Opinion Letter 1994 WL 1004861 (Aug.
19, 1994); DeBraska v. City of Milwaukee, 131 F. Supp. 2d 1032, 1034-35
(E.D. Wis. 2000) (deferring to the Department's interpretation of its
regulations as requiring that the specific compensatory time requested
must be granted absent undue disruption). As discussed in the NPRM,
however, the Ninth Circuit in Mortensen v. County of Sacramento, 368
F.3d 1082 (9th Cir. 2004), and the Fifth Circuit in Houston Police
Officers Union v. City of Houston, 330 F.3d 298 (5th Cir.), cert.
denied, 540 U.S. 879 (2003), both declined to defer to the Department's
regulations because they found the plain language of section 7(o)(5)(B)
to require only that an employee be allowed to use compensatory time
within a ``reasonable period'' of the date requested for such leave
unless doing so would ``unduly disrupt'' the agency. Cf., Aiken v. City
of Memphis, 190 F.3d 753 (6th Cir. 1999), cert. denied, 528 U.S. 1157
(2000) (finding no FLSA violation where the city and the plaintiffs-
police officers had agreed that ``the reasonable period for requesting
the use of banked compensatory time begins thirty days prior to the
date in question and ends when the number of officers requesting the
use of compensatory time on the given date would bring the precinct's
staffing levels to the minimum level necessary for efficient
operation'').
Based on these appellate decisions, the NPRM proposed to revise
section
[[Page 18847]]
553.25(c) to add a sentence that states that section 7(o)(5)(B) does
not require a public agency to allow the use of compensatory time on
the day specifically requested, but only requires that the agency
permit the use of the time within a reasonable period after the
employee makes the request unless the use would unduly disrupt the
agency's operations. Additionally, the phrase ``within a reasonable
period after the request'' was added to the final sentence of proposed
Sec. 553.25(d) and the phrase ``during the time requested'' was
replaced with ``during the time off'' to clarify the employer's
obligation.
Many commenters addressed the compensatory time off issue. NPELRA
stated that it ``wholeheartedly supports the proposed regulatory
change.'' It commented that its member agencies have been so concerned
about litigation regarding this issue that they have eliminated all
FLSA compensatory time off, but that the proposed rules will ensure
consistency throughout the country, thereby ``reducing any incentives
for public employers to eliminate FLSA compensatory time off, which
benefits both employers and employees.'' NPELRA suggested that the
Department revise Sec. 553.25(d) to ``state that the term `unduly
disrupt' may be defined in the collective bargaining process in the
same manner as the term `reasonable period' may be defined,'' stating
that this would allow the parties to address circumstances unique to
their particular organization and would result in less litigation.
Finally, NPELRA commented that having to pay an employee overtime to
fill in for an employee who is off creates an undue disruption and
defeats the purpose of compensatory time off, as the Mortensen court
found. Therefore, it suggested that the regulations specify that this
is a factor an employer can consider in deciding whether to grant time
off.
The IPMA-HR, IMLA, and NLC also commended the Department for the
proposed change, stating that it would be ``of great assistance to
localities that must have adequate staff in order to provide services
to citizens.'' They also urged the Department to provide that employers
are not required to grant compensatory time off if it would mean that
the employer would incur overtime expenses. Littler Mendelson, P.C.,
and SHRM also stated that they supported the proposed change, which
appropriately conformed the regulation to the cited appellate court
decisions.
Commenters representing employees strongly opposed the proposal.
See American Federation of State, County and Municipal Employees
(AFSCME), American Federation of Government Employees (AFGE),
International Union of Police Associations (I.U.P.A.), International
Association of Fire Fighters, and AFL-CIO. AFSCME urged the Department
to withdraw the proposal, stating that allowing an employer to deny an
employee's requested day off without demonstrating that it creates an
undue hardship would ``make a drastic change to the scope of the
statute.'' AFSCME stated that there is no uniformity in the courts
mandating the change, stating that a number of district court decisions
have upheld the Department's current regulation. AFSCME also asserted
that the Supreme Court's decision in Christensen v. Harris County, 529
U.S. 576, 583-85 (2000), provides additional support for the conclusion
that an employer cannot deny the specific date requested for reasons
other than those set forth in section 7(o)(5), because the Court stated
that the section ``imposes a restriction upon an employer's efforts to
prohibit the use of compensatory time when employees request to do
so.'' Therefore, AFSCME concluded ``that, at best, there are
conflicting interpretations of the language of the statute and the
implementing regulation.'' Id. Because employees request specific dates
for ``milestones such as children's birthdays, family and friends'
weddings, funerals, scheduled vacations and other date specific
activities,'' it would harm employees to allow employers to deny the
date requested absent undue disruption. Thus, absent consistent court
interpretations, it stated it would be unwise public policy to change
the regulation. See also AFGE (the current regulations ``strike the
proper balance between the public sector employer's interest in
assuring that its mission is carried out and the employee's interest in
being able to use compensatory time in a meaningful manner''); I.U.P.A.
(the current rule appropriately balances agencies' needs and the
interests of employees, while the proposal ``would upset that balance,
placing all of the burden on the employees, and allowing the employer
to reap all the benefits''); and James D. Sewell (``When an officer or
fireman needs to be off for a particular date, they need to be off that
day, not a day the employer decides for them.'').
The AFL-CIO made similar comments, stating that section 7(o)(5) is
ambiguous and is best read as requiring an employer to act on an
employee's request within a reasonable period after the request is made
and to approve the specific day requested absent undue disruption. It
noted that the Department had agreed with this interpretation in the
current regulation, an amicus brief and an opinion letter, and it
disputed that there was unanimity even among the appellate courts
compelling a change. It cited the decision in Beck v. City of
Cleveland, 390 F.3d 912 (6th Cir. 2004), which it stated found ``Aiken
to have been effectively overruled by the Supreme Court's decision in
Christensen,'' and it emphasized that neither the Fifth Circuit (in
City of Houston) nor the Ninth Circuit (in Mortensen) considered the
Supreme Court's decision in reaching their conclusions. The AFL-CIO
emphasized that the current regulation is consistent with the
legislative history, citing Senate Report 99-159, which stated that
when an employer receives a comp time request, ``that request should be
honored unless to do so would be unduly disruptive.'' It argued that
the proposal ``would render meaningless the `unduly disrupt' language''
because it would likely never come into play if an employer can simply
substitute a date that it wants for the date the employee requested.
The I.U.P.A. also referred to the legislative history (House Report
99-331 (1985)), which states that compensatory time off ``was intended
to give `freedom and flexibility' to public employees and `additional
options' to employers.'' The union therefore stated that the
``reasonable period'' is better read as referring to the time between
the date the employees submit their requests and the dates requested
for time off, so that ``requests cannot provide such short notice that
the employer would be scrambling to find a replacement.'' The I.U.P.A.
commented that the rationale the Department offered for the change--
that the courts uniformly interpreted the statutory language as
unambiguous--does not hold up because several district courts have held
that the statute is ambiguous and agreed with the Department's current
regulation. It stated that if the Department's rationale is correct,
then the regulations are unnecessary; it is only if the Department's
rationale is incorrect, and a court agrees that the statute is
ambiguous, that the regulations will have an impact because the court
will defer to the regulations for assistance in interpreting the
statute. Therefore, the I.U.P.A. stated that the proposal would place
``responsibility squarely on the shoulders of the Department'' because
a court that found the statute ambiguous would defer to the regulation
in denying police officers their chosen days off. Id.
Comments by Members of United States Congress also opposed the
Department's proposal, stating that it ``will undermine the ability of
nearly 20
[[Page 18848]]
million public employees to use their accrued compensatory time off.''
They stated that the current rule is correct and consistent with the
legislative history, and that the proposal upsets the careful balance
that Congress struck. They also noted that only three of 13 courts of
appeals have addressed this issue, and ``just two of them have
expressed disapproval of the Department's longstanding view.''
Moreover, they noted that a number of district courts have upheld the
current rule so the ``issue is unsettled in the federal courts.''
The IAFF stated that the ``proposal is nonsensical in that it
essentially eviscerates the purposes for which comp time usage is
requested.'' The IAFF noted that under the proposed rule an employer
would have authority to deny a comp time request for no reason
whatsoever, so long as some alternative date within a reasonable period
were offered. It also stated that, in many fire departments, employees
request time off weeks or months in advance, which aids departments in
maintaining adequate staffing by allowing them time to fill vacancies.
However, the IAFF stated that the proposal leads to an illogical
conclusion, because the more lead time an employee provides, the less
likely it is that the employee will receive statutory protection of the
right to use the requested time off. The IAFF concluded that, as the
Department acknowledged in the NPRM, some fire fighters will simply not
accept compensatory time in lieu of cash if the proposal is adopted.
``Such an outcome would depart from the plain Congressional intent in
enacting this statutory provision. It also would likely impose a
substantial financial burden on local government departments that rely
on compensatory time, rather than cash overtime * * *''
Since the publication of the NPRM, another appellate court has
addressed the issue of whether an employee's specific request to use
compensatory time must be granted unless it unduly disrupts the
agency's operation. In Heitmann v. City of Chicago, 560 F.3d 642 (7th
Cir. 2009), the plaintiffs-police officers argued that the need to
consider whether a request for leave created an ``undue disruption''
presupposed a particular time for the leave and that employees were
therefore entitled to leave on the date and time of their choosing
unless it would result in an undue disruption to the city. For its
part, the city argued that it was required only to offer leave within a
``reasonable time'' of the employee's request for leave. The court
noted that the city's position was supported by Houston and Mortensen,
while the plaintiffs' view was supported by Beck v. Cleveland, 390 F.3d
912 (6th Cir. 2004), and section 553.25 of the Department's
regulations. The court rejected the Fifth and Ninth Circuit's plain
language reading of 7(o)(5), stating that section 7(o)(5) ``is anything
but clear.''
Words such as ``reasonable'' and ``undue'' are open-ended. They
need elaboration, and the relation between these requirements needs
explication. Here the agency has added vital details and its work
prevails * * * unless it represents an implausible resolution.
560 F.3d at 646. The court found that the Department's interpretation
of the requirements of section (7)(o)(5) in its regulations, which
``makes compensatory leave more attractive to workers and hence a more
adequate substitute for money,'' was reasonable and entitled to
deference. Id. The court found that section 553.25(d) requires the
employer to grant leave on the date and time requested unless doing so
would create an undue disruption (in which case the employer would be
able to defer the requested leave for a reasonable time). Id. at 647.
The Seventh Circuit's Heitmann decision, which finds support in the
Sixth Circuit's decision in Beck, indicates that the appellate courts
are not as uniform in their reading of section 7(o)(5) as the
Department understood them to be at the time of the NPRM. The
Department now views the courts of appeals as being split on the proper
interpretation of 7(o)(5), with the Sixth and Seventh Circuits
requiring agencies to grant the specific leave requested absent undue
disruption, and the Fifth and Ninth Circuits requiring agencies to
grant leave within a reasonable time of the leave requested unless
doing so would create an undue disruption. The Department believes that
the better reading of section 7(o)(5) is that it requires employers to
grant compensatory time on the specific date requested unless doing so
would unduly disrupt the agency. The statutory reading set forth in
Houston and Mortensen, which requires that the employer grant
compensatory time within a reasonable period of the date requested,
essentially nullifies the ``unduly disrupt'' provision of 7(o)(5). See
Beck v. City of Cleveland, 390 F.3d 912, 925 (6th Cir. 2005) (``to
grant the City the unlimited discretion to deny compensatory leave
requests relieves the city of establishing the undue disruption
requirement imposed by Congress''); DeBraska v. City of Milwaukee, 131
F. Supp. 2d 1032, 1037 (E.D. Wis. 2000). Accordingly, in light of the
recent appellate decision, and in consideration of the extensive
comments received on this section, the Department has decided not to
finalize the proposed revision to section 553.25(c) and (d) and to
leave the current regulation unchanged consistent with its longstanding
position that employees are entitled to use compensatory time on the
date requested absent undue disruption to the agency. In response to
comments concerning whether the payment of overtime is a consideration
in determining whether the use of compensatory time off is unduly
disruptive, the Department does not believe that any regulatory change
is warranted. The Department maintains its longstanding position that
the fact that overtime may be required of one employee to permit
another employee to use compensatory time off is not a sufficient
reason for the employer to claim that the compensatory time off request
is unduly disruptive. See Wage and Hour Opinion Letter 1994 WL 1004861
(Aug. 19, 1994); 52 FR 2012, 2017 (Jan. 16, 1987) (``The Department
recognizes that situations may arise in which overtime may be required
of one employee to permit another employee to use compensatory time
off. However, such a situation, in and of itself, would not be
sufficient for an employer to claim that it is unduly disruptive.'').
11. Fluctuating Workweek Method of Computing Overtime Under 29 CFR
778.114
The NPRM proposed to modify the Department's regulation at 29 CFR
778.114 addressing the fluctuating workweek method of computing
overtime compensation for salaried nonexempt employees to permit the
payment of non-overtime bonuses and incentives without invalidating the
guaranteed salary criterion required for the half-time overtime pay
computation. The current regulation provides that an employer may use
the fluctuating workweek method for computing half-time overtime
compensation if an employee works fluctuating hours from week to week
and receives, pursuant to an understanding with the employer, a fixed
salary as straight-time compensation ``(apart from overtime premiums)''
for whatever hours the employee is called upon to work in a workweek,
whether few or many. In such cases, an employer satisfies the overtime
pay requirement of section 7(a) of the FLSA if it compensates the
employee, in addition to the salary amount, at least one-half of the
regular rate of pay for the hours worked in excess of 40 hours in each
workweek.
[[Page 18849]]
Because the employee's hours of work fluctuate from week to week, the
regular rate must be determined separately each week based on the
number of hours actually worked each week.
Paying employees bonus or premium payments for certain activities
such as working undesirable hours is a common and beneficial practice
for employees. The NPRM proposed that bona fide bonus or premium
payments would not invalidate the fluctuating workweek method of
compensation, but that such payments (as well as ``overtime premiums'')
must be included in the calculation of the regular rate unless they are
excluded by FLSA sections 7(e)(1)-(8). The proposal also added an
example to Sec. 778.114(b) to illustrate these principles where an
employer pays an employee a nightshift differential in addition to a
fixed salary.
The Department's view, at that time, was that the proposed
modification clarified the rule and was consistent with the Supreme
Court's decision in Overnight Transportation Co. v. Missel, 316 U.S.
572 (1942), on which the existing regulation is patterned. See 73 FR
43662 (Jul. 28, 2008). The Department's proposed modification was
intended to allow employers to pay additional bona fide premium
payments.
The NPRM also proposed to increase the numerical values in the
examples of overtime computations in Sec. 778.114(b) so the rates of
pay would be no less than the current minimum wage. Frank Dean
commented that the term ``approximately'' in two places carried over
from the current regulatory language is potentially misleading and
confusing and should be eliminated to make it clear that the
calculation of statutorily mandated overtime is exacting. Mr. Dean
recommended changing one of the weekly hour totals from 44 to 37.5 so
that there would be an exact regular rate calculation in each instance,
thereby eliminating the need to use ``approximately.'' We agree with
this analysis and have incorporated his suggested revision into the
final rule.
Wage and Hour Consulting Services commented that the statement
limiting the weekly hours worked in the example to ``never in excess of
50 hours in a workweek'' in proposed Sec. 778.114(b)(1) was confusing
and redundant and should be deleted as unnecessary because it is
clearly explained elsewhere in the section that the wage rate of an
employee paid under the fluctuating workweek method cannot fall below
the minimum wage. This phrase was carried over from the current
regulation and we believe that it does not cause confusion and is
needed to establish in the example the concept that the employee's
regular rate will not fall below the minimum wage. We have, therefore,
retained the concept but have made minor wording changes to clarify the
example.
Beyond these two minor editorial comments, the comments were
sharply divided on the substance of the proposed revisions to the
fluctuating workweek provisions. In general, commenters representing
employers favored the revisions while commenters representing employees
strongly opposed the revisions.
SHRM noted that it is common practice to pay a nonexempt salaried
employee a bonus or premium as an incentive for various reasons, such
as working less desirable hours. SHRM commented that other payment
methods, such as hourly, piece rates, day rates, and job rates,
contemplate that an employee may receive a bonus or other premium
payments in addition to normal pay and asserted that it was logical and
consistent to permit such payments under the fluctuating workweek
method of compensation.
The Chamber of Commerce also favored the revisions but sought
further clarifications as to when and how bonuses should be included in
regular rate calculations, particularly when bonuses (1) cover more
than one workweek, (2) are not paid in the same workweek when the work
was performed to which the bonus applies, and (3) are not allocable
among workweeks in proportion to the amount of bonus actually earned
each week. Littler Mendelson, P.C., also supported the proposed
revisions, but suggested further revisions to add cross-references to
other sections in part 778 regarding how to include bonuses in the
regular rate to clarify that all the rules regarding bonuses for
nonexempt employees apply equally whether the nonexempt employee is
paid by the hour, on a salary basis or under the fluctuating workweek
method. Because we believe the principles for including bonuses in the
regular rate discussed in other sections of the regulations are clear,
we do not find that further clarifications or additional cross-
references are necessary in this section.
Fisher & Phillips LLP noted that part 778 is an interpretative rule
and similarly noted that Sec. 778.114 ``is simply one in a series of
examples of how the regular-rate principles of Section 778.109 apply in
different situations.'' The commenter recommended revisions to clarify
that the half time overtime calculation in section 778.114 applies
regardless of whether the employee's hours fluctuate. The Department
disagrees with this comment and notes that the application of section
778.114 is properly limited to situations where the employee's hours
fluctuate. See Flood v. New Hanover County, 125 F.3d 249, 253 (4th Cir.
1997); FOH section 32b04b.
Comments expressing strong opposition to the proposed revisions
were mostly based on two primary criticisms. First, that receipt of
premium and bonus payments is inconsistent with payment of a fixed
salary. See NELP, SEIU, NELA, AFL-CIO, Members of United States
Congress, and North Carolina Justice Center. Second, that the proposed
revisions will encourage employers to schedule additional overtime for
employees paid under the fluctuating workweek method or otherwise
disadvantage workers by expanding its use to a larger portion of the
workforce. See NELP, North Carolina Justice Center, NELA, AFL-CIO, and
Members of United States Congress. A number of these comments opposing
the revisions questioned the Department's authority for making the
revisions and asserted they would administratively overturn uniform,
well-settled case law without justification and urged the Department to
withdraw them. Commenters stating that premium and bonus payments are
inconsistent with the concept of a fixed salary generally asserted that
the proposed revisions are inconsistent with the Supreme Court's
decision in Missell, in which the Court approved the use of the
fluctuating workweek method requiring payment of only the additional
half-time premium for hours worked over 40 per week for an employee
paid a fixed weekly wage who worked weekly hours that fluctuated. Based
on the Court's ruling and the language of current Sec. 778.114(a),
which provides that ``[a]n employee employed on a salary basis may have
hours of work which fluctuate from week to week and the salary may be
paid him pursuant to an understanding with his employer that he will
receive such fixed amount as straight time pay for whatever hours he is
called upon to work in a workweek, whether few or many,'' these
commenters asserted that employees paid under the fluctuating workweek
method must receive fixed weekly pay that does not vary. The proposal
departs from this fundamental concept, the commenters asserted. These
commenters also took issue with the statement in the NPRM that the
current regulation has presented challenges in the courts, asserting
that courts applying the fluctuating workweek method of payment have
uniformly concluded that
[[Page 18850]]
paying additional ``non-overtime'' premiums violates section 779.114.
See NELA (citing O'Brien v. Town of Agawam, 350 F.3d 279 (1st Cir.
2003); Dooley v. Liberty Mutual Ins. Co., 369 F. Supp. 2d 81 (D. Mass.
2005); Ayers v. SGS Control Services, Inc., 2007 WL 646326 (S.D.N.Y.
2007)), SEIU, AFL-CIO, NELP, Members of United States Congress, and
North Carolina Justice Center.
Several commenters also noted that the proposal would permit
employers to reduce employees' fixed weekly salaries and shift the bulk
of the employees' wages to bonus and premium pay. See NELP, NELA, SEIU,
and North Carolina Justice Center. These commenters argued that this
would harm employees because it would lead to significant variations in
weekly wages based on the hours worked. They stated that such
variations in pay are inconsistent with the purpose of the fluctuating
workweek. They further objected to the proposal because it would expand
the use of the fluctuating workweek method to industries in which bonus
and premium payments are common. See NELA, Members of United States
Congress, SEIU, and North Carolina Justice Center. Comments submitted
by Members of the United States Congress urged that instead of
modifying this section to expand its use, the Department should
consider narrowing the scope of the section to prevent employers from
abusing this method to lower workers' pay.
The Department has carefully considered all of the comments
submitted on this section. While the Department continues to believe
that the payment of bonus and premium payments can be beneficial for
employees in many other contexts, we have concluded that unless such
payments are overtime premiums, they are incompatible with the
fluctuating workweek method of computing overtime under section
778.114. As several commenters noted, the proposed regulation could
have had the unintended effect of permitting employers to pay a greatly
reduced fixed salary and shift a large portion of employees'
compensation into bonus and premium payments, potentially resulting in
wide disparities in employees' weekly pay depending on the particular
hours worked. It is just this type of wide disparity in weekly pay that
the fluctuating workweek method was intended to avoid by requiring the
payment of a fixed amount as straight time pay for all hours in the
workweek, whether few or many. The basis for allowing the half-time
overtime premium computation under the fluctuating workweek method is
the mutual understanding between the employer and the employee
regarding payment of a fixed amount as straight time pay for whatever
hours are worked each workweek, regardless of their number. While the
example provided in the NPRM of nightshift premiums resulted in a
relatively modest change in the employee's straight time pay, the
Department now believes that the proposed regulation would have been
inconsistent with the requirement of a fixed salary payment set forth
by the Supreme Court in Overnight Motor Transport v. Missel. Moreover,
on closer examination, the Department is persuaded that the courts have
not been unduly challenged in applying the current regulation to
additional bonus and premium payments. See O'Brien v. Town of Agawam,
350 F.3d 279 (1st Cir. 2003); Adeva v. Intertek USA, 2010 WL 97991
(D.N.J. 2010); Dooley v. Liberty Mutual Ins. Co., 369 F. Supp. 2d 81
(D. Mass. 2005); Ayers v. SGS Control Services, Inc., 2007 WL 646326
(S.D.N.Y. 2007).
Finally, while the proper use of the fluctuating workweek method of
pay results in an employee being paid time and one-half of the
employee's regular rate for overtime hours, the Department is cognizant
that this method of pay results in a regular rate that diminishes as
the workweek increases, which may create an incentive to require
employees to work long hours. The Department does not believe that it
would be appropriate to expand the use of this method of computing
overtime pay beyond the scope of the current regulation. Accordingly,
the final rule has been modified from the proposal to restore the
current rule requiring payment of the fixed salary amount as the
straight time pay for whatever hours are worked in the workweek, that a
clear mutual understanding of the parties must exist that the fixed
salary is compensation (apart from overtime premiums) for the hours
worked each workweek whatever their number, that the fixed salary
amount must be sufficient to provide compensation at a rate not less
than the minimum wage, and that the employee must receive extra
compensation in addition to the fixed salary for all overtime hours
worked at a rate not less than one-half the regular rate of pay.
Editorial revisions have been included in the text of the final rule to
delete gender-specific references and to update the computation
examples to provide wage rates above the minimum wage and the exact
calculation of the regular rate. The proposed examples in the NPRM at
Sec. 778.114(b)(2) suggesting methods for making supplemental
nightshift premium payments as part of the fluctuating workweek
methodology for computing half-time overtime pay have been deleted from
the final rule.
Other Revisions
The current recordkeeping regulations on tipped employees at 29 CFR
516.28 include an outdated parenthetical reference that suggests a
limit ``(not in excess of 40 percent of the applicable statutory
minimum wage)'' as the maximum amount of tip credit an employer may
claim under the FLSA. 29 CFR 516.28(a)(3). This outdated reference
reflected the former provisions of section 3(m) of the FLSA as amended
by the 1977 FLSA Amendments, which has since been overtaken by
subsequent statutory amendments passed in 1989 and 1996. See Public Law
95-151, Sec. 3(b)(2), 91 Stat. 1249 (Nov. 1, 1977); Public Law 101-
157, Sec. 5, 103 Stat. 941 (Nov. 17, 1989); Public Law 104-188, Sec.
2105(b), 110 Stat. 1929 (Aug. 20, 1996). The Department inadvertently
overlooked updating this reference in part 516 when updating the other
tip credit references in the NPRM. Because the regulatory reference has
been superseded by subsequent statutory enactments, the Department is
updating this section of the recordkeeping regulation in this final
rule to conform it to current law and, because of the technical nature
of the change, is doing so without prior notice and opportunity for
public comment. The Department hereby finds, pursuant to the
Administrative Procedure Act, that prior notice and opportunity for
public comment on this ministerial change that is required by statutory
amendment are impracticable, unnecessary, or contrary to the public
interest. See 5 U.S.C. 553(b)(3)(B).
The current interpretative regulation on ``Hours Worked,'' at 29
CFR 785.7 (``Judicial construction''), cites incorrectly to a holding
of the U.S. Supreme Court in Tennessee Coal, Iron & Railroad Co. v.
Muscoda Local No. 123, 321 U.S. 590, 598 (1944). The typographical
error in the phrase ``primarily for the benefit of the employer of his
business'' is corrected by replacing the incorrect ``of'' with ``and.''
Because this change is required to conform the text to the cited
holding, the Department is making this correction without prior notice
and opportunity for public comment. The Department hereby finds,
pursuant to the Administrative Procedure Act, that prior notice and
opportunity for public comment on this ministerial change are
[[Page 18851]]
impracticable, unnecessary, or contrary to the public interest. See 5
U.S.C. 553(b)(3)(B).
IV. Paperwork Reduction Act
This rule does not impose new information collection requirements
for purposes of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et
seq.
V. Executive Orders 12866 and 13563; Small Business Regulatory
Enforcement Fairness Act; Regulatory Flexibility
This final rule is not economically significant within the meaning
of Executive Order 12866, or a ``major rule'' under the Unfunded
Mandates Reform Act or Section 801 of the Small Business Regulatory
Enforcement Fairness Act.
As discussed previously in this preamble, over the years, Congress
has amended the FLSA to refine or to add to exemptions and to clarify
the minimum wage and overtime pay requirements. However, in many cases,
the Department of Labor did not update the FLSA regulations to reflect
these statutory changes. The Department believes that the existing
outdated regulatory provisions may cause confusion within the regulated
community resulting in inadvertent violations and the costs of
corrective compliance measures to remedy them.
The Department has determined that the final rule changes will not
result in any additional compliance costs for regulated entities
because the current compliance obligations derive from current law and
not the outdated regulatory provisions that have been superseded years
ago.
The Department is aware that this interpretation appears to be
inconsistent with OMB Circular A-4's guidance on the use of analysis
baselines, which states: ``In some cases, substantial portions of a
rule may simply restate statutory requirements that would be self-
implementing, even in the absence of the regulatory action. In these
cases, you should use a pre-statute baseline'' to conduct the
regulatory impact analysis. However, as the discussion below indicates,
the Department believes the use of a pre-statute baseline would be
extremely difficult for statutes enacted a decade or more in the past.
Fundamental changes in the economy and labor market (e.g., the
introduction of technology, changes in the size and composition of the
labor force, changes in the economy that impact the demand for labor,
etc.) would make it difficult, if not impossible, to separate those
changes from changes that resulted from enactment of the statute.
Moreover, the Department believes the economic impacts due to the
statutory changes to the FLSA are typically greatest in the short run
and diminish over time. This is due to labor markets determining the
most efficient way to adjust to the new requirements, and because the
Department believes many of the changes mandated by various revisions
to the FLSA are reflective of the natural evolution of the labor market
and would have become more common even in the absence of regulatory
changes. For example, as nominal wages rise overtime, the marginal
impact of a fixed minimum wage provision decreases, since it is less
binding on the market. Therefore, the impacts resulting from the
promulgation of the final regulations are not likely to be measurable.
In fact, the Department anticipates that this final rule will simply
enhance the Department's enforcement of, and the public's understanding
of, compliance obligations under the FLSA by replacing outdated
regulations with updated provisions that reflect current law.
1996 and 2007 Amendments to the FLSA Minimum Wage
The current FLSA regulations reference the minimum wage in several
places, some referring to the 1981 minimum wage of $3.35 and others
referring to the 1991 minimum wage of $4.25. To eliminate the current
inconsistencies between the FLSA regulations and the statute, the
Department revised the regulations to refer to the statutory minimum
wage provision rather than a specific minimum wage. Since the final
regulations do not include any reference to a specific minimum wage,
the Department believes they do not impose the burden of increasing the
minimum wage from the levels specified in the current regulations. That
burden was imposed by the statutory changes and is not derived from the
FLSA regulations. Thus, the Department concludes that the only
incremental effect of this final rule on the public from these changes
is possibly clearing up some confusion. This differentiates the minimum
wage provisions from many other rulemakings in which the Department is
given little statutory discretion, but nonetheless is still required to
update the CFR.
Small Business Job Protection Act of 1996
Sections 2101 through 2103 of Title II of SBJPA, entitled the
``Employee Commuting Flexibility Act of 1996,'' amended section 4(a) of
the Portal Act, 29 U.S.C. 254(a), to state that for travel time
involving the employee's use of employer-provided vehicles for
commuting at the beginning and end of the workday to be considered
noncompensable, the use of the vehicle must be ``conducted under an
agreement between the employer and the employee or the employee's
representative.'' The Department believes that since 1996 the labor
market has adjusted to this statutory change and that it would be very
difficult, if not impossible, to estimate the impact of this amendment.
It is likely that as part of their overall compensation package, some
employers and their employees have agreed to make the travel time
compensable while others have agreed to make it noncompensable. In
addition, since this provision simply clarifies that compensability
should be subject to an agreement, but does not otherwise restrict the
type of agreement employers and employees may reach, the Department
believes this provision by its nature does not impose a significant
burden on the public. Therefore, the Department concludes that the
final rule will have no measurable effect on the public except to
possibly clear up some confusion.
In addition, section 2105 of the SBJPA amended the FLSA effective
August 20, 1996, by adding section 6(g), 29 U.S.C. 206(g), which
provides that ``[a]ny employer may pay any employee [who has not
attained the age of 20] of such employer, during the first 90
consecutive calendar days after such employee is initially employed by
such employer, a wage which is not less than $4.25 an hour.'' The
Department believes that the labor market has also adjusted to this
change during the period since the enactment of the SBJPA. Although
youths would obviously want to receive the normal minimum wage rather
than the youth wage, some youths will decide to accept the lower youth
wage in order to gain experience in the labor market. Similarly,
although some employers may want to pay the lower youth wage, some may
find compliance with the added requirements associated with the youth
wage not to be worth the savings in wages. Thus, the Department
concludes that the final rule will have no measurable effect on the
public except to possibly clear up some confusion.
Agricultural Workers on Water Storage/Irrigation Projects
Public Law 105-78, 111 Stat. 1467 (Nov. 13, 1997), amended section
13(b)(12) of the FLSA, 29 U.S.C. 213(b)(12), by extending the exemption
from overtime pay requirements applicable to workers on water storage
and irrigation projects where at least 90
[[Page 18852]]
percent of the water is used for agricultural purposes, rather than
where the water is used exclusively for agricultural purposes. The
Department believes that the labor market has also adjusted to this
change during the period since the enactment of the amendment. Although
agricultural workers and workers employed on water storage/irrigation
projects listed in the exemption are not required to be paid time and
one-half for the hours worked in excess of 40 in a work week, their
overall compensation will be determined by market forces. In some
cases, employers and their employees will choose some form of premium
overtime pay (even though it is not mandated by the FLSA) while others
may choose a higher salary with no additional compensation for the
hours worked in excess of 40 in a week. In addition, this provision
applies to a relatively small part of the overall U.S. labor force;
thus, the Department believes any possible impacts due to this
exemption would likely not be substantial. Therefore, the Department
concludes that the final rule will have no measurable effect on the
public except to possibly clear up some confusion.
Certain Volunteers at Private Non-Profit Food Banks
Section 1 of the Amy Somers Volunteers at Food Banks Act, Public
Law 105-221, 112 Stat. 1248 (Aug. 7, 1998), amended section 3(e) of the
FLSA, 29 U.S.C. 203(e), by adding section (5) to provide that the term
``employee'' does not include individuals volunteering solely for
humanitarian purposes at private non-profit food banks and who receive
groceries from those food banks. 29 U.S.C. 203(e)(5). The Department
believes that the labor market has also adjusted to this change during
the period since the enactment of the amendment. The Department also
believes this regulatory change is not likely to cause an impact we
would consider significant, since its application is limited and it
simply clarifies that certain individuals may be considered volunteers.
Employees Engaged in Fire Protection Activities
In 1999, Congress amended section 3 of the FLSA, 29 U.S.C. 203, by
adding section (y) to define ``an employee in fire protection
activities.'' This change in definition impacts fire protection
employees who may be covered by the partial overtime exemption allowed
by Sec. 7(k) (29 U.S.C. 207(k)) or the overtime exemption for public
agencies with fewer than five employees in fire protection activities
pursuant to Sec. 13(b)(20) (29 U.S.C. 213(b)(20)). The Department
believes that these provisions apply to a relatively small proportion
of the labor market, and that the market has adjusted to this change
during the period since the enactment of the amendment. Thus, the
Department concludes that the final regulatory changes will have no
measurable effect on the public except to possibly clear up some
confusion by replacing outdated regulations with updated provisions to
reflect current law.
Stock Options Excluded From the Computation of the Regular Rate
The Worker Economic Opportunity Act enacted by Congress on May 18,
2000, amended Sec. Sec. 7(e) and 7(h) of the FLSA. 29 U.S.C. 207(e),
(h). In Sec. 7(e), a new subsection (8) adds ``[a]ny value or income
derived from employer-provided grants or rights provided pursuant to a
stock option, stock appreciation right, or bona fide employee stock
purchase program'' meeting particular criteria to the types of
remuneration that are excluded from the computation of the regular
rate. In Sec. 7(h), the amendment clarifies that the amounts excluded
under Sec. 7(e) may not be counted toward the employer's minimum wage
requirement under section 6, and that extra compensation excluded
pursuant to the new subsection (8) may not be counted toward overtime
pay under Sec. 7. The Department believes that the labor markets have
adjusted to this statute, which provides additional alternatives for
employee compensation, but does not otherwise limit or mandate the
overall levels of compensation owed to any category of worker. The
final regulatory changes merely help to correct any confusion in this
area.
Fair Labor Standards Act Amendments of 1974 and 1977
On April 7, 1974, Congress enacted an amendment to section
13(b)(10) of the FLSA, 29 U.S.C. 213(b)(10). Public Law 93-259, 88
Stat. 55 (1974). This amendment added an overtime exemption for
salespersons primarily engaged in selling boats (in addition to the
pre-existing exemption for sellers of trailers or aircraft). This
amendment also eliminated the overtime exemption for partsmen and
mechanics servicing trailers or aircraft. The Department believes that
these provisions apply to a relatively small proportion of the labor
market, and that the labor market has also adjusted to this change
during the long period since the enactment of the amendment. Although
salespersons primarily engaged in selling boats are not required to be
paid time and one-half for the hours worked in excess of 40 in a work
week, their overall compensation will be determined by market forces.
In some cases, employers and their employees may choose some form of
premium overtime pay (even though it is not mandated by the FLSA) while
others may choose a higher salary and commissions with no additional
compensation for the hours worked in excess of 40 in a week.
Similarly, the Department believes that the market has adjusted to
no exemptions for partsmen and mechanics servicing trailers or
aircraft. Although there may have been some short run effects related
to the statutory change, in the years since enactment of the statute,
employers and their employees have adjusted to the overtime
requirement. Thus, the Department concludes that the final regulatory
changes will have no measurable effect on the public except to possibly
clear up some confusion.
On November 1, 1977, Congress amended section 3(t) of the FLSA, 29
U.S.C. 203(t). Public Law 95-151, Sec. 3(a), 91 Stat. 1245. Section
3(t) of the FLSA defines the phrase ``tipped employee.'' The amendment
changed the conditions for taking the tip credit when making wage
payments to qualifying tipped employees under the FLSA. Prior to the
1977 amendment, the definition encompassed ``any employee engaged in an
occupation in which he customarily and regularly receives more than $20
a month in tips.'' The 1977 amendment raised the threshold in section
3(t) to $30 a month in tips. Although the mandatory paid wage ($2.13)
for tipped employees is below the full minimum wage, these workers must
still receive hourly compensation (cash wages plus tips) at least equal
to the minimum wage. Moreover, regardless of the minimum wage, if the
hourly compensation is too low employers will have trouble finding a
sufficient number of workers. The Department believes that the labor
market has also adjusted to this change during the period since the
enactment of the amendment and that the regulatory changes will have no
measurable economic effect on the public except to possibly clear up
some confusion.
Meal Credit Under Section 3(m)
The Department proposed to amend Sec. 531.30 to reflect that, with
the exception of meals, the employee's acceptance of a facility for
which the employer seeks to take a 3(m) credit must be voluntary and
uncoerced. The Department determined that the
[[Page 18853]]
proposed change would have no measurable economic impact. After
consideration of the comments received, the Department has determined
that further study of this issue is warranted, and therefore is not
adopting the proposal. Because the Department is not implementing this
proposal, there is no change to the status quo. As a result, the
Department does not believe that there will be any measurable economic
impact on the public.
Section 7(o) Compensatory Time Off
In 1987, the Department issued final regulations implementing a
detailed scheme for the accrual and use of compensatory time off under
Section 7(o). 29 U.S.C. 207(o). Section 7(o)(5) governs a public
employee's use of accrued compensatory leave. That section states:
An employee of a public agency which is a State, political
subdivision of a State, or an interstate governmental agency--(A)
who has accrued compensatory time off authorized to be provided
under paragraph (1), and (B) who has requested the use of such
compensatory time, shall be permitted by the employee's employer to
use such time within a reasonable period after making the request if
the use of the compensatory time does not unduly disrupt the
operations of the public agency.
29 U.S.C. 207(o)(5). As discussed supra, the Department proposed to
amend Sec. 553.25(c) to comport with appellate court decisions reading
the statutory language to state that once an employee requests
compensatory time off, the employer has a reasonable period of time to
allow the employee to use the time unless doing so would be unduly
disruptive. Additionally, the Department proposed to clarify the
employer's obligation when denying an employee's request for the use of
compensatory time off in Sec. 553.25(d).
In the NPRM, the Department stated its belief that the proposed
changes would eliminate some of the confusion over the use of
compensatory time off. The Department stated that it did not believe
the proposed changes altered the nature of compensatory time off rights
and responsibilities, but recognized that because of uncertainty as to
their ability to use compensatory time when requested, some employees
might choose not to accrue compensatory time off, thus resulting in
some slight economic impacts.
As already discussed in this preamble, since the publication of the
NPRM, another appellate court has addressed this issue and concluded
that the statutory language is unclear and the Department's regulations
requiring an employer to grant the specific time requested unless it
would unduly disrupt the agency's operations is reasonable. The
Department has therefore reexamined its proposal based on all the
appellate decisions and the public comments and has decided not to
finalize the proposed revision to section 553.25(c) and (d) and to
leave the current regulation unchanged consistent with its longstanding
position that employees are entitled to use compensatory time on the
date requested absent undue disruption to the agency. Because the
proposed changes will not be implemented, the Department does not
believe that there will be any measurable economic impact on the
public.
Fluctuating Workweek Method of Computing Overtime Under 29 CFR 778.114
The Department proposed to modify the regulation at 29 CFR 778.114
addressing the fluctuating workweek method of computing overtime
compensation for salaried nonexempt employees. The proposed regulation
provided that bona fide bonus or premium payments would not invalidate
the fluctuating workweek method of compensation, but that such payments
(as well as ``overtime premiums'') must be included in the calculation
of the regular rate unless they are excluded by FLSA sections 7(e)(1)-
(8). Paying employees bonus or premium payments for certain activities
such as working undesirable hours is a common and beneficial practice
for both employers and their employees.
For the reasons discussed earlier in this preamble, while the
Department continues to believe that the payment of bonus and premium
payments can be beneficial for employees in many other contexts, we
have concluded that unless such payments are overtime premiums, they
are incompatible with the fluctuating workweek method of computing
overtime under section 778.114. Therefore the final rule does not
implement this proposed provision. Because the proposed changes will
not be implemented, the Department does not believe that there will be
any measurable economic impact on the public.
1. Executive Orders 12866 and 13563 (Regulatory Review)
The Department does not believe that incorporating these statutory
amendments into the FLSA and Portal Act regulations will impose
measurable costs on private or public sector entities. The final rule
changes should not result in additional compliance costs for regulated
entities because employers have been obligated to comply with the
underlying statutory provisions for many years. With this action, DOL
is merely bringing up-to-date regulatory provisions that were
superseded years ago.
2. Regulatory Flexibility Act
Furthermore, because the final rule will not impose any measurable
costs on employers, both large and small entities, the Department has
determined that it would not have a significant economic impact on a
substantial number of small entities within the meaning of the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The Department
certified to the Chief Counsel for Advocacy to this effect at the time
the NPRM was published. The Department received no contrary comments
that questioned the Department's analysis or conclusions in this
regard. Consequently, the Department certifies once again pursuant to 5
U.S.C. 604 that the revisions being implemented in connection with
promulgating this final rule will not have a significant economic
impact on a substantial number of small entities. Accordingly, the
Department need not prepare a regulatory flexibility analysis.
VI. Unfunded Mandates Reform Act
This final rule has been reviewed in accordance with the Unfunded
Mandates Reform Act of 1995 (UMRA). 2 U.S.C. 1501 et seq. For the
purposes of the UMRA, this rule does not impose any Federal mandate
that may result in increased expenditures by State, local, or Tribal
governments, or increased expenditures by the private sector, of more
than $100 million in any year.
VII. Executive Order 13132 (Federalism)
The Department has reviewed this rule in accordance with the
Executive Order on Federalism (Executive Order 13132, 64 FR 43255, Aug.
10, 1999). This rule does not have federalism implications as outlined
in E.O. 13132. The rule does not have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government.
VIII. Executive Order 13175, Indian Tribal Governments
The Department has reviewed this rule under the terms of Executive
Order 13175 and determined it did not have ``tribal implications.'' The
rule does not have ``substantial direct effects on one or more Indian
tribes, on the relationship
[[Page 18854]]
between the Federal government and Indian tribes, or on the
distribution of power and responsibilities between the Federal
government and Indian tribes.'' As a result, no Tribal summary impact
statement has been prepared.
IX. Effects on Families
The Department certifies that this rule will not adversely affect
the well-being of families, as discussed under section 654 of the
Treasury and General Government Appropriations Act, 1999.
X. Executive Order 13045, Protection of Children
The Department has reviewed this rule under the terms of Executive
Order 13045 and determined this action is not subject to E.O. 13045
because it is not economically significant as defined in E.O. 12866 and
it does not impact the environmental health or safety risks of
children.
XI. Environmental Impact Assessment
The Department has reviewed this rule in accordance with the
requirements of the National Environmental Policy Act of 1969 (NEPA),
42 U.S.C. 4321 et seq., the regulations of the Council of Environmental
Quality, 40 CFR 1500 et seq., and the Departmental NEPA procedures, 29
CFR part 11, and determined that this rule will not have a significant
impact on the quality of the human environment. There is, thus, no
corresponding environmental assessment or an environmental impact
statement.
XII. Executive Order 13211, Energy Supply
The Department has determined that this rule is not subject to
Executive Order 13211. It will not have a significant adverse effect on
the supply, distribution or use of energy.
XIII. Executive Order 12630, Constitutionally Protected Property Rights
The Department has determined that this rule is not subject to
Executive Order 12630 because it does not involve implementation of a
policy ``that has taking implications'' or that could impose
limitations on private property use.
XIV. Executive Order 12988, Civil Justice Reform Analysis
The Department drafted and reviewed this final rule in accordance
with Executive Order 12988 and determined that the rule will not unduly
burden the Federal court system. The rule was: (1) Reviewed to
eliminate drafting errors and ambiguities; (2) written to minimize
litigation; and (3) written to provide a clear legal standard for
affected conduct and to promote burden reduction.
List of Subjects
29 CFR Part 4
Administrative practice and procedures, Employee benefit plans,
Government contracts, Labor, Law enforcement, Minimum wages, Penalties,
Wages.
29 CFR Part 516
Employment, Recordkeeping, Law enforcement, Labor.
29 CFR Part 531
Employment, Labor, Minimum wages, Wages.
29 CFR Part 553
Firefighters, Labor, Law enforcement officers, Overtime pay, Wages.
29 CFR Part 778
Employment, Overtime pay, Wages.
29 CFR Part 779
Compensation, Overtime pay.
29 CFR Part 780
Agriculture, Irrigation, Overtime pay.
29 CFR Part 785
Compensation, Hours of work.
29 CFR Part 786
Compensation, Minimum wages, Overtime pay.
29 CFR Part 790
Compensation, Hours of work.
Signed at Washington, DC, this 16th day of March 2011.
Nancy J. Leppink,
Acting Administrator, Wage and Hour Division.
For the reasons set forth above, the Department amends Title 29,
Parts 4, 516, 531, 553, 778, 779, 780, 785, 786, and 790 of the Code of
Federal Regulations as follows:
PART 4--LABOR STANDARDS FOR FEDERAL SERVICE CONTRACTS
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1. The authority citation for part 4 is revised to read as follows:
Authority: 41 U.S.C. 351 et seq.; 41 U.S.C. 38 and 39; 5 U.S.C.
301; Pub. L. 104-188, Sec. 2105(b); Pub. L. 110-28, 121 Stat. 112;
Secretary's Order 9-2009, 74 FR 58836 (Nov. 13, 2009).
Sec. 4.159 General minimum wage. [Amended]
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2. Amend Sec. 4.159 by removing the last sentence.
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3. Amend Sec. 4.167 by revising the twelfth sentence to the end, to
read as follows:
Sec. 4.167 Wage payments--medium of payment.
* * * The general rule under that Act provides, when determining
the wage an employer is required to pay a tipped employee, the maximum
allowable hourly tip credit is limited to the difference between $2.13
and the applicable minimum wage specified in section 6(a)(1) of that
Act. (See Sec. 4.163(k) for exceptions in section 4(c) situations.) In
no event shall the sum credited as tips exceed the value of tips
actually received by the employee. The tip credit is not available to
an employer unless the employer has informed the employee of the tip
credit provisions and all tips received by the employee have been
retained by the employee (other than as part of a valid tip pooling
arrangement among employees who customarily and regularly receive tips;
see section 3(m) of the Fair Labor Standards Act).
PART 516--RECORDS TO BE KEPT BY EMPLOYERS
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4. The authority citation for part 516 is revised to read as follows:
Authority: Sec. 11, 52 Stat. 1066, as amended, 29 U.S.C. 211.
Section 516.28 also issued under Pub. L. 104-188, Sec. 2105(b);
Pub. L. 110-28, 121 Stat. 112. Section 516.33 also issued under 52
Stat. 1060, as amended; 29 U.S.C. 201 et seq. Section 516.34 also
issued under Sec. 7, 103 Stat. 944, 29 U.S.C. 207(q).
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5. Amend Sec. 516.28 by revising the first sentence of paragraph
(a)(3) to read as follows:
Sec. 516.28 Tipped employees.
(a) * * *
(3) Amount by which the wages of each tipped employee have been
deemed to be increased by tips as determined by the employer (not in
excess of the difference between $2.13 and the applicable minimum wage
specified in section 6(a)(1) of the Act). * * *
* * * * *
PART 531--WAGE PAYMENTS UNDER THE FAIR LABOR STANDARDS ACT OF 1938
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6. The authority citation for part 531 is revised to read as follows:
Authority: Sec. 3(m), 52 Stat. 1060; sec. 2, 75 Stat. 65; sec.
101, 80 Stat. 830; sec. 29(B), 88 Stat. 55, Pub. L. 93-259; Pub. L.
95-151, 29 U.S.C. 203(m) and (t); Pub. L. 104-188, Sec. 2105(b);
Pub. L. 110-28, 121 Stat. 112.
[[Page 18855]]
Sec. 531.7 [Removed and Reserved]
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7. Remove and reserve Sec. 531.7.
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8. Amend Sec. 531.36 by revising paragraph (a) to read as follows:
Sec. 531.36 Nonovertime workweeks.
(a) When no overtime is worked by the employees, section 3(m) and
this part apply only to the applicable minimum wage for all hours
worked. To illustrate, where an employee works 40 hours a week at a
cash wage rate of at least the applicable minimum wage and is paid that
amount free and clear at the end of the workweek, and in addition is
furnished facilities, no consideration need be given to the question of
whether such facilities meet the requirements of section 3(m) and this
part, since the employee has received in cash the applicable minimum
wage for all hours worked. Similarly, where an employee is employed at
a rate in excess of the applicable minimum wage and during a particular
workweek works 40 hours for which the employee receives at least the
minimum wage free and clear, the employer having deducted from wages
for facilities furnished, whether such deduction meets the requirement
of section 3(m) and subpart B of this part need not be considered,
since the employee is still receiving, after the deduction has been
made, a cash wage of at least the minimum wage for each hour worked.
Deductions for board, lodging, or other facilities may be made in
nonovertime workweeks even if they reduce the cash wage below the
minimum wage, provided the prices charged do not exceed the
``reasonable cost'' of such facilities. When such items are furnished
the employee at a profit, the deductions from wages in weeks in which
no overtime is worked are considered to be illegal only to the extent
that the profit reduces the wage (which includes the ``reasonable
cost'' of the facilities) below the required minimum wage. Facilities
must be measured by the requirements of section 3(m) and this part to
determine if the employee has received the applicable minimum wage in
cash or in facilities which may be legitimately included in ``wages''
payable under the Act.
* * * * *
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9. Revise Sec. 531.37 to read as follows:
Sec. 531.37 Overtime workweeks.
(a) Section 7 requires that the employee receive compensation for
overtime hours at ``a rate of not less than one and one-half times the
regular rate at which he is employed.'' When overtime is worked by an
employee who receives the whole or part of his or her wage in
facilities and it becomes necessary to determine the portion of wages
represented by facilities, all such facilities must be measured by the
requirements of section 3(m) and subpart B of this part. It is the
Administrator's opinion that deductions may be made, however, on the
same basis in an overtime workweek as in nonovertime workweeks (see
Sec. 531.36), if their purpose and effect are not to evade the
overtime requirements of the Act or other law, providing the amount
deducted does not exceed the amount which could be deducted if the
employee had only worked the maximum number of straight-time hours
during the workweek. Deductions in excess of this amount for such
articles as tools or other articles which are not ``facilities'' within
the meaning of the Act are illegal in overtime workweeks as well as in
nonovertime workweeks. There is no limit on the amount which may be
deducted for ``board, lodging, or other facilities'' in overtime
workweeks (as in workweeks when no overtime is worked), provided that
these deductions are made only for the ``reasonable cost'' of the items
furnished. These principles assume a situation where bona fide
deductions are made for particular items in accordance with the
agreement or understanding of the parties. If the situation is solely
one of refusal or failure to pay the full amount of wages required by
section 7, these principles have no application. Deductions made only
in overtime workweeks, or increases in the prices charged for articles
or services during overtime workweeks will be scrutinized to determine
whether they are manipulations to evade the overtime requirements of
the Act.
(b) Where deductions are made from the stipulated wage of an
employee, the regular rate of pay is arrived at on the basis of the
stipulated wage before any deductions have been made. Where board,
lodging, or other facilities are customarily furnished as additions to
a cash wage, the reasonable cost of the facilities to the employer must
be considered as part of the employee's regular rate of pay. See
Walling v. Alaska Pacific Consolidated Mining Co., 152 F.2d 812 (9th
Cir. 1945), cert. denied, 327 U.S. 803.
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10. Remove the undesignated center heading above Sec. 531.50.
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11. Designate Sec. Sec. 531.50 through 531.60 as subpart D, and add a
heading for subpart D to read as follows:
Subpart D--Tipped Employees
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12. Revise Sec. 531.50 to read as follows:
Sec. 531.50 Statutory provisions with respect to tipped employees.
(a) With respect to tipped employees, section 3(m) provides that,
in determining the wage an employer is required to pay a tipped
employee, the amount paid such employee by the employee's employer
shall be an amount equal to--
(1) the cash wage paid such employee which for purposes of such
determination shall be not less than the cash wage required to be paid
such an employee on August 20, 1996 [i.e., $2.13]; and
(2) an additional amount on account of the tips received by such
employee which amount is equal to the difference between the wage
specified in paragraph (1) and the wage in effect under section
206(a)(1) of this title.
(b) ``Tipped employee'' is defined in section 3(t) of the Act as
follows: Tipped employee means any employee engaged in an occupation in
which he customarily and regularly receives more than $30 a month in
tips.
Sec. Sec. 531.51, 531.56, 531.57, 531.58 [Amended]
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13. In addition to the amendments set forth above, in 29 CFR part 531,
remove the words ``$20'' and add, in their place, the words ``$30''
wherever they appear in the following places:
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a. Section 531.51;
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b. Section 531.56, the section heading and paragraphs (a) through (e);
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c. Section 531.57; and
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d. Section 531.58.
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14. Amend Sec. 531.52 by revising the second sentence to the end of
the paragraph to read as follows:
Sec. 531.52 General characteristics of ``tips.''
* * * Whether a tip is to be given, and its amount, are matters
determined solely by the customer, who has the right to determine who
shall be the recipient of the gratuity. Tips are the property of the
employee whether or not the employer has taken a tip credit under
section 3(m) of the FLSA. The employer is prohibited from using an
employee's tips, whether or not it has taken a tip credit, for any
reason other than that which is statutorily permitted in section 3(m):
As a credit against its minimum wage obligations to the employee, or in
furtherance of a valid tip pool. Only tips actually received by an
employee as money belonging to the employee may be counted in
determining whether the person is a ``tipped employee'' within the
meaning of the Act and in applying the provisions of section 3(m) which
govern wage credits for tips.
[[Page 18856]]
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15. Amend Sec. 531.54 by adding two sentences to the end of the
paragraph to read as follows:
Sec. 531.54 Tip pooling.
* * * Section 3(m) does not impose a maximum contribution
percentage on valid mandatory tip pools, which can only include those
employees who customarily and regularly receive tips. However, an
employer must notify its employees of any required tip pool
contribution amount, may only take a tip credit for the amount of tips
each employee ultimately receives, and may not retain any of the
employees' tips for any other purpose.
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16. Revise Sec. 531.55 to read as follows:
Sec. 531.55 Examples of amounts not received as tips.
(a) A compulsory charge for service, such as 15 percent of the
amount of the bill, imposed on a customer by an employer's
establishment, is not a tip and, even if distributed by the employer to
its employees, cannot be counted as a tip received in applying the
provisions of section 3(m) and 3(t). Similarly, where negotiations
between a hotel and a customer for banquet facilities include amounts
for distribution to employees of the hotel, the amounts so distributed
are not counted as tips received.
(b) As stated above, service charges and other similar sums which
become part of the employer's gross receipts are not tips for the
purposes of the Act. Where such sums are distributed by the employer to
its employees, however, they may be used in their entirety to satisfy
the monetary requirements of the Act.
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17. Amend Sec. 531.56 by revising the last sentence in paragraph (d)
to read as follows:
Sec. 531.56 ``More than $30 per month in tips.''
* * * * *
(d) * * * It does not govern or limit the determination of the
appropriate amount of wage credit under section 3(m) that may be taken
for tips under section 6(a)(1) (tip credit equals the difference
between the minimum wage required by section 6(a)(1) and $2.13 per
hour).
* * * * *
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18. Revise Sec. 531.59 to read as follows:
Sec. 531.59 The tip wage credit.
(a) In determining compliance with the wage payment requirements of
the Act, under the provisions of section 3(m) the amount paid to a
tipped employee by an employer is increased on account of tips by an
amount equal to the formula set forth in the statute (minimum wage
required by section 6(a)(1) of the Act minus $2.13), provided that the
employer satisfies all the requirements of section 3(m). This tip
credit is in addition to any credit for board, lodging, or other
facilities which may be allowable under section 3(m).
(b) As indicated in Sec. 531.51, the tip credit may be taken only
for hours worked by the employee in an occupation in which the employee
qualifies as a ``tipped employee.'' Pursuant to section 3(m), an
employer is not eligible to take the tip credit unless it has informed
its tipped employees in advance of the employer's use of the tip credit
of the provisions of section 3(m) of the Act, i.e.: The amount of the
cash wage that is to be paid to the tipped employee by the employer;
the additional amount by which the wages of the tipped employee are
increased on account of the tip credit claimed by the employer, which
amount may not exceed the value of the tips actually received by the
employee; that all tips received by the tipped employee must be
retained by the employee except for a valid tip pooling arrangement
limited to employees who customarily and regularly receive tips; and
that the tip credit shall not apply to any employee who has not been
informed of these requirements in this section. The credit allowed on
account of tips may be less than that permitted by statute (minimum
wage required by section 6(a)(1) minus $2.13); it cannot be more. In
order for the employer to claim the maximum tip credit, the employer
must demonstrate that the employee received at least that amount in
actual tips. If the employee received less than the maximum tip credit
amount in tips, the employer is required to pay the balance so that the
employee receives at least the minimum wage with the defined
combination of wages and tips. With the exception of tips contributed
to a valid tip pool as described in Sec. 531.54, the tip credit
provisions of section 3(m) also require employers to permit employees
to retain all tips received by the employee.
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19. Amend Sec. 531.60(a) by removing the paragraph designation ``(a)''
and revising the first and third sentences to read as follows:
Sec. 531.60 Overtime payments.
When overtime is worked by a tipped employee who is subject to the
overtime pay provisions of the Act, the employee's regular rate of pay
is determined by dividing the employee's total remuneration for
employment (except statutory exclusions) in any workweek by the total
number of hours actually worked by the employee in that workweek for
which such compensation was paid. * * * In accordance with section
3(m), a tipped employee's regular rate of pay includes the amount of
tip credit taken by the employer per hour (not in excess of the minimum
wage required by section 6(a)(1) minus $2.13), the reasonable cost or
fair value of any facilities furnished to the employee by the employer,
as authorized under section 3(m) and this part 531, and the cash wages
including commissions and certain bonuses paid by the employer. * * *
* * * * *
PART 553--APPLICATION OF THE FAIR LABOR STANDARDS ACT TO EMPLOYEES
OF STATE AND LOCAL GOVERNMENTS
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20. The authority citation for part 553 is revised to read as follows:
Authority: Secs. 1-19, 52 Stat. 1060, as amended (29 U.S.C.
201-219); Pub. L. 99-150, 99 Stat. 787 (29 U.S.C. 203, 207, 211).
Pub. L. 106-151, 113 Stat. 1731 (29 U.S.C. 203(y)).
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21. Amend Sec. 553.210 by revising paragraph (a), removing paragraph
(b), and redesignating paragraph (c) as (b) to read as follows:
Sec. 553.210 Fire Protection Activities.
(a) As used in sections 7(k) and 13(b)(20) of the Act, the term
``any employee * * * in fire protection activities'' refers to ``an
employee, including a firefighter, paramedic, emergency medical
technician, rescue worker, ambulance personnel, or hazardous materials
worker, who--(1) is trained in fire suppression, has the legal
authority and responsibility to engage in fire suppression, and is
employed by a fire department of a municipality, county, fire district,
or State; and (2) is engaged in the prevention, control, and
extinguishment of fires or response to emergency situations where life,
property, or the environment is at risk.''
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22. In Sec. 553.212, revise paragraph (a) and the last sentence of
paragraph (b) to read as follows:
Sec. 553.212 Twenty percent limitation on nonexempt work.
(a) Employees engaged in law enforcement activities as described in
Sec. 553.211 may also engage in some nonexempt work which is not
performed as an incident to or in conjunction with their law
enforcement activities. The performance of such nonexempt work will not
defeat either the section 13(b)(20) or 7(k) exemptions unless it
exceeds 20 percent of the total hours worked by that employee during
the workweek or applicable work period. A person who spends more than
[[Page 18857]]
20 percent of his/her working time in nonexempt activities is not
considered to be an employee engaged in law enforcement activities for
purposes of this part.
(b) * * * In addition, the hours of work in the different capacity
need not be counted as hours worked for overtime purposes on the
regular job, nor are such hours counted in determining the 20 percent
tolerance for nonexempt work for law enforcement personnel discussed in
paragraph (a) of this section.
Sec. 553.215 [Removed and Reserved]
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23. Remove and reserve Sec. 553.215.
Sec. Sec. 553.221, 553.222, 553.223, 553.226, and 553.231 [Amended]
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24. Amend Sec. Sec. 553.221, 553.222, 553.223, 553.226 and 553.231 to
remove and add terms as follows. Remove the words ``firefighter'' or
``firefighters'' and add, in their place, the words ``employee in fire
protection activities'' or ``employees in fire protection activities,''
respectively, wherever they appear in the following places:
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a. Section 553.221(a), (d), and (g);
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b. Section 553.222(a) and (c);
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c. Section 553.223(a), (c), and (d);
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d. Section 553.226(c); and
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e. Section 553.231(b).
PART 778--OVERTIME COMPENSATION
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25. The authority citation for part 778 is revised to read as follows:
Authority: 52 Stat. 1060, as amended; 29 U.S.C. 201 et seq.
Section 778.200 also issued under Pub. L. 106-202, 114 Stat. 308 (29
U.S.C. 207(e) and (h)).
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26. Revise Sec. 778.110 to read as follows:
Sec. 778.110 Hourly rate employee.
(a) Earnings at hourly rate exclusively. If the employee is
employed solely on the basis of a single hourly rate, the hourly rate
is the ``regular rate.'' For overtime hours of work the employee must
be paid, in addition to the straight time hourly earnings, a sum
determined by multiplying one-half the hourly rate by the number of
hours worked in excess of 40 in the week. Thus a $12 hourly rate will
bring, for an employee who works 46 hours, a total weekly wage of $588
(46 hours at $12 plus 6 at $6). In other words, the employee is
entitled to be paid an amount equal to $12 an hour for 40 hours and $18
an hour for the 6 hours of overtime, or a total of $588.
(b) Hourly rate and bonus. If the employee receives, in addition to
the earnings computed at the $12 hourly rate, a production bonus of $46
for the week, the regular hourly rate of pay is $13 an hour (46 hours
at $12 yields $552; the addition of the $46 bonus makes a total of
$598; this total divided by 46 hours yields a regular rate of $13). The
employee is then entitled to be paid a total wage of $637 for 46 hours
(46 hours at $13 plus 6 hours at $6.50, or 40 hours at $13 plus 6 hours
at $19.50).
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27. Revise Sec. 778.111 to read as follows:
Sec. 778.111 Pieceworker.
(a) Piece rates and supplements generally. When an employee is
employed on a piece-rate basis, the regular hourly rate of pay is
computed by adding together total earnings for the workweek from piece
rates and all other sources (such as production bonuses) and any sums
paid for waiting time or other hours worked (except statutory
exclusions). This sum is then divided by the number of hours worked in
the week for which such compensation was paid, to yield the
pieceworker's ``regular rate'' for that week. For overtime work the
pieceworker is entitled to be paid, in addition to the total weekly
earnings at this regular rate for all hours worked, a sum equivalent to
one-half this regular rate of pay multiplied by the number of hours
worked in excess of 40 in the week. (For an alternative method of
complying with the overtime requirements of the Act as far as
pieceworkers are concerned, see Sec. 778.418.) Only additional half-
time pay is required in such cases where the employee has already
received straight-time compensation at piece rates or by supplementary
payments for all hours worked. Thus, for example, if the employee has
worked 50 hours and has earned $491 at piece rates for 46 hours of
productive work and in addition has been compensated at $8.00 an hour
for 4 hours of waiting time, the total compensation, $523.00, must be
divided by the total hours of work, 50, to arrive at the regular hourly
rate of pay--$10.46. For the 10 hours of overtime the employee is
entitled to additional compensation of $52.30 (10 hours at $5.23). For
the week's work the employee is thus entitled to a total of $575.30
(which is equivalent to 40 hours at $10.46 plus 10 overtime hours at
$15.69).
(b) Piece rates with minimum hourly guarantee. In some cases an
employee is hired on a piece-rate basis coupled with a minimum hourly
guaranty. Where the total piece-rate earnings for the workweek fall
short of the amount that would be earned for the total hours of work at
the guaranteed rate, the employee is paid the difference. In such weeks
the employee is in fact paid at an hourly rate and the minimum hourly
guaranty is the regular rate in that week. In the example just given,
if the employee was guaranteed $11 an hour for productive working time,
the employee would be paid $506 (46 hours at $11) for the 46 hours of
productive work (instead of the $491 earned at piece rates). In a week
in which no waiting time was involved, the employee would be owed an
additional $5.50 (half time) for each of the 6 overtime hours worked,
to bring the total compensation up to $539 (46 hours at $11 plus 6
hours at $5.50 or 40 hours at $11 plus 6 hours at $16.50). If the
employee is paid at a different rate for waiting time, the regular rate
is the weighted average of the 2 hourly rates, as discussed in Sec.
778.115.
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28. Amend Sec. 778.113 by revising paragraph (a) and the fifth
sentence of paragraph (b) to read as follows:
Sec. 778.113 Salaried employees--general.
(a) Weekly salary. If the employee is employed solely on a weekly
salary basis, the regular hourly rate of pay, on which time and a half
must be paid, is computed by dividing the salary by the number of hours
which the salary is intended to compensate. If an employee is hired at
a salary of $350 and if it is understood that this salary is
compensation for a regular workweek of 35 hours, the employee's regular
rate of pay is $350 divided by 35 hours, or $10 an hour, and when the
employee works overtime the employee is entitled to receive $10 for
each of the first 40 hours and $15 (one and one-half times $10) for
each hour thereafter. If an employee is hired at a salary of $375 for a
40-hour week the regular rate is $9.38 an hour.
(b) * * * The regular rate of an employee who is paid a regular
monthly salary of $1,560, or a regular semimonthly salary of $780 for
40 hours a week, is thus found to be $9 per hour. * * *
* * * * *
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29. Amend Sec. 778.114 by revising paragraph (b) to read as follows:
Sec. 778.114 Fixed salary for fluctuating hours.
* * * * *
(b) The application of the principles above stated may be
illustrated by the case of an employee whose hours of work do not
customarily follow a regular schedule but vary from week to week, whose
total weekly hours of work never exceed 50 hours in a workweek, and
whose salary of $600 a week is paid with the understanding that it
constitutes the employee's compensation, except for overtime
[[Page 18858]]
premiums, for whatever hours are worked in the workweek. If during the
course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the
regular hourly rate of pay in each of these weeks is $15.00, $16.00,
$12.00, and $12.50, respectively. Since the employee has already
received straight-time compensation on a salary basis for all hours
worked, only additional half-time pay is due. For the first week the
employee is entitled to be paid $600; for the second week $600.00; for
the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00
plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours
at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).
* * * * *
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30. Amend Sec. 778.200 by adding paragraph (a) (8) and revising
paragraph (b) to read as follows:
Sec. 778.200 Provisions governing inclusion, exclusion, and crediting
of particular payments.
(a) * * *
(8) Any value or income derived from employer-provided grants or
rights provided pursuant to a stock option, stock appreciation right,
or bona fide employee stock purchase program which is not otherwise
excludable under any of paragraphs (a)(1) through (a)(7) of this
section if--
(i) Grants are made pursuant to a program, the terms and conditions
of which are communicated to participating employees either at the
beginning of the employee's participation in the program or at the time
of the grant;
(ii) In the case of stock options and stock appreciation rights,
the grant or right cannot be exercisable for a period of at least 6
months after the time of grant (except that grants or rights may become
exercisable because of an employee's death, disability, retirement, or
a change in corporate ownership, or other circumstances permitted by
regulation), and the exercise price is at least 85 percent of the fair
market value of the stock at the time of grant;
(iii) Exercise of any grant or right is voluntary; and
(iv) Any determinations regarding the award of, and the amount of,
employer-provided grants or rights that are based on performance are--
(A) Made based upon meeting previously established performance
criteria (which may include hours of work, efficiency, or productivity)
of any business unit consisting of at least 10 employees or of a
facility, except that, any determinations may be based on length of
service or minimum schedule of hours or days of work; or
(B) Made based upon the past performance (which may include any
criteria) of one or more employees in a given period so long as the
determination is in the sole discretion of the employer and not
pursuant to any prior contract.
(b) Section 7(h). This subsection of the Act provides as follows:
(1) Except as provided in paragraph (2), sums excluded from the
regular rate pursuant to subsection (e) shall not be creditable toward
wages required under section 6 or overtime compensation required under
this section.
(2) Extra compensation paid as described in paragraphs (5), (6),
and (7) of subsection (e) of this section shall be creditable toward
overtime compensation payable pursuant to this section.
* * * * *
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31. Amend Sec. 778.208 by revising the first sentence to read as
follows:
Sec. 778.208 Inclusion and exclusion of bonuses in computing the
``regular rate.''
Section 7(e) of the Act requires the inclusion in the regular rate
of all remuneration for employment except eight specified types of
payments. * * *
PART 779--THE FAIR LABOR STANDARDS ACT AS APPLIED TO RETAILERS OF
GOODS OR SERVICES
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32. The authority citation for part 779 is revised to read as follows:
Authority: Secs. 1-19, 52 Stat. 1060, as amended; 75 Stat. 65;
Sec. 29(B), Pub. L. 93-259, 88 Stat. 55; 29 U.S.C. 201-219.
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33. Revise the undesignated center heading for Sec. Sec. 779.371 and
779.372 to read as follows:
Automobile, Truck and Farm Implement Sales and Services, and Trailer,
Boat and Aircraft Sales
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34. Amend Sec. 779.371 by revising the fifth sentence of paragraph (a)
to read as follows:
Sec. 779.371 Some automobile, truck, and farm implement
establishments may qualify for exemption under section 13(a)(2).
(a) * * * Section 13(b)(10) is applicable not only to automobile,
truck, and farm implement dealers but also to dealers in trailers,
boats, and aircraft. * * *
* * * * *
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35. Amend Sec. 779.372 by revising paragraphs (a), (b)(1)(ii), (b)(2),
and (c) to read as follows:
Sec. 779.372 Nonmanufacturing establishments with certain exempt
employees under section 13(b)(10).
(a) General. A specific exemption from only the overtime pay
provisions of section 7 of the Act is provided in section 13(b)(10) for
certain employees of nonmanufacturing establishments engaged in the
business of selling automobiles, trucks, farm implements, trailers,
boats, or aircraft. Section 13(b)(10)(A) states that the provisions of
section 7 shall not apply with respect to ``any salesman, partsman, or
mechanic primarily engaged in selling or servicing automobiles, trucks,
or farm implements, if he is employed by a nonmanufacturing
establishment primarily engaged in the business of selling such
vehicles or implements to ultimate purchasers.'' Section 13(b)(10)(B)
states that the provisions of section 7 shall not apply with respect to
``any salesman primarily engaged in selling trailers, boats, or
aircraft, if he is employed by a nonmanufacturing establishment
primarily engaged in the business of selling trailers, boats, or
aircraft to ultimate purchasers.'' This exemption will apply
irrespective of the annual dollar volume of sales of the establishment
or of the enterprise of which it is a part.
(b) * * *
(1) * * *
(ii) The establishment must be primarily engaged in the business of
selling automobiles, trucks, or farm implements to the ultimate
purchaser for section 13(b)(10)(A) to apply. If these tests are met by
an establishment the exemption will be available for salesmen, partsmen
and mechanics, employed by the establishment, who are primarily engaged
during the work week in the selling or servicing of the named items.
Likewise, the establishment must be primarily engaged in the business
of selling trailers, boats, or aircraft to the ultimate purchaser for
the section 13(b)(10)(B) exemption to be available for salesmen
employed by the establishment who are primarily engaged during the work
week in selling these named items. An explanation of the term
``employed by'' is contained in Sec. Sec. 779.307 through 779.311. The
exemption is intended to apply to employment by such an establishment
of the specified categories of employees even if they work in
physically separate buildings or areas, or even if, though working in
the principal building of the dealership, their work relates to the
work of physically separate buildings or areas, so long as they are
employed in a department which is functionally operated as part of the
dealership.
[[Page 18859]]
(2) This exemption, unlike the former exemption in section
13(a)(19) of the Act prior to the 1966 amendments, is not limited to
dealerships that qualify as retail or service establishments nor is it
limited to establishments selling automobiles, trucks, and farm
implements, but also includes dealers in trailers, boats, and aircraft.
(c) Salesman, partsman, or mechanic. (1) As used in section
13(b)(10)(A), a salesman is an employee who is employed for the purpose
of and is primarily engaged in making sales or obtaining orders or
contracts for sale of the automobiles, trucks, or farm implements that
the establishment is primarily engaged in selling. As used in section
13(b)(10)(B), a salesman is an employee who is employed for the purpose
of and is primarily engaged in making sales or obtaining orders or
contracts for sale of trailers, boats, or aircraft that the
establishment is primarily engaged in selling. Work performed
incidental to and in conjunction with the employee's own sales or
solicitations, including incidental deliveries and collections, is
regarded as within the exemption.
(2) As used in section 13(b)(10)(A), a partsman is any employee
employed for the purpose of and primarily engaged in requisitioning,
stocking, and dispensing parts.
(3) As used in section 13(b)(10)(A), a mechanic is any employee
primarily engaged in doing mechanical work (such as get ready
mechanics, automotive, truck, or farm implement mechanics, used car
reconditioning mechanics, and wrecker mechanics) in the servicing of an
automobile, truck or farm implement for its use and operation as such.
This includes mechanical work required for safe operation, as an
automobile, truck, or farm implement. The term does not include
employees primarily performing such nonmechanical work as washing,
cleaning, painting, polishing, tire changing, installing seat covers,
dispatching, lubricating, or other nonmechanical work. Wrecker mechanic
means a service department mechanic who goes out on a tow or wrecking
truck to perform mechanical servicing or repairing of a customer's
vehicle away from the shop, or to bring the vehicle back to the shop
for repair service. A tow or wrecker truck driver or helper who
primarily performs nonmechanical repair work is not exempt.
* * * * *
PART 780--EXEMPTIONS APPLICABLE TO AGRICULTURE, PROCESSING OF
AGRICULTURAL COMMODITIES, AND RELATED SUBJECTS UNDER THE FAIR LABOR
STANDARDS ACT
0
36. The authority citation for part 780 is revised to read as follows:
Authority: Secs. 1-19, 52 Stat. 1060, as amended; 75 Stat. 65;
29 U.S.C. 201-219. Pub. L. 105-78, 111 Stat. 1467.
0
37. Revise Sec. 780.400 to read as follows:
Sec. 780.400 Statutory provisions.
Section 13(b)(12) of the Fair Labor Standards Act exempts from the
overtime provisions of section 7 any employee employed in agriculture
or in connection with the operation or maintenance of ditches, canals,
reservoirs, or waterways, not owned or operated for profit, or operated
on a sharecrop basis, and which are used exclusively for supply and
storing of water, at least 90 percent of which was ultimately delivered
for agricultural purposes during the preceding calendar year.
0
38. Amend Sec. 780.401 by revising the first sentence of paragraph (a)
and paragraph (b) to read as follows:
Sec. 780.401 General explanatory statement.
(a) Section 13(b)(12) of the Act contains the same wording
exempting any employee employed in agriculture as did section 13(a)(6)
prior to the 1966 amendments. * * *
(b) In addition to exempting employees engaged in agriculture,
section 13(b)(12) also exempts from the overtime provisions of the Act
employees employed in specified irrigation activities. The effect of
the 1997 amendment to section 13(b)(12) is to expand the overtime
exemption for any employee employed in specified irrigation activities
used for supply and storing of water for agricultural purposes by
substituting ``water, at least 90 percent of which was ultimately
delivered for agricultural purposes during the preceding calendar
year'' for the prior requirement that all the water be used for
agricultural purposes. Prior to the 1966 amendments employees employed
in specified irrigation activities were exempt from the minimum wage
and overtime pay requirements of the Act.
* * * * *
0
39. Revise Sec. 780.406 to read as follows:
Sec. 780.406 Exemption is from overtime only.
This exemption applies only to the overtime provisions of the Act
and does not affect the minimum wage, child labor, recordkeeping, and
other requirements of the Act.
0
40. Revise Sec. 780.408 to read as follows:
Sec. 780.408 Facilities of system at least 90 percent of which was
used for agricultural purposes.
Section 13(b)(12) requires for exemption of irrigation work that
the ditches, canals, reservoirs, or waterways in connection with which
the employee's work is done be ``used exclusively for supply and
storing of water at least 90 percent of which was ultimately delivered
for agricultural purposes during the preceding calendar year.'' If a
water supplier supplies water of which more than 10 percent is used for
purposes other than ``agricultural purposes'' during the preceding
calendar year, the exemption would not apply. For example, the
exemption would not apply where more than 10 percent of the water
supplier's water is delivered to a municipality to be used for general,
domestic, and commercial purposes. Water used for watering livestock
raised by a farmer is ``for agricultural purposes.''
PART 785--HOURS WORKED
0
41. The authority citation for part 785 is revised to read as follows:
Authority: 52 Stat. 1060; 29 U.S.C. 201-219; 29 U.S.C. 254. Pub.
L. 104-188, 100 Stat. 1755.
0
42. Amend Sec. 785.7 by revising the first sentence to read as
follows:
Sec. 785.7 Judicial construction.
The United States Supreme Court originally stated that employees
subject to the act must be paid for all time spent in ``physical or
mental exertion (whether burdensome or not) controlled or required by
the employer and pursued necessarily and primarily for the benefit of
the employer and his business.'' * * *
0
43. Amend Sec. 785.9 by adding a sentence after the third sentence in
paragraph (a) to read as follows:
Sec. 785.9 Statutory exemptions.
(a) * * * The use of an employer's vehicle for travel by an
employee and activities that are incidental to the use of such vehicle
for commuting are not considered ``principal'' activities when meeting
the following conditions: The use of the employer's vehicle for travel
is within the normal commuting area for
[[Page 18860]]
the employer's business or establishment and the use of the employer's
vehicle is subject to an agreement on the part of the employer and the
employee or the representative of such employee. * * *
0
44. Amend Sec. 785.34 by adding a sentence after the first sentence to
read as follows:
Sec. 785.34 Effect of section 4 of the Portal-to-Portal Act.
* * * Section 4(a) further provides that the use of an employer's
vehicle for travel by an employee and activities that are incidental to
the use of such vehicle for commuting are not considered principal
activities when the use of such vehicle is within the normal commuting
area for the employer's business or establishment and is subject to an
agreement on the part of the employer and the employee or the
representative of such employee. * * *
0
45. Amend Sec. 785.50 by adding a sentence at the end of paragraph
(a)(2) to read as follows:
Sec. 785.50 Section 4 of the Portal-to-Portal Act.
* * * * *
(a) * * *
(2) * * * For purposes of this subsection, the use of an employer's
vehicle for travel by an employee and activities performed by an
employee which are incidental to the use of such vehicle for commuting
shall not be considered part of the employee's principal activities if
the use of such vehicle for travel is within the normal commuting area
for the employer's business or establishment and the use of the
employer's vehicle is subject to an agreement on the part of the
employer and the employee or representative of such employee.
* * * * *
PART 786--MISCELLANEOUS EXEMPTIONS AND EXCLUSIONS FROM COVERAGE
0
46. The authority citation for part 786 is revised to read as follows:
Authority: 52 Stat. 1060, as amended; 29 U.S.C. 201-219. Pub. L.
104-188, 100 Stat. 1755. Pub. L. 105-221, 112 Stat. 1248, 29 U.S.C.
203(e).
0
47. Revise the heading to part 786 to read as set forth above.
0
48. Add subpart G consisting of Sec. 786.300 to read as follows:
Subpart G--Youth Opportunity Wage
Sec. 786.300 Application of the youth opportunity wage.
Section 6(g) of the Fair Labor Standards Act allows any employer to
pay any employee who has not attained the age of 20 years a wage of not
less than $4.25 an hour during the first 90 consecutive calendar days
after such employee is initially employed by such employer. For the
purposes of hiring workers at this wage, no employer may take any
action to displace employees, including partial displacements such as
reducing hours, wages, or employment benefits. Any employer that
violates these provisions is considered to have violated section
15(a)(3) of the Act.
0
49. Add subpart H consisting of Sec. 786.350 to read as follows:
Subpart H--Volunteers at Private Non-Profit Food Banks
Sec. 786.350 Exclusion from definition of ``employee'' of volunteers
at private non-profit food banks.
Section 3(e)(5) of the Fair Labor Standards Act excludes from the
definition of the term ``employee'' individuals who volunteer their
services solely for humanitarian purposes at private non-profit food
banks and who receive groceries from the food banks.
PART 790--GENERAL STATEMENT AS TO THE EFFECT OF THE PORTAL-TO-
PORTAL ACT OF 1947 ON THE FAIR LABOR STANDARDS ACT OF 1938
0
50. The authority citation for part 790 is revised to read as follows:
Authority: 52 Stat. 1060, as amended; 110 Stat. 1755; 29 U.S.C.
201-219; 29 U.S.C. 254.
0
51. Amend Sec. 790.3 by adding a sentence at the end of paragraph
(a)(2) to read as follows:
Sec. 790.3 Provisions of the statute.
* * * * *
(a) * * *
(2) * * * For purposes of this subsection, the use of an employer's
vehicle for travel by an employee and activities performed by an
employee which are incidental to the use of such vehicle for commuting
shall not be considered part of the employee's principal activities if
the use of such vehicle for travel is within the normal commuting area
for the employer's business or establishment and the use of the
employer's vehicle is subject to an agreement on the part of the
employer and the employee or representative of such employee.
* * * * *
[FR Doc. 2011-6749 Filed 4-4-11; 8:45 am]
BILLING CODE 4510-27-P